Inflation, continued

I really like Dan Gross writing at Slate on matters of the economy and he has a sharp analysis of the Ferguson/Krugman feud. Sharing Krugman's skepticism about these "Bond Market Vigilantes" who appear to caution about government spending whenever the Democrats start spending.

Here is a particularly relevant paragraph to the points I had made earlier:

Both the Fergusonians and the Krugmanites (of whom I count myself one) err in reading too much into short-term fluctuations in bond prices. There's so much more at work. Randall Forsyth of Barron's explains a technical reason for the short-term spike in 10-year and 30-year rates. Banks and financial institutions that own mortgages hedge their exposure to refinancing by buying and selling Treasury bonds. When mortgage rates start to rise, as they've done in recent weeks, institutions do the opposite and sell. "While mortgage investors previously had bought noncallable Treasuries to offset the risk of their mortgages, mortgage investors have unwound that hedge, selling their Treasuries," Forsyth writes.

Essentially reading the long-term out of fluctuations of the market is a fool's errand.

p.s. Great line from Gross:

In evaluating the relative claims of the pessimists and the optimists, you also have to evaluate the messengers. And in this instance, the Fergusonians lack credibility. H.L. Mencken tagged the Puritans as people possessed of the "haunting fear that someone, somewhere, may be happy." Ferguson represents a strain of intellectual Toryism bedeviled by the haunting fear that someone, somewhere may be getting social insurance. (Fellow sufferers include Clive Crook, Andrew Sullivan, and George Will.)