The Education of Bill Clinton

Economists and traders say the prospects for increased government borrowing needed for either McCain or Obama to enact their proposals will again lead investors to shun Treasuries and push up interest rates. Ten-year yields are forecast to reach 4.63 percent by the end of 2009, according to a Bloomberg survey of 68 economists...

Leon Panetta, Clinton's first budget director, says that ``if we continue to run these large deficits, not only bond traders but the securities markets are suddenly going to awaken with concern about whether or not the administration is doing anything to discipline the budget.''

If that happens, Panetta says, ``it's just a matter of time before they start to put pressure on a new administration.''

Clinton's experience shows what such pressure can do to a president's agenda. Promises of spending on education, public works and a middle-class tax cut fell by the wayside as advisers led by Robert Rubin, who later became Treasury secretary, convinced the new president the best thing he could do for the economy was to show investors his resolve on fiscal discipline.

``You mean to tell me that the success of the economic program and my re-election hinges on the Federal Reserve and a bunch of f**** bond traders?'' Clinton raged at aides, according to journalist Bob Woodward's book, ``The Agenda.''

Clinton's deficit-reduction policies resulted in a sustained economic boom that generated budget surpluses from his last four budgets and helped pull 10-year yields, which topped 8 percent in 1994, below 5 percent by the late 1990s.

Just as Bush benefited from the achievements of the Clinton years, gaining room to pursue his initial tax-cut agenda, either McCain or Obama will likely be under immediate pressure to fix the problems left over from Bush.

``Government borrowing is annoyingly high,'' says Jeffrey Gundlach, chief investment officer at Los Angeles-based TCW Group, Inc., which has $145 billion under management. ``In the long term, we're looking at rising yields,'' says Gundlach, 48, who has managed bond funds for more than 20 years.

-Bond Vigilantes Who Gave Bush a Pass May Ambush Obama or McCain