Krugman: Invisible bond vigilantes

Right now ... the bond market seems notably unworried by deficits. Long-term interest rates are low; inflation expectations are contained (too well contained, actually, since higher expected inflation would be helpful). No problem, right?

Alas, I’m getting the sense that the Obama administration is intimidated all the same. We’ve got the president telling Fox News that he’s worried about a double-dip recession if he doesn’t reduce the deficit soon — as opposed to the concern I and other have that he’ll have a double dip if he doesn’t provide more support. (And why is Obama talking to Fox News, btw?) And the buzz is that admin economic officials are telling him that the bond market needs to be appeased, even though rates are low.

This is truly amazing. 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%. ...snip...



It would be a very, very bad thing if the administration is intimidated into passivity in the face of an employment disaster — or, worse, into neo-Hooverism — by the threat from invisible, and probably imaginary, enforcers.

http://krugman.blogs.nytimes.com/2009/11/19/invisible-bond-vigilantes/