Our Record Low Interest Rates

Nov 23 2011 @ 2:55pm

Bobshillerchart_business_desk

Paul Solman asks:

What's going on? Well, rather obviously, investors are a lot more worried about the credit of Greece — or Spain or Italy — than ours. Investors are also more worried about stock investments. Investors are also more worried about almost any other asset into which they might put their money.

Investors also seem pretty sure that U.S. inflation is not going to be a problem anytime soon. If inflation scared them, they'd hardly let the United States lock in an interest rate of less than 2 percent for an entire decade.

So then why isn't it plausible to draw the following conclusion: that U.S. interest rates have been going in the "wrong" direction because investors are scared that the U.S. is going to reduce its debt and deficits, and such a reduction might horse-collar the world economy?

Well, let's assume gridlock even past the next election. The trigger cuts meet the sunsetting of the Bush tax cuts to provide a sharp dose of austerity in the US. Not so crazy after all, is it?