The Invisible Bond Vigilantes Have Resumed Their Invisible Attack

[n2doc]

Paul Krugman
May 8, 2011, 2:08 PM

Look at 10-year TIPS yields:


It’s truly amazing that Washington debate is dominated by fear of the bond market. And it’s also truly amazing that nobody is suggesting that a government able to borrow long term at a real interest rate of 0.7 percent really should be taking advantage of those rates to finance some much-needed infrastructure investment.

Update: On a related issue, Real Time Economics suggests that it’s not the bond vigilantes we need to be worried about, it’s the “dollar vigilantes”, who push the dollar down on perceptions that American policy is too weak.

Lots of things to criticize there, but let me just point out one crucial difference. If investors push up U.S. interest rates, that hurts our economic recovery. But if they push down the dollar, that helps our recovery, by making US goods more competitive on world markets. So if we really face dollar vigilantes (which I doubt), we should send them a thank-you note (maybe written in invisible ink?).

http://krugman.blogs.nytimes.com/2011/05/08/the-invisible-bond-vigilantes-have-resumed-their-invisible-attack/