Nothing surprises me about this. If you accept that bond markets must be obeyed, as they do, of course they think they must jump to the City’s tune.
They accept the rule of the bond market because they refuse to accept QE cancels government debt, when it undoubtedly does, and that this puts government money creation in the economic driving seat.
No one does say that bond markets must be obeyed. What they do say is that bond markets – as with any and every other market – will react to what government does. Which means that if you do the things which lead to bond market reactions that you don’t like then perhaps you need to reconsider doing those things.
Perhaps the most important of these reactions is that you can only control – at best – two of three things. The size of the money supply, inflation and the exchange rate. You can’t, at the same time, control all of them.
The easiest proof of this is to think about the gold standard. That – clearly – controlled the exchange rate. But as everyone also knows that meant that you couldn’t control the money supply. Therefore and also inflation wasn’t something under domestic control.
We can also make this a wider point. The people will react – not just markets, which is the interaction of people – to what government does. Institute a poll tax and get riots. That’s just the people reacting to what government has done in instituiting a poll tax. Shrug.
In this wider sense there’s no difference between riots in Trafalgar Square and those in bond dealing rooms. Do this, that’s the reaction, because that’s what folk do.
Fat Contollerism doesn’t work.