Published:

Have you heard of the ‘sheeple’? It’s a made-up word used to express the thought that people are sheep, easily led astray by wicked politicians.

But what if it isn’t just the general public who get fleeced? What if it also applies to the markets and in particular the bond markets through which governments finance their deficits?

It’s a thought that comes to mind when reading Layna Mosley’s article on the bond markets in Foreign Affairs

  • "Since the 1990s, financial markets have not really cared about government’s individual policy decisions. Then, as now, purchasers of foreign debt simply wanted assurance that governments would repay their debt and were content to ignore exactly how governments managed to do so."  

This helps explain how the governments of the Eurozone got away with it for so long: 

  • "It was investors’ very agnosticism that made the EMU so beneficial for members to begin with: governments that adopted the euro were considered nearly equal when it came to currency and inflation risk."

But what about the fundamental flaws in the design of the Eurozone? Surely, these were plain for all see from the outset? Well, yes, they were, but these are matters of policy and those who operate the money markets are mostly interested in the politics – which isn’t quite the same thing.

You see, it’s not so much what the politicians say that matters, but the way that they say it. Thus if the leaders of the Eurozone can talk about a rescue plan with sufficient conviction, that alone could keep the show on the road for some time yet. Layna Mosley puts it this way: 

  • "Whether Europe’s leaders ultimately agree on greater fiscal restraints, on an economic stimulus program, or on some intermediate course, agreement among governments is key. Such an agreement, almost regardless of its substance, would allow governments to lead markets, rather than the reverse."  

Leftwingers often complain about governments being at the mercy of market forces. In fact, governments are remarkably good at manipulating the allocation of private capital – and misuse that power to spectacular effect.

So, one final thought: If having the wool pulled over their eyes turns people into sheeple, then doesn’t the same thing turn markets into ‘sharkets’?

Comments are closed.