What is the relationship between decreasing the Federal Government's Deficit and Bond Markets/Interest Rates?

Question

I am reading Bill Clinton's "My Life" and I don't understand how cutting the government's spending and budget deficits in his 1993 budget would decrease interest rates and influence the bond markets. Please explain.

Answer 1

When Clinton raised taxes and lowered spending it took money locked up as savings, in the form of Treasury securities, and took them out of Federal hands and dropped them into private hands via the credit markets.  In other words, the Federal Government, which is very inefficient, quit spending your money and handed back your savings and had people reinvest them in more efficient forms of savings and investment.  As such, interest rates fell, the stock market and bond market boomed and pay per person skyrocketed because money captured by the government was now in the hands of capitalists who could invest it in better machinery which required better workers who in turn could demand higher real wages.  Everyone won because the Clinton tax hike and budget cut took money from the inefficient and gave it to the efficient.