The Bond Vigilantes Slap Down Trump. Should We Be Celebrating?

"I used to think that if there was reincarnation, I wanted to come back as the President or the Pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody." —James Carville, 1993

Are you up in arms about the existential threat Trump poses to democracy—about how he stomps on the courts, usurps the congressional power of the purse, recklessly fires government workers, kisses up to autocrats, attacks free speech, and deports immigrants on trumped-up charges? Isn't Trump the new face of fascism?

Maybe, but the bond market vigilantes showed us what undemocratic power really looks like.

The bond market is gigantic, $140 trillion worth of interest-bearing IOUs. Every nation and every large institution holds government bonds. And the most sought-after bonds come from the U.S. Treasury, especially the 10-year Treasury note, which has for a long time been considered as risk-free as any investment can be.

While tens of millions of people and institutions own government bonds, the vigilantes, a subset of bond traders spread across the world, place bets on whether they expect bond prices will be going up or down. Their buying and selling guides market prices higher or lower. No one knows how many vigilantes it actually takes to move the market, but it’s not just a few people in a back room somewhere.

Wherever they are located, the vigilantes share an understanding—a profound group-think—of what makes for strong government bonds. If the large holders of capital in a particular country are threatened, the vigilantes demand a higher interest rate on existing bonds, thereby putting downward pressure on the value of those bonds. They are demanding a higher interest rate because they believe the bonds, due to what they believe are bad government policies, just got riskier. (By definition, if the interest rates go up, the price of existing bonds goes down.)

The decline in the value of these bonds immediately inflicts financial pain on millions upon millions of bondholders all over the world. The message is impossible to ignore.

These vigilantes are not anti-government populists. What they think harms the economy is usually the opposite of what the rest of us believe is good. They are anti-populists who care only about protecting the interests of capital and maximizing their own profits. They punish the bonds of countries that want to increase social spending, improve worker wages, and curtail corporate power, even if that means undermining the policies established by duly elected officials. Democracy is irrelevant, if not a hindrance, to bond vigilantes. They are the global enforcers of runaway inequality.

We saw their power at work in 2024, when the vigilantes turned Liz Truss into the shortest-serving prime minister ever of the United Kingdom. By planning tax cuts that would be paid for with government debt, hoping for a post-Brexit economic stimulus, the vigilantes believed she would hurt the value of British bonds and the British pound, so they started a run on both. Truss reversed course and then resigned after only 45 days in office.

Similarly, the vigilantes, in effect, told Trump this week he could not continue with his poorly thought-out Liberation Day tariffs. They demonstrated disapproval by crashing the value of U.S. government bonds, and evaporating, at least temporarily, trillions of dollars of wealth. Even Trump, who believes he can browbeat Congress and intimidate the courts, was forced to retreat.

The vigilantes said kneel, and he did.

"Their goal is to make as much money as possible and damned be any government policy that gets in the way. That may not be fascism, but it sure isn't democracy."

Let's consider what this means. An unelected group of people, who control the investments of millions of wealthy people and institutions, has apparent veto power over elected officials the world over. The vigilantes have become an unelected branch of every government on the planet, with the supreme power to control economic policy.

How did high finance amass so much power? Was this part of a plan? Or of a coup?

After the 1929 stock market crash, Franklin Roosevelt saw how the financial barons at the time manipulated markets and were unable to police themselves. Left to their own devices, Roosevelt was sure they would crash the economy again and extend the Depression indefinitely. Therefore, he determined, the power of finance had to be constrained.

The New Deal crafted a set of stiff regulations that prevented the large financial institutions of the time from running wild, including the Glass-Steagall Banking Act (1933), the Securities Act of 1933, the Securities Exchange Act (1934), the Chandler Bankruptcy Act of 1938, the Securities and Exchange Commission founding in 1934, the Investment Company Act (1940), along with a myriad of specific rules that greatly curtailed the power of Wall Street, like severe limitations on a company's ability to buy back its own shares of stock to manipulate its price.

The Bretton Woods Agreement (1944) further limited the amount of currency that could be transferred in and out of a given country. These regulations were so effective that for the next 25 years there were no financial crashes and, not coincidentally, Wall Street compensation was no higher than the wages of comparable personnel in the non-financial sector.

But when the Bretton Woods Agreement was dissolved in 1971, money flowed rapidly around the world. By the 1980s all caution was thrown to the wind, Wall Street's shackles were removed, and banks and traders once again ran wild with dangerous new financial maneuvers that finally crashed the economy in 2008. (Please see Wall Street's War on Workers.)

At that point, however, the toothpaste was out of the tube. Global bond markets, based mostly on growing U.S. government debt, had grown to mammoth proportions. The vigilantes had escaped the clutches of regulators and now ruled supreme over government bonds, and hence government policies.

As early as 1972, James Tobin, the Nobel laureate, understood that the deregulation of currency trades would lead financial market players to rapidly move money in and out of economies. These rapid and unconstrained capital flows would essentially exercise a veto over sovereign government policies intended to improve the well-being of its citizens at the expense of capital. Tobin recommended that governments "throw some sand in the wheels of our excessively efficient international money markets."

That sand became known as the Tobin tax, a small levy on every foreign exchange transaction. The only problem? It hasn't happened yet, and you can be sure that if it ever were enacted the bond vigilantes would stomp all over it.

Those vigilantes may have saved us this week from ill-conceived tariffs, but they are not on our side, nor do they care about democracy. Their goal is to make as much money as possible and damned be any government policy that gets in the way.

That may not be fascism, but it sure isn't democracy.