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Broadly speaking, Austrian economics, for those who have not yet had the pleasure of being introduced, are characterized by an extreme distrust of state intervention in markets, a distaste for statistical modeling and a general confidence that markets, left to their own devices, will avoid booms and busts and nasty things like inflation. From a political perspective, Austrian economics tends to lurk to the right of even such conservative icons as Milton Friedman.

For more detail, you can go, of course, to the Wikipedia page for Austrian economics. But until at least Feb. 28, if you do so, you will find that the page "is currently protected from editing." An "edit war" has been raging behind the scenes. Two factions were repeatedly deleting and replacing a section of text that had to do with a description of a critique of Austrian economics made by economist Paul Krugman.

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It's also a grim picture down the road: bowls, statues and flower vases gather dust in export showrooms as shoppers in a recession-hit Europe and sluggish United States stop spending.

Once seen as an emerging Asian dynamo racing to catch up with its neighbors, Vietnam's economy is mired in malaise, dragged down by debt-hobbled banks, inefficient and corrupt state-owned enterprises and bouts of inflation.

Vietnam's one-party Communist government has promised reforms, but it appears unwilling to give up the reins of an economy that has delivered fortunes to top officials and their business partners.

House prices have crashed by up to 50 percent in some places from the boom years and jobs are reportedly drying up for school leavers. Foreign investment has dropped 34 percent this year over the same period last year, according to government figures, put off by the economic instability, poor infrastructure and rising wages.

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BusinessInsider calls it "amazing" (and the implication is: not in a good way) while ZeroHedge labels it "propaganda" revealing "just how they [the Fed] perceive the general population: as bunch of retarded morons, easily distracted, and fascinated by pictures, colors and gimmicks."

But the comic book is neither new nor particularly egregious. The Fed commissioned 12 comic books explaining various aspects of economic affairs back in 2006; according to Amazon, "The Story of Inflation" was published in 2007. So expecting this particular comic to take into account the drastic change in the economic grand narrative that we've all come to know and love and argue about over the last two years is, well, just dumb. Moronic, even.

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But you don't have to read far into Cox's column before realizing that it is even worse than its fast-spreading reputation. The first line of the second paragraph:

The corridors of wealth and finance are alive with new optimism.

The pleasures of hindsight notwithstanding, the carnage on the U.S. stock market on Thursday, and the general sentiment of fear and panic raging through Europe, do not map well to this assertion, even if we grant that the rich are always better insulated from economic downturns than the rest of us. Cox's chief evidence -- same store sales at Whole Foods stores are up 7 percent over last year, is a fragile reed when tossed into the maelstrom of everything we've learned about what's going on in the global economy in the last couple of weeks.

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The timing of the piece's online publication could not be worse. On Wednesday, the Bureau of Labor Statistics released the Producer Price Index, which shows prices for finished goods (not including food and energy) inching up at 0.1 percent rate. If you add food and energy into the mix, falling gas prices actually pushed the index down by 0.6 percent. As Ryan Avent notes, with the help of a nice chart, the chances for deflation seem at least as likely as inflation.

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One key tool: Raising the interest rate paid to banks on reserves currently "parked" at the central bank.

Raising the rate would give banks an incentive to park more funds at the Fed instead of lending it out to companies or households. In this way, the Fed would in the future be able to restrain an economy that is overheating and running the risk of sparking inflation.

An economy that is overheating? We should be so lucky! Notwithstanding the 5.7 percent GDP growth rate registered in the fourth quarter, the health of the U.S. economy is still highly questionable. In fact, the latest evidence suggests that the economy already started slowing down again in January.

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On the table: A boost in transportation spending, extension of unemployment benefits, and a continuation of the first-time homebuyer tax credit. The New York Times adds in a possible $3,000 tax credit to businesses for new hires, and a proposal to "allow more businesses to deduct their net operating losses going back five years instead of the usual two."

An extension of unemployment benefits and other safety net provisions seems assured, though everything on the table will obviously require that the government borrow even more money than it already is doing. Which could mean that inflation lurks in the future.

Or does it? What if the effect of extending some of the spending initiatives is actually deflationary? Consider, for example, that $8,000 first-time homebuyer tax credit. The Times calls it "popular." Maybe it is with first-time homebuyers, but economists aren't too crazy about it.

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But judging by a Bloomberg News report published Monday, that moment is not yet now. Indeed, foreign appetite for U.S. debt is stronger this year than it was in 2008.

Investors outside the U.S. bought 43.1 percent of the $1.41 trillion of notes and bonds sold by the Treasury Department this year, compared with 27.1 percent of the $527 billion issued at this point in 2008, government figures show.

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So far, defying the expectations of deficit hawks and inflation scare-mongers, the U.S. Treasury has had no problem finding willing takers for its bills, notes and bonds. The yield on the 10-year bond, reports Gongloff, is just about the same as it was a year ago, when the financial crisis spurred the heaviest borrowing to begin. Inflation, as confirmed by the latest data on U.S. consumer prices, is still not a threat.

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Nonetheless, the drumbeat from inflation hawks looking to rein in all forms of stimulus continues to build. For a nuanced explication of this line of argument, it's worth taking a close look at a speech given this morning by Jeffrey Lacker, president of the Federal Reserve Bank of Richmond. Lacker has consistently been one of the Fed's most devoted inflation hawks. In 2006, as a member of the Fed's Policy Committee, he dissented four times from decisions by the Fed to either pause or lower interest rates, deeming inflation to be a bigger threat than a slumping economy.

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A few months ago, Obama administration officials were sounding the alarm about another 1929. These days, it's 1937 that has them in a sweat.

Well, no. A few months ago, Obama administration officials were already worried about repeating the mistakes made by FDR, the Fed, and Congress in 1937, when premature monetary and fiscal contraction strangled a nascent recovery from the Great Depression and precipitated a deep recession. On June 18, Christina Romer, chair of Obama's Council of Economic Advisers, authored a piece in the Economist that spelled out the problem in detail: "The Lessons of 1937."

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"I think any objective measure would indicate there's a failure when you have a commitment of nearly $800 billion in taxpayer funds and you have the type of job loss we're experiencing," Cantor told the Washington Post.

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But no. All three auctions witnessed strong demand from buyers -- especially so from foreign investors who already own over 50 percent of all U.S. government debt.

From Bloomberg:

Bonds rallied last week as indirect bidders, a class of investors that includes foreign central banks, purchased 67.2 percent of the record $27 billion in seven-year notes sold on June 25, or double the amount of bids than at the last sale in May. The ratio was also the highest since 2004 on the sale of a $37 billion in five-year notes the day before, while the $40 billion in two-year notes auctioned on June 23 attracted the most indirect bids in at least six years.

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Tuesday was a good day for the Obama administration, insofar as the cost of funding future deficit spending is considered. Appetite for $40 billion worth of two-year notes was brisk, and yields fell. And so, as is the practice on Wall Street, the conventional wisdom on what it all means flipped on its head, once again. A few weeks ago, the lack of demand for Treasuries and consequent spiking of yields was seized upon as evidence that either bond investors were terrified of the inflation certain to be generated by all that deficit spending, or that the economy was beginning to improve enough so that investors were moving their money into higher risk investments. Uh, not so fast!

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I think the inflation rate should at least be above zero before we start worrying that it's gotten out of control. I don't think that's too much to ask.

Yes, the so-called core inflation rate -- which excludes food and energy prices -- fell by 0.1 percent in May. The news supports the argument made by Paul Krugman and others that there is no reason to worry -- at this time -- that Obama's deficit spending will spawn an inflation apocalypse in the near future.

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One one side, rising bond yields are taken as evidence that bond investors are afraid rising government deficits and the Federal Reserve's expansive monetary policy will lead to inflation. Conservatives have jumped on this point to argue that the country can't afford President Obama's big-spending agenda.

In rebuttal, most eloquently executed this week by the Financial Times' Martin Wolf, we have the observation that what we are really witnessing in the bond market is a cheering return to normality.

The jump in bond rates is a desirable normalization after a panic. Investors rushed into the dollar and government bonds. Now they are rushing out again. Welcome to the giddy world of financial markets.

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The popular explanation for the new-found bond-trader reticence is that they fear that runaway inflation will be the inevitable result of the Obama administration's big deficits and the Federal Reserve's easy, easy money policies. When inflation threatens, you don't want your money sitting in ten-year notes or thirty year bonds. So all the action goes to short term Treasury paper, where you can get in and out before the future turns sour.

With some zigs and zags, that's what's been happening all week long in the bond market -- with an accompanying crescendo of political implications. Republican legislators can complain all they want about Obama's budget but they can't actually do much besides scream "socialism." Bond traders, however, have real power. If they decide not to enthusiastically bid at Treasury's latest auction, thus pushing down Treasury prices and forcing up their yields, the cost of borrowing goes up for the U.S. government. In 2009, the U.S. will need to raise an incredible $3.25 trillion dollars to pay for various wars, bailouts, stimulus plans and assorted goodies. If the cost of raising a significant proportion of that money from selling Treasury paper rises too far, the Obama agenda could be crippled.

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