The Right Coast

Editor: Thomas A. Smith
University of San Diego
School of Law

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Monday, November 26, 2012

Bond bubble bust - NYPOST.com

There’s a record $16.3 trillion of US debt and a good portion of that is sitting in baby boomers’ portfolios like a ticking time bomb ready to explode, and most investors know little about it.

via www.nypost.com

This strikes me as a very good time not to be in bonds. A ticking bomb seems a good analogy to me in this case. --TS

http://rightcoast.typepad.com/rightcoast/2012/11/bond-bubble-bust-nypostcom.html

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Comments

Ah another prediction that the "bond vigilantes" will suddenly make an appearance! No matter how many time that prediction is refuted by experience, it pops up again!

Note that by endorsing this theory you implicitly reject the efficient markets hypothesis, since if markets were efficient they would already have priced in this coming "bond glut" or "time bomb"....yet somehow they have not done that. I wonder why? Could it be...that the debt is well within the economy's carrying capacity? Bueller?

No? Ok, Krugman, then: http://krugman.blogs.nytimes.com/2012/11/23/franc-thoughts-on-bond-vigilantes/

PS. The answer to your previous post, as for this one, is simple Keynesian economics: the increase in the money supply would be inflationary in a normal economy, but we are in the strange and thankfully rare position of having hit the monetary lower bound.

History suggests pretty strongly that this is how it works and we have some pretty graphs to illustrate it too. Maybe some reading would help? Try http://muddywatermacro.wustl.edu/demand-supply-unemployment for a change of pace.

Posted by: keynesian | Nov 26, 2012 2:18:32 PM

Keynesian, this has little to do with economic theory and everything to do with mob psychology. The possibility of inflation scares cannot be discounted even if inflation itself doesn't become significant. If concerns about inflation become widespread, even temporarily, at some point long rates will pop and bond prices will tank. For you or anyone else to pooh pooh this possibility is reckless.

Posted by: Jonathan | Nov 27, 2012 5:40:23 AM

So you do reject the efficient market hypothesis? How interesting.

Posted by: keynesian | Nov 27, 2012 6:22:00 PM