In two recent posts, "Remarkably Naïve" and "Economists: Wrong Again," I derided claims by Paul Krugman and other economists with a dilettante's knowledge of how financial markets work that low yields on U.S. government bonds "can be seen as validation of Washington's aggressive policy of spending and borrowing to 'rescue' the crisis-hit U.S. economy."
For another (almost real time) example of the spuriousness of such logic, I present the following snippet from a report in today's New York Times, "Dubai Debt Woes Raise Fear of Wider Problem" [italics mine]:
For now, most of the pain from Dubai is being felt by the holders of the Islamic bonds of Nakheel, the developer owned by Dubai World that is known for the palm-themed islands it built.
On Dec. 14, $3.52 billion in Nakheel bonds come due. One of the largest Islamic group of bonds issued, the deal was snapped up by Western and regional investors. In a reflection of how sure investors were that Dubai would meet these payments, the bonds were trading at a 10 percent premium to face value earlier this week. They are now trading at around half of face value.
For the sake of your fellow men (and women), l kindly request that economists -- Nobel prize winners or otherwise -- keep their ignorance about financial markets (and whatever other ivory tower nonsense about how the world works they've acquired through the years) to themselves.
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