Jackson Jambalaya

Karl Denninger writes a good post in the Ticker on how Obama's stimulus plan will stimulate interest rates and wreck the economy. Many people get so caught up in the liberal v. conservative or tax cuts v. increased spending debates they forget how the markets work:
"There is nothing "unstable" about any of this. Rates are going higher. Why? Gee, let's see, Obama says he's going to blow $1 trillion on a "stimulus" package, the other $350 billion of the TARP was released, the GAO says we're going to run well north of a Trillion in deficits, and people are wondering why the bond market expects the government to pay up in higher interest rates for the right to borrow more than 10% (and that's almost certainly a LOW estimate) of the total outstanding debt in one freaking year after having added 16% in the last one?
You're kidding, right? America is acting like a subprime credit-card customer who has decided to go nuts in the local "bigbox" electronics retailer, and the market is (appropriately) reacting to that by repricing RISK.......
The market determines all interest rates. ........
Treasury prints Ts to finance its operations but the guy who buys them is the guy who prints the money in exchange. Therefore every additional Treasury sale is no longer a debt sale, it is an act of printing money by the Central Bank and destroys the standard of living of everyone in The United States......" Read the rest of the Ticker. Its a good one.

For those of you who didn't get that or happen to be journalists, here is the plain-English version: the only way Obama can finance his increased spending is to issue more treasuries. The problem is, as they become worth less money because there are many more of them, the markets are going to quit buying them unless their yields increase (The relationship of bonds to yields is as the price of the bond falls, the yield or interest rate on them increases.) This will in turn force mortgage rates to increase as the interest rate on a mortgage is dependent on the 10-year treasury bond. Credit cards and other forms of lending will see their corresponding interest rates increase as well, further contracting consumer demand and thus damaging the economy some more.

Some members of Obama's economic team know this but Geithner was the person at the Fed who designed these bailouts that have wrecked the markets and caused the debt to skyrocket. Consequently it is probably unreasonable to expect Obama to deviate from his strategy of massive amounts of spending as Geithner will tell Obama provide Obama with economics he claims will make his plans work. In the minds of ivory-tower academics like Bernanke and Geithner, their plans are always perfect, its the execution of them by others that is always at fault (Notice how Krugman never mentions this in his missives to Obama that he is needs to increase spending much more than he plans.). Obama can stimulate away with is massive spending stimulus package and stimulate the debt as well but the market is going to stimulate the interest rates as the price of treasuries is stimulated all the way to zero.