Standard Theory

One of the bond market’s most committed bulls has a few cautionary words for those putting their faith in fiscal policy as the new engine of U.S. growth and prosperity.Expanding U.S. debt is weighing on the economy and additional government spending will exacerbate the problem, according to Hoisington Investment Management Co. Government debt is likely to grow faster than gross domestic product over the coming years, Van Hoisington and Lacy Hunt wrote in their quarterly outlook report. And contrary to a widely held view, they see Treasury yields being dragged lower by stagnating growth rather than higher on the back of increased bond supply.“This increased debt level will weaken economic activity, thus inflation, pushing long-term yields lower, thereby continuing the now almost three-decade long trend to lower long-term Treasury yields,” Hoisington and Hunt wrote.

The concept is that paying interest charges is a pain in the ass, and frankly we have zero number of voters who really want to pay those charges.  That is standard theory, 'pain in the ass'.