How Soon Will We Face Deflation?
And It Is Not 2.71%, It Is 2.68% Now...

Paul Krugman: The Meaning Of 2.71%

The Meaning Of 2.71 - Paul Krugman Blog -


The Meaning Of 2.71 - : As of right now, the 10-year bond rate is 2.71 percent. As you can see from the chart above, this puts it back where it was in the early spring of 2009 — higher than it was during the Oh-my-God-we’re-all-gonna-die period of winter 2008-2009, but lower than anything else we’ve seen for decades.

As it happens, interest rates are also now lower than they were when the big debate over fiscal policy and its interest-rate effects began. For those who don’t remember or don’t know, this started with the claim that government borrowing would send rates soaring, crowding out private investment, and that this would abort the recovery. I tried at the time to point out that this reflected a failure to understand basic macroeconomics; but as usual, made no headway with the culprits.

Said culprits then claimed that rising interest rates in the months following, rather than reflecting improved expectations about the economy, confirmed their view.

Later they changed their stance, claiming that the real problem was rising debt threatening solvency, and that America was going to be Greece any day now.

What we actually see is exactly the story those of us who knew their Hicks told from the beginning: short rates hard up against zero as long as the economy remains deeply depressed, long rates fluctuating based on changing beliefs about how long it would take for the economy to recover sufficiently for the Fed to begin tightening.

And anyone who believed the stuff about invisible bond vigilantes, and acted on it, has lost a lot of money.