Though it is a bit above our purview, it is important to understand the dynamics of central banking and how they impact the level of debt that will be available for governmental entities. The more candy available on the shelf, the higher the temptation for municipalities to get a temporary sugar high. Bonds for everyone!

A few relevant quotes from the linked article:

  • "There is virtually no chance that the structural issues at the heart of the Trump administration's dispute with China will ever be resolved once and for all. Indeed, if you read Elizabeth Warren's trade plan, it is entirely possible to argue that although Warren would likely be easier for other nations to deal with on a personal basis, her actual terms would be even more onerous than Trump's. You can probably make a similar argument with regard to Bernie Sanders."
  • "The idea is that as central banks onboard government debt, it theoretically de-risks the market, reducing the odds of tantrums, and making "higher sovereign debt levels attainable," to quote BofA."
  • "But, paradoxically, populism also has what might be the only viable prescription when it comes to making a serious run at reviving global growth and engineering robust expansions. That prescription involves pairing monetary policy with fiscal stimulus in MMT-esque fashion ("MMT" is, of course, the acronym for Modern Monetary Theory). Here's BofA's Martin one more time:

In fact, low rates and QE will become essentials in helping governments create ‘fiscal space’ and manage the transition to higher debt levels. At the extreme [they may] participate in ideas such as MMT, in our view."

  • "While Kelton said central banks won’t admit to having lost their independence, the bottom line is that "you’re going to see central banks responding in more accommodative, coordinating ways." If you're in the deflation camp and she's even half right, you're going to be all the way wrong."

Expect greater temptation in the future for local governments to leverage themselves into ever-steeper amounts of debt.