Later On

A blog written for those whose interests more or less match mine.

Deficit hysteria

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Paul Krugman from his blog:

Urg. Big piece on the front page saying that, on the one hand, some people say that we’re going to have a debt crisis any day now, while on the other hand … well, actually we never hear from the other side.

As Dean says, the numbers don’t fit the scare story — a decade from now interest payments will reach a level not seen since … 1992. And the market seems unworried, since long-term rates remain low.

But aren’t people like me just like the people who said “don’t worry, be happy” about house prices? Well, I could of course be wrong. But the situations are very different. In 2005 the conventional wisdom was that house prices made sense despite the fact that the numbers screamed “bubble”. Today, the conventional wisdom is that bond prices don’t make sense despite numbers that actually look reasonable.

And isn’t there something weird about a conventional wisdom that’s at odds with market prices? Someone isn’t putting their money where their mouth is.

This suggests that James Kwak is right: a lot of this is about scaring the government into inaction on unemployment.

Written by LeisureGuy

23 November 2009 at 12:40 pm

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