Some simple analytics of government debt

U.S. Treasury yields just plunged, as part of a flight to safety.  This is because of Japan and perhaps because of the situation in Bahrain also.

Quick quiz: does this mean our federal government should:

a) spend more money, because there are even fewer bond market vigilantes than before, or

b) spend less money, because there is a general signal that everyone should pull back on excess commitments and risky projects, governments included.

Sadly, we are allowed only one guess at this problem.

The extra credit question is a) vs. b) when the lower yields are instead caused by a global financial crisis.