More on the Bond Market

Paul Krugman agrees with my view that the bond market is signaling  long term economic stagnation rather than experiencing a bubble – and he is, of course, far more influential and cogent than I.

“But the argument has become even stranger recently, as it has become clear that investors aren’t worried about deficits; they’re worried about stagnation and deflation. And they’ve been signaling that concern by driving interest rates on the debt of major economies lower, not higher. On Thursday, the rate on 10-year U.S. bonds was only 2.58 percent.

So how do austerians deal with the reality of interest rates that are plunging, not soaring? The latest fashion is to declare that there’s a bubble in the bond market: investors aren’t really concerned about economic weakness; they’re just getting carried away. It’s hard to convey the sheer audacity of this argument: first we were told that we must ignore economic fundamentals and instead obey the dictates of financial markets; now we’re being told to ignore what those markets are actually saying because they’re confused.”

3 comments

  • that is quite disturbing in a kind of Terry Gilliam kind of way, not sure if I should laugh, cry, pull my hair out or read more David Harvey. I think I will do the last.

    By the way, I am glad Armine has posted so much about the census, given that much of the blog posts here are trying to figure out the numbers on the economy, as the health of the census goes, so too does the relevancy of debating the numbers. I already think hat many times we are debating numbers that are fairly meaningless due to measurement issues (on many levels and fronts I could attack them) but rather than spoil the fun, I kind of go along in a non spoil sort kind of way.

    I think statscan should seriously think about going back to a quarterly LFS. Take the savings from the monthly and increase the sample size to bring in more reliable stats. Given the hit to the frame with the upcoming census we need to start thinking a whole lot differently. And hey, if we don’t push from the outside, trust me, statcan will not. So it is forums like this that we need to start the debate. Potentially a topic to be considered for the advisory committee on labour statistics.

    pt

  • Thinking about all the recent rumbling in the debate over where to next- I find it a total earth shaking discreditably to the entire field of economics.

    We just went through the largest wealth bubble in the history of the world, i.e. the last 15 years of debt financing of consumer spending, and there was barely a trace of inflationary pressure. So I just cannot tolerate even the mention of “inflationary threats”. The next economist that actually mentions that notion should be striped of their license, adn I mean driver’s licence, as they are for sure a threat to themselves and others.

    I do wish they could have at some point separated the politics from the economics, but that just is plain a utopian goal. But can we at least get some duct tape out for a while, at least until we get through this nest phase of the meltdown.

    On the other hand austerity could actually cause inflation!

    That is if we have a total deflation of the system and then we scrap a good part of the productive assets because we have no demand, we may actually start having shortages. Depends on the timing of the ratcheting down, taking out a few large companies within our oligarchic industrial structure could potentially lead to inflation. So potentially this is what these inflation hawks are worried about- and if that is what they mean then for sure they should be locked up!!!!! And never allowed to drive again.

    Paul

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