More than three decades ago, James Carville, political adviser to Bill Clinton, made what became a famous quip about the power of bond markets to “intimidate everybody”. Clinton had entered office promising to transform the US’s infrastructure, only to be told that big public spending would spook investors, drive up borrowing costs, and sink his presidency.
Today, if there is one thing that Britain has in common with Clinton’s US, it’s that the bond markets loom large again in political discussion. Clinton shelved large-scale investment plans and slashed welfare in the belief that doing so would prove his economic credibility with investors. Likewise, in Britain, ever since Liz Truss’s botched mini-budget, politicians have continually pointed to the risk of bond market revolt as the reason why public investment can’t be afforded.
