According to BI when you hear the word
"vigilantes" in financial markets, it's usually referring to
"bond vigilantes" the quasi-mythical creatures that drive interest
rates up, and force governments and their central banks to either cut spending
or tighten monetary policy.
The debate about the existence of vigilantes is tired, but
it's a useful term in the sense that some market movements do inspire policy
responses.
In Europe, high rates for government borrowing have prompted
all kinds of action on the part of official figures. In the US it's been ages since anyone cared
about high interest rates, or saw them as a threat. But the stock market is a different story,
and there's this belief that if the Fiscal Cliff situation got too bad, then
the market would tank, and that would force a resolution....
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