While I don't agree with everything you said, you are right that modern economics puts a lot of emphasis on the bond market.
Their reasoning is that the bond market is like a giant, distributed bank. Bondholders borrow short-term, and invest long-term, thus providing liquidity for businesses that need to make long term investment.
The problem is, we have no idea what the actual economics of liquidity provision is. The standard Diamond–Dybvig model is used to justify bailing out the banks (and also the "shadow" banks, i.e. the bond market) when things go bad. But if the Diamond–Dybvig model is correct, then liquidity provision is a mechanical process that could be done just as well by the government, and the bond market is just a way to get the free market to do this at exorbitant cost.
We need better theories to understand liquidity. I think the best work in this area is by Holmstrom and Tirole. Holmstrom's nobel price should help raise the profile of this work.
Their reasoning is that the bond market is like a giant, distributed bank. Bondholders borrow short-term, and invest long-term, thus providing liquidity for businesses that need to make long term investment.
The problem is, we have no idea what the actual economics of liquidity provision is. The standard Diamond–Dybvig model is used to justify bailing out the banks (and also the "shadow" banks, i.e. the bond market) when things go bad. But if the Diamond–Dybvig model is correct, then liquidity provision is a mechanical process that could be done just as well by the government, and the bond market is just a way to get the free market to do this at exorbitant cost.
We need better theories to understand liquidity. I think the best work in this area is by Holmstrom and Tirole. Holmstrom's nobel price should help raise the profile of this work.