As Speaker Mike Johnson and House Republicans struggled to pass their budget-busting tax-and-spending bill last week-thay eventually got it through by a single vote-President Bill Clinton met with aides in February,1993,in the Roosevelt Room of the white House,to finalize an economic plan to present to congress.

In November of the previous year, Clinton won the election on a promise to boost a sluggish economy, blaming the republican incumbent, George H. W. Bush. During his campaign, Clinton advocated for increased spending on education, infrastructure, and scientific research. However,in the February meeting,Clinton’s economic advisors,including Bob Rubin,head of the National Economic Council,and Lloyd Bentsen,the treasury Secretary,proposed significant budget cuts. They believed this would reassure investors about the budget deficit (financed by Treasury bonds), leading to higher bond prices and lower borrowing rates. (Bond prices rise as interest rates fall.) In Bob Woodward’s 1994 book “The Agenda,” Clinton’s political operatives were frustrated by the President’s embrace of fiscal austerity. Howard Paster,a former lobbyist for the United Auto Workers union,appointed by Clinton to liaise with Congress,questioned,”How many votes does the fucking bond market have? We’ve got to win votes on the hill,not Wall street.”

Despite Paster’s objections, the deficit hawks prevailed. In August,1993,Congress passed a tax-and-spending bill aimed at reducing the deficit by $500 billion over five years. Clinton’s electoral strategist James Carville famously observed, “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.”

Debt Downgrade and Market Reaction

Evidently, not everybody is intimidated. On Friday, May 16th, moody’s Ratings downgraded the credit rating of the U.S. government, leaving the country without a triple-A rating at a major agency for the first time in over a century. Moody’s stated that “federal debt has risen sharply due to continuous fiscal deficits” over the past decade,with “federal spending has increased while tax cuts have reduced government revenues.” The House tax bill, including extending the Republicans’ 2017 tax cuts and eliminating taxes on tips and overtime, would further increase the deficit and debt. The Committee for a Responsible Federal Budget estimates it would add $3.1 trillion to the national debt in the next ten years.

“the market’s gonna bring discipline to this thing one way or the other. That’s the only way. It’s always the bond market that brings the discipline.”

Following the Moody’s downgrade, bond prices declined, and market interest rates rose. Last Wednesday,at a Treasury Department auction of long-term bonds,investors demanded higher yields. Despite these developments, House Republicans, at Donald Trump‘s behest, passed their One Big Stunning Bill Act.As the voting occurred on Thursday morning, bond prices fell, later recovering somewhat, but the situation remains unresolved.

Senate Scrutiny and market Discipline

As the senate considers the bill, with Republican leaders aiming for passage by July 4th, some Wall Street analysts predict market-driven changes. A recent precedent exists: In early April, Trump’s “Liberation Day” proclamation of high tariffs on over a hundred countries caused a stock market sell-off and a bond yield spike, signaling financial system distress.Trump then suspended most of his “reciprocal” tariffs for ninety days. Tim Magnusson, the chief investment officer at Garda Capital Partners, told Bloomberg last week, “The market’s gonna bring discipline to this thing one way or the other. That’s the only way. It’s always the bond market that brings the discipline.”