The Great Paul says:
So government borrowing doesn’t have to come at the expense of private investment, driving up interest rates; instead, it just mobilizes some of those desired but unrealized savings.
And yes, this does mean that the nuclear catastrophe could end up being expansionary, if not for Japan then at least for the world as a whole. If this sounds crazy, well, liquidity-trap economics is like that — remember, World War II ended the Great Depression.
So, back to Japan: I’m terrified about the possible loss of life; nervous about the disruption of world production; not worried at all about the impact of Japanese borrowing on world bond markets.
Evidence: Japan 10-year bond at 1.2 while US’s at 3.3, see Krugman’s original post with a graphic explanation.