Interest Rates Rise Not When the Deficit Outlook Gets Worse But Rather When It Looks Like the Economy Will Improve More Rapidly
The point? We are still very, very far away from a world in which fear of a future government-debt crisis is raising the cost of capital to businesses. It is slack demand and fear that it will continue that has pushed up the cost of capital to private businesses--the cost of capital to the government remains astonishingly low, and correlated with little other than the medium-term demand-driven price-level outlook.
