Bob Woodward is undoubtedly one of the most famous, yet controversial, “journalists” of the contemporary era.
Some people–mostly those on the political Left–think he’s a hero, a brave and gritty reporter who put it all on the line to bring down a corrupt president.
Others–mostly those of us who adhere a bit closer to reality–think that the word journalist deserves the scare quotes above when used to describe Woodward.
More than anything, Woodward is a “regime scribe,” a tool of the political establishment whose biggest and best-known stories were hand-fed to him by disgruntled government insiders looking to hurt their political opponents. And yes, it all started with Mark Felt and Watergate.
All of that said, Woodward occasionally wrote some pretty good stories. Sure, they were spoon-fed to him, and they were meant to advance the narrative the ruling class wanted advanced. But they were still interesting and instructive.
One such story was Woodward’s description of the early Bill Clinton presidency and pre-presidency, as told in his 1994 book “The Agenda.”
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Among other things, Woodward recounted the mugging that Clinton received at the hands of reality in January 1993, a few weeks before assuming office.
A good part of that mugging came courtesy of Robert Rubin, who had been the co-chairman of Goldman Sachs until he left the firm to work in Clinton’s administration, first as the director of the National Economic Council and then as the treasury secretary.
The opening scene features a gathering of the soon-to-be-installed Clinton economic team at the Governor’s Mansion in Little Rock on the morning of Jan. 7, 1993.
Rubin, whom Woodward describes as the “master of ceremonies” of the meeting, begins the conversation by citing some of the more dire predictions about the coming explosion in the budget deficit.
Laura Tyson, who was soon to become the chairwoman of the Council of Economic Advisors (and then the director of the National Economic Council), follows with some very gloomy remarks about prospects for economic growth, noting the exacerbating impact that ballooning deficits would have.
Next up was Alan Blinder, who joined Tyson at the CEA and later became the vice chairman of the Federal Reserve and an economics professor at Princeton. Blinder introduced a theme that would haunt the early days of the Clinton administration.
Blinder’s job was to make the case to the president-elect that his spending plans would be dead on arrival. The effects of excessive spending on the deficits would be economically destructive and further reduce economic growth. As a result, spending would almost certainly threaten the entire platform of the presidency and could very well make Clinton a one-term president. Debt markets, Blinder pointed out, could be remarkably flexible and remarkably accommodating. Until they weren’t. And they were nearing that point.
This enraged Clinton:
At the president-elect’s end of the table, Clinton’s face turned red with anger and disbelief. “You mean to tell me that the success of the program and my reelection hinges on the Federal Reserve and a bunch of f— bond traders?” he responded in a half–whisper.
Nods from his end of the table. Not a dissent.
Later, just three weeks after the inauguration, Clinton and his economic advisers gathered again, this time in the White House’s Roosevelt Room. They were joined by Howard Paster, recently selected by Clinton to be his liaison to Congress. Like the president before him, Paster was flustered and frustrated by the economics team’s insistence that Wall Street would determine the course of the early presidency. In a debate over the proper size of the administration’s deficit-reduction plan, Paster broke:
“How many votes does the f— bond market have?” Paster asked. “We’ve got to win votes on the Hill, not Wall Street. If it looks like Jimmy Carter’s water projects all over again, we’re dead”. . .
Paster was wrong, of course. The bond market had all the votes.
Once the “Bond Vigilantes” determined that spending was too high or that deficit reduction plans were too low, they would be relentless in forcing the matter. They would win, in time, as they always did.
This past Wednesday, the gross national debt topped $40 trillion for the first time. The inimitable Steve Moore and his colleagues at Committee to Unleash Prosperity concede that this is an eye-popping number, but also point out that it’s not quite as bad as it sounds.
The debt-to-GDP ratio is as high as it’s ever been in peacetime, but the debt-to-wealth ratio is significantly lower and suggests that the debt isn’t yet a crisis.
That’s a fair assessment and one worth keeping in mind. Nevertheless, the ultimate judgment on the debt’s importance will be rendered not by economists or political analysts. It will be rendered by the debt markets, just as it was in 1993.
The other day–before the debt officially topped $40 trillion–Ed Yardeni, the long-time Wall Street economist and strategist, warned that the “Bond Vigilantes” were beginning to stir.
He would know, having coined that term more than four decades ago, when he was the chief economist at what was then Prudential-Bache Securities.
You may note that even the debt-to-income ratio was much lower in 1983, when Yardeni needed a term to describe the disciplinary potential of the bond markets.
And while that ratio was slightly higher a decade later, when the Vigilantes ruined Bill Clinton’s Baby Boomer dreams, it was still considerably lower then than it is today. All of which is to say that if the Vigilantes are, indeed, stirring, they have just cause.
According to Yardeni, the Bond Vigilantes have been most active recently in foreign markets, Japan and Great Britain, in particular. As long as the American government’s spending binge continues, however, the risk that they could turn their full attention to our markets continues to grow as well.
President Donald Trump still has more than 60% of his term remaining. If he doesn’t want the bond markets to dictate his agenda, as they did Clinton’s, then he should think about how best to placate the Vigilantes.
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