The delightful tit-for-tat that is currently raging between Paul Krugman and Niall Ferguson across the financial blogosphere delivered a fresh installment over the weekend.
This time round it was the Princeton economist’s turn to respond to Ferguson via his New York times blog, the Conscience of a Liberal.
(For those unaware of the thrust of the debate so far, it centres around the issue of rising bond yields; an indication of normalcy according to Krugman, an indication of impending inflationary disaster according to Ferguson. You can read the entire back-story here.)
And we must say, Krugman’s latest blogosphere punch has been delivered with some gusto. First, a back-handed dig at Ferguson in his opening paragraph (our emphasis):
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.
And second, the reason why huge borrowing by major governments just won’t be a problem — as emphasised by the following graphic from Brad Setser’s blog:
You see, says Krugman, governments can borrow more because ‘we’ the people on the street aren’t doing so anymore. “We’re actually borrowing less from foreigners than we were before,” he stresses.
Of course, Ferguson might counter with the question: what happens once private borrowing begins to pick back up again?
Related links:
Niall Ferguson fights back - FT Alphaville
Where’s the money coming from? – Paul Krugman’s blog