"Markets" can be mistaken 

Floyd Norris on invisible bond vigilantes.

As 2010 began, there was nearly unanimous agreement in financial circles on at least one thing: Interest rates were sure to rise during the year.

Quite to the contrary. As Labor Day approaches, interest rates have collapsed, plunging along with economic optimism.

(via Yglesias)

Part of it probably was Greece and the European Sovereign Debt crisis. There was a large increase in deficit spending because of the housing bubble bursting and the ensuing financial crisis and recession. There should be more until the housing market is sorted and aggregate demand is back at capacity levels. The good news is that with interest rates low, it's easier for the government to finance needed deficit spending. Calculated Risk reports that the Federal Reserve reports industrial production and capacity utilization increased in July:

The capacity utilization rate for total industry moved up to 74.8 percent, a rate 5.7 percentage points above the rate from a year earlier but 5.8 percentage points below its average from 1972 to 2009.

Krugman on how the past year has proven Niall Ferguson* wrong and Krugman and those of us who agree with him as correct. It's about liquidity and the prospects for recovery, not about righteous bond vigilantes enforcing discipline on profligate governments like Greece.

The reason Ferguson and his ilk are wrong in the way they are wrong is because they're free market, antigovernment fundamentalists. And the irony is that those are the types who led us to our current state of affairs.

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* Ferguson is bad on economics, but during the Bush years when Cheney pushed to make the executive branch unaccountable - on torture, detention, warrantless surveillance, etc. - and secretive, Ferguson was a conservative voice of reason.