A license to print money

In a blog post yesterday, Nobel laureate economist Paul Krugman calls the lie that the US economy is headed for some sort of Greek-style meltdown, based in part on this chart, showing that US bond rates have reached their lowest point since the war:

The logic here relies on the intelligence of the market: if investors were concerned about the US ability to fulfill its debt obligations, bond rates would be trending higher. The opposite is clearly the case. 

There's another important takeaway from this that Krugman doesn't mention. As the cost of borrowing (a bond is essentially a fixed-rate, fixed-term loan from an investor) goes down, investment based on bond capitalization (infrastructure, education, jobs programs, energy retrenchment, etc.) makes more sense economically, as the returns on the investment improve. New lower-rate bonds can also be used to pay off older higher-rate bonds, a standard move that's a lot like refinancing your home, but with much lower associated cost.

Obviously an unusual  flood of new bonds  on the market alters their value overall, but within sensible limits these low values support larger borrowing for economic stimulus. Handled cannily, this can actually reduce projected debt service even as it raises short-term deficits. 

This puts the US in the best position since the 1950s to leverage prosperity from debt, making massive debt-based stimulus more practical than at any time in generations.