Paul Krugman and Niall Ferguson have been debating on whether bond yields are rising because of the improving economy or because of rising inflation expectations due to the huge borrowing by governments. On May 31, Ferguson nailed Krugman in the FT (Ferguson vs Krugman: The Historian vs the Economist). On June 6, Krugman blogged the following in the NYT:
Where’s the money coming from?
The huge borrowing by major governments, the U.S. government in particular, has confused many people — and not just Niall Ferguson. What I hear again and again is either the assertion that all this borrowing must drive up interest rates, or worries that the Chinese won’t be willing to lend us the money.
We know as a matter of principle that these concerns are misplaced: if there were a shortage of savings, the economy wouldn’t be depressed. Indeed, one way to think about our current problem is that the world as a whole wants to save more than it’s willing to invest.
But it’s always nice to have some real-world data illustrating a principle. From Brad Setser, private and public borrowing in America, as a percentage of GDP:
We’re actually borrowing less from foreigners than we were before.
FT’s Martin Wolf entered the debate on June 3 with Martin Wolf: Rising government bond rates prove policy works
Related posts:
- Ferguson vs Krugman: The Historian vs the Economist
- Economists clash on shifting sands
- Dollar May Drop 20% More, Harvard’s Ferguson Says
- Others Will Follow Greek Debt Tragedy: Niall Ferguson
- Paul Krugman: The Big Inflation Scare
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