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It’s one thing to be intimidated by bond market vigilantes. It’s another to be intimidated by the fear that bond market vigilantes might show up one of these days, even though
you’re currently able to sell long-term bonds at an interest rate of less than 3.5%.
Yet that, according to rumors, is what’s happening.
Since I wrote that post, by the way, the long-term interest rate has dropped to 3.12%.
It's worth mentioning that Paul Krugman warned about the real estate bubble bursting....umm...long before it burst.
What we've all been hearing from the Serious Professionals, and the Tea Party nuts, is how much danger, danger, danger, America is facing with "coming inflation."
Fox radio crazies go so far as to assert that there is "hyper-inflation" right around the American bend.
Better get my wheelbarrow ready...so's I can carry enough near-worthless U.S. dollars down to McDonald's to buy a cheeseburger then, huh?
What's this all about?
The government sells treasury bonds to pay for it's deficit spending. Deficit spending in the U.S. has increased since the economic collapse in October 2008. Under the leadership of America's Dark Knight, the U.S. government has been the spender of last resort, borrowing money by selling T-bills at extremely low interest rates (3.12%).....to pay for it's budget deficits and to prevent a further spiraling downward of the collective economy.
The theory of the Serious Professionals....and their Tea Party bedfellows.....goes like this: America will have to sell so many treasury bonds, because of the Dark Knight's out-of-control spending, that no one will want to buy those treasury bonds. There won't be any demand for U.S. T-bills because....well....because there just won't be. In this theory, because there won't be any demand for treasury bonds, the percentage interest paid on those bonds will skyrocket....and those skyrocketing interest rates will spur a bout of hyper-inflation......creating the need for those wheelbarrows of money to purchase a cheeseburger.
Only, as Krugman correctly says, what has actually happened in the last year is just the opposite. Yes, America has sold record numbers of treasury bonds to cover government spending. No, demand for those bonds has not abated.... in fact, demand has actually increased. The proof is in the LOWER interst rates being paid on treasury bonds now as compared to a year ago. Last year....3.5%, this year....3.12%.
The truth is that we have been going through a DEFLATIONARY period, not inflationary.
No matter.....America is now living in the Age of Pre-emption. WMD MIGHT be in Iraq. By god, inflationary pressure MIGHT happen....and so we must stop the Dark Knight's socialistic borrowing and spending BEFORE inflation appears. So what if we're experiencing the worst recession and the highest unemployment rates in 60 years.......we MUST quit spending right now, or there will be a run on wheelbarrows, which will inflate their price, which will make it harder for me to go buy a cheeseburger...or something.
With interest rates so low, and unemployment so high....what the U.S. government should do is borrow even more money to save and create jobs....not cut spending. Now is not the time for austerity.....I don't care how many pants-pissers at the G-20 say otherwise.
If the Serious Professionals and their Tea Party cheerleaders get their way....and they might.....U.S. government spending will be drastically cut, unemployment rates will increase, and the worst recession of my lifetime will turn into our Third Depression.
Even though the empirical data does not support the Tea Party and Serious Professional screeching about government spending as it relates to inflationary pressures.......they're Very Serious, oh, and Angry too.
The one thing that those Very Serious Professionals and those Very Angry Tea Partyers agree on (the Very same people who couldn't see the financial collapse coming)....is that the poor, the vulnerable, the unemployed and even the non-rich Americans who are still working, are the ones who must be punished for our current situation.