There is an angry mob out there. Its shape is dimly perceived, but the terrifying shadows cast by its burning torches are clear enough. This is the bond market in full cry.

Its most aggressive participants even call themselves the 'bond vigilantes'. Across Europe, governments cower, populations are told to brace themselves for painful cuts, and austerity is the order of the day. In the US, too, their proscriptions are moving up the political agenda. Fail to assuage the mob, we are told, and untold horrors await, nightmare visions such as the flying apart of the eurozone, the ruin of the British government's finances, or the final collapse of the US dollar's hegemony.

We are in danger of submitting ourselves to policymaking by fear. A world created in the image of bond vigilantes is a vicious, reactionary place. And remember this, above all: the bond market is not always right.

It is not easy to anthropomorphise a financial market, and especially not the enormous and diverse bond market. There is no teeming souk to visit, where all of the world's $80 trillion of outstanding debts are bought and sold, as the action takes place at millions of terminals in financial institutions of all stripes and in all corners of the globe, and even inside pre-programmed trading computers. But there is a place where you can go to take the market's temperature, to hear some of its voices, and to get the measure of a philosophy in the ascendancy. That place is in Chicago.

The Chicago Mercantile Exchange "is where the world comes to manage risk". That is the boast on the plaque inside its historic headquarters in the downtown heart of the third-largest city in the US. It is a vast futures and options market, not just for agricultural products but for other commodities and for financial derivatives tied to foreign currencies, to the stock market and, most importantly, to European bank debt and US government bonds.

This is an up-by-your-bootstraps place, full of independent traders and self-made men from scrappy backgrounds. In many ways it defines itself in opposition to New York. Wall Street is where bankers dream up ever more exotic schemes to raise money and parcel debt around. Chicago is where traders assess the brutal question: what are my chances of getting paid back?

Many traders here concur that Chicago is a financially conservative place. Yra Harris, a veteran of the trading floor, who runs his own firm, Praxis, says it is because most of the people in the pits are trading their own money.

"When you work in bank trading you are trading other people's money; you learn a lot of bad habits. Some of the worst traders I know are bank traders, but they have the power of the mechanism behind them. It allows them to smooth things over. There's nothing better than being able to dump your worst positions on your customers. We don't have that ability. If you have bad habits here, you are not here for long."

With the world awash in debt, and governments needing to raise more and more to fund the stimulus programmes that kept the world economy from the brink in 2008, this place has never been more powerful or more assertive. It was from here – from the very floor of the CME – that the anti-government Tea Party movement sweeping the Republican party was launched.

You can see billions of dollars moving around here. A piece of news sending share prices higher will cause a frenzy of buying in the trading pit for stock market futures until, suddenly, a scary piece of news causes a jolt of buying activity in the supposedly safer investments available in the bond derivatives corner. It is a scene Ron Pankau has taken in every workday for 30 years.

"This here is the reallocation of funds, all day long," he says. "Big institutions have to move so much money, there is nowhere else where they can do it so fast. Where else can you move $100m out of the stock market in 30 seconds? You wouldn't be able to do it in the real world of owning actual stocks."

This is where investors come to hedge the risk of changing prices for government debt and other bonds, and changing interest rates. It is also where speculators come to gamble on those prices and rates. Speculators are the grease in the machine.

If you had to personify the bond market, to distill it into a single human being, it would be Rick Santelli. Short, pugnacious and instantly recognisable to anyone with a passing interest in finance in the US, the former derivatives trader reports on the market from the floor of the CME for the business television channel CNBC.

He also happens to be the man who sparked the Tea Party movement. Enraged by an Obama administration plan to use a sliver of the Wall Street bailout fund to help struggling borrowers refinance their mortgages and avoid foreclosure, he launched an on-air tirade in February last year that went viral.

Let's launch a poll, he said, "to see if we really want to subsidise the losers' mortgages". With traders cheering behind him, he said that instead the homes should be foreclosed.

Santelli has kept the temperature up at roasting ever since. He gives voice to the market fundamentalist view that the bailouts were a dangerous perversion that only delayed the reckoning.

Governments around the world crafted their rescues of the financial sector and stimulus plans to prevent an intolerable toll on people's jobs, savings and the economy as a whole. They learned the lessons of the Great Depression, channelled the wisdom of John Maynard Keynes, and stepped in to prevent economic demand from spiralling downward. They became spenders of last resort. The effect, obviously, is to have pitched government debt across the west to levels never seen outside wartime.

"You can't hide from debt," Santelli said. "We have just been adding to it. This is the last stop on the Adios Express line. The only deeper pocket I know of is God's, and I'm not sure he is going to help us out." He smiled his wide TV smile, just on that line between charming and sinister.

"Europe governments are in denial. The financial markets are merely the messenger. Don't look at this as 'us versus them'. When there were the riots in Greece I saw one of the chants was: 'The capitalists have taken our money.' Well, no. Capitalists created the structures which have funded their social programmes, up until the point that it all ran out of money."