I highly recommend perusing the comments that follow Leo Kolivakis's response to both Krugman and Niall Ferguson's alternative view expressed in a video interview on CNN (Krugman also is interviewed on the same program).
Some of the opinions I agree with:
- Massive government stimulus spending is inefficient in terms of the economic bang for the buck.
- I would prefer if Krugman spent more time discussing the 'quality' of government stimulus spending vs. always focussing on the 'quantity'.
- Government investment and support in new technology development (e.g., sustainable energy) and public works (e.g., street lamps) can add economic value.
- Japan is not necessarily in as bad of shape as the U.S. because, unlike the U.S., it is a surplus country (it produces more than it consumes) and its astronomical debt level (over 2x larger than the U.S.'s Debt/GDP ratio) is owed almost entirely to itself.
- Most bond investors aren't interested in playing the role of 'vigilante' -- they simply want to earn an appropriate rate of return on their capital and see their principal returned.
- While in the near-term it may be true that "the big, bad bond vigilantes are simply no match for the Federal Reserve and they know it. Bernanke can squash them like a bug". However, over a longer-term horizon there is not a central bank on earth -- not even the mighty Federal Reserve -- that can win if confidence in that country's scrip is lost.
- Always framing the economic conversation around 'growth' or 'inflation' distracts from the very worthwhile economic goals of 'stability' and 'sustainability'.
- "When we are unable to borrow money to buy new crap we will put more effort into maintenance of what we have" -Paul E. Math
- It is likely that the U.S., unfortunately, will not make the necessary political decisions and take action until another crisis hits due to the short-term outlook and a lack of public pressure and political will.
And if you haven't already read it, The Zero Hedge Conflicts/"Full Disclosure" Policy is pretty entertaining.
Disclosure: Author holds long positions in gold and silver