It was not what we wanted to post for essay of the week, but sometimes you have to give way to current events. As everyone who has not been living under a rock knows, the major story of the week is the dramatic collapse of Bear Stearns. Since it is likely to heavily influence the news next week, we have decided to make this essay from Naked Capitalism essay of the week.

We do this with reluctance. Naked Capitalism has the best overview of the types of problems that are bound up in the Bear Stearns collapse, but we really think this issue has been overhyped. This problem will not end the world as we know it no matter what the traders on Wall Street think. As long as China, Japan, and Brazil are willing to buy treasuries at almost any price, then the US government will have plenty of money to throw at any problem. When you see a sharp rise in the interest rates on treasury bonds, then you can start screaming if you are so inclined. Until then save your breath.

Don’t get us wrong. The Bear Stearns collapse is not good news. But the thing that has kept this crazy house of cards afloat has been the fact that the US Federal Government has been able to pay historically low real interest rates on its debt even as it was running a record current account deficit and spending money on guns and butter like there was no tomorrow. Until that stops, things will still be reasonably all right in the US.

For that reason, a case could be made that it would be better to select this piece from Econbrowser on the TSLF, this piece from Brad Setser on central bank intervention, or this piece from Demography Matters on China’s inflation and labor shortages. All three of those essays talk about issues that will still be important next year when everyone will have already forgotten about Bear Stearns and are freaking out about other issues.

But since we live in the now, and not in the future, and since most people don’t have the time to read more than one essay in their spare time, it seems best to encourage people read Naked Capitalisms take on the issues raised by Bear Stearns collapse so that people know what the issues are.