Krugman and worn out money theory

Who is afraid of China?

But, you say, wouldn't that send interest rates up and depress the American economy? I've been writing about this issue a lot in various guises, and have yet to see any coherent explanation of how it's supposed to work. Think about it: China's selling American bonds wouldn't drive up short-term interest rates, which are set by the Federal Reserve. It's not clear why it would drive up long-term rates, either, since these mainly reflect expected short-term rates.

Let us look at whether this old adage is right. Here we have short term rates, which Paul claims are set by the Fed. Along with them are the ten year rate, which Paul says is a mostly composite function of the short term. Look at the period between 1990 and 2000-. The spread between short and long term rates change substantually.   Then in the period between 2000 and 2008 we see that divergence increase, and the relationship more variable.  Then we see post 2008, the short term is zero and the long term completely unrelated.

 Here is your problem.  The overlap between things that happen on one year intervals and thing happening on three year intervals is about 15%. The two rates are mostly independent, a result that comes out of finite distributions in a trading theory, just like the one that earned you the Nobel. It has to be that way because in trade ou have to fill the damn ship, and the only way to do that is make sure short term products and long term products arrive at port mostly independent of each other.  If you do not do that then you get congestion.  A result straight out of your damn Nobel prize work.
And Paul, your trading theory says that in a sudden stop of capital flow, the ports become congested, just like they did with all those idle ships in 2009.