Bond Vigilantes vs. America: The Battle That Never Happened

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Paul Krugman points out that Paul Solmon is blasting the "Main Stream Economic Media" coverage of the bond markets.

Here's the critique:

I've been saying the following to friends and colleagues for months now: In all my many years as a business and economics reporter, I have never seen a greater cognitive dissonance than in the current coverage of the U.S. bond market. Even Chicken Little and the Boy Who Cried Wolf would have by now taken early retirement had their warnings proved as lame as those of the MSEM (mainstream economic media).

"S&P Downgrades!" "Bond Vigilantes Poised to Strike!" "America is Greece!" One-liners meant to catch the eye, freeze the heart. But flat-out irresponsible...

And, checking with NYU's celebrated economic historian Richard Sylla, we find that today's rates are astonishingly close to the lowest in the entire history of the United States: 1.85 percent, the nadir reached in late 1941. That was the record, I should say—until September 22, when the 10-year U.S. interest rate plunged briefly to 1.695 percent.

So what's going on? Well, rather obviously, investors are a lot more worried about the credit of Greece—or Spain or Italy—than ours.

Investors are also more worried about stock investments. Investors are also more worried about almost any other asset into which they might put their money.

Investors also seem pretty sure that U.S. inflation is not going to be a problem anytime soon. If inflation scared them, they'd hardly let the United States lock in an interest rate of less than 2 percent for an entire decade.

I must not read enough MSEM bond coverage because I was completely unaware that the situation was this bad. The coverage of the bond market in the financial blogs I read has been very different. Whether it's Joe Weisenthal at Business Insider, Cullen Roche at Pragmatic Capitalism, Kelly Evans at the Wall Street Journal, Randy Waldman at Interfluidity, or...well, the list can go on. The point is that anyone following the financial blogs will not have been terrified about the Fed "printing money" or triggering run away inflation.

And some of these people probably even count as MSEM.

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