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Monday, June 08, 2009


Paul Krugman thinks:

Far from being a sign of failure and impending disaster, they say, the rising bond yields actually signal success and impending improvement. Government bonds were so low last December because the world's investors were totally freaked out about risk. They sold everything—U.S. stocks, emerging market government bonds, corporate bonds in Europe, Indian stocks—and parked their cash in the safest, most liquid investment around: U.S. government bonds. In the months since then, as the stimulus and bailouts have helped stabilize the economy, investors have started to relax.

Niall Ferguson thinks:

In a nutshell, Ferguson and his allies believe that the rising bond yields prove that markets are worried about the inflation that will inevitably result from the fiscal policies of the Obama administration and the Fed. Given the large deficits and rising concerns about the viability of Social Security and Medicare, Ferguson writes, "It is hardly surprising, then, that the bond market is quailing. For only on Planet Econ-101 (the standard macroeconomics course drummed into every U.S. undergraduate) could such a tidal wave of debt issuance exert 'no upward pressure on interest rates.' " 

They're both right.  In the short term rising yields are probably just a sign that the panic is over.  In the long-term it would be absurd to imagine that that much monetary "stimulus" isn't going to produce inflation.  In the long run we may all be dead, but long before that our money will have a few more zeroes added on for good measure.

Posted by Richard Anderson on June 8, 2009 | Permalink


Printing money worked very well for Mexico and a few others...right up until it didn't.

Posted by: The original JC | 2009-06-08 8:47:29 PM

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