Bond Vigilantes (Myth)

Bond vigilantes refer to investors who attempt to discipline government fiscal policy by selling bonds to drive up interest rates, but this mechanism cannot constrain sovereign currency issuers whose central banks can purchase bonds at any yield.

The bond vigilante myth suggests that financial markets can force sovereign governments into fiscal austerity by selling government bonds and driving up interest rates. This narrative has been used to justify spending cuts and reject fiscal stimulus. However, MMT shows this threat is powerless against governments that issue their own currency. When a central bank has the operational capacity to purchase government securities, it can set interest rates at whatever level it chooses, regardless of private market sentiment. Bond vigilantes may create temporary volatility, but they cannot ultimately force a sovereign currency issuer to accept higher borrowing costs or default on obligations denominated in its own currency.

"Bond vigilantes successfully attacked countries like Greece during the eurozone crisis" - Greece uses the euro, not its own sovereign currency, so it lacks monetary sovereignty and central bank support.

"High government debt will inevitably lead to bond vigilante attacks" - Debt-to-GDP ratios are largely irrelevant for sovereign currency issuers since default is operationally impossible.

"The central bank buying bonds will always cause hyperinflation" - Bond purchases affect interest rates, not the money supply directly; inflation depends on real resource constraints, not bond market dynamics.