Bob Murphy poses a question to Paul Krugman and his acolytes, in this post, about their understanding of why the Euro Zone countries are under attack in the bond markets. Is it because of reckless government borrowing and debt levels (Murphy's and the Austrians' position) or because they don't issue debt in their own currency over which they have a monopoly (the Krugman position, using treasury rates in the U.S. and Japan as evidence)?
We have covered this ground before, and as I have remarked I think the reliance on what's going on in the debt markets in Japan (and elsewhere) is misplaced and potentially fatal. Kyle Bass makes a compelling case that either the bond markets or the currency in Japan will fall eventually (he says in the next couple of years). Layer in the Bill Fleckenstein insight, that markets only seem to be able to focus on one thing at a time, and it's logical that the rest of the world has seemingly peaceful debt markets as Europe plays itself out.
In any event, these contrasting positions is what makes markets, but I actually think we'll get a convincing answer this time. Either Japan (and the U.S.) will eventually face the music or not. I fall more into the Bass/Fleckenstein camp, but I also know that there is no rush to stake a position one way or the other yet.
