When you hear about interests rates, it’s usually an announcement that they’ve been raised, lowered, or left unchanged. What many laypeople fully understand is it’s not the interest rate on a T-note that changes, it’s the price of the bond itself. The interest rate, what stock-jocks call the coupon, is fixed. What determines the interest rate is what people are willing to pay for that bond. A bond is simply a loan, and the big factors on a loan is how safe is it, when do you get the principal back, and what rate does it pay? The less safe the lower the price people are willing to pay and, since the coupon/interest rate is fixed, the more interest it yields. Obviously, if the loan is going to miss an interest rate or if the agency issuing it is about to default, it’s less safe.
US bonds are considered among the safest investments in the world, people are willing to pay top dollar for a safe investment, but if that changes significantly it crashes the bond market. A crashing bond market crashes pretty much everything else, even currency stashed in a matress might cease to have value. Which is why the Wall Street Journal is telling Teaparty Republicans to STFU about defunding the government:
Perhaps the only war strategizing more inept than President Obama’s on Syria are GOP plans for the budget hostilities this autumn. Republicans are fracturing over tactics, and even over the nature of political reality, which may let Mr. Obama outwit them like a domestic Vladimir Putin.The latest GOP internal dispute is over a continuing resolution to fund the government at sequester-spending levels. The current CR runs out at the end of the month, and about 40 to 50 House Republicans (out of 233) want to attach a rider that either delays or defunds the Affordable Care Act for a year and leaves everything else running.
Just as conservatives have cooked up a whole branch of pseudoscience supporting creationism or the idea that no one gets pregnant from rape, they are now busy telling themselves and their grassroots supporters that the threat of default either wouldn’t hurt anything, or would actually help the economy in some hare-brained way. But the WSJ understands something the Teatards don’t: the people who will decide what bonds are worth are not motivated by delusional thinking, they’re looking at risk and arithmetic; they’re making an investment.
If the bond market crashes completely, the WSJ and the entire Wall Street edifice it depends on collapses faster than the Confederate dollar.
That would be bad for the working class and poor. But it would be catastrophic for the investment class the Journal and much of the GOP was cultured to serve. Bodies would fall by the hundreds from luxury apartments and corner offices if the bond market flat-lined. The staff of the WSJ knows who signs their paychecks and reads their site. And they’re scared because the Teaparty wing of the GOP may not care at all and may really do it this time.