Do Deficit Hawks Think Market Signals Are Totally Meaningless?
Joe Weisenthal
Jun. 6, 2010, 9:44 AM
Paul Krugman is now totally convinced that we're headed for (another?) lost decade, as he's particularly bummed by the G20's call for greater austerity in a time of continued economic weakness.
The last line of his latest post is important:
Yet the conventional wisdom now is that these countries must nonetheless cut — not because the markets are currently demanding it, not because it will make any noticeable difference to their long-run fiscal prospects, but because we think that the markets might demand it (even though they shouldn’t) sometime in the future.
Whether you think Krugman's "spend, spend, spend" philosophy is right or not, you have to acknowledge this much to be true: The market is giving zero indication that it's concerned about US spending. The dollar is strengthening and yields are falling.
The hawks may say "sure, but look at Greece," to which the non-hawks can say "sure, but look at Japan" and of its decades of rising bonds and a stronger currency, amidst the backdrop of more and more debt.
But apart form the theoretical, is it reasonable to say that deficit hawks -- usually so obsessed with market signals -- have decided this is a big one we can freely ignore, since it doesn't align with ideology?