Paul Krugman posts a simple chart that makes a profound point.
It compares the yield on UK debt vs. US debt.
What should stand out for you, instantly, is that the two countries borrow at virtually identical rates, and have for years.
What this should show to people is that much of the popular stories that people tell about sovereign debt is a myth.
Countries that borrow in their own currencies and can “print” at will don’t have default risk, so their borrowing costs are an expression of expectations of future interest rates and growth. The US has been notably profligate since the crisis. The UK (under Cameron) has been prematurely austere. The upshot: it hasn’t mattered much on the yield front.
The fact that the UK borrows so cheaply also undermines the idea that somehow the US’ reserve currency status is a big game changer — it’s not.
If you want to get cute, you can throw in German, Japanese, and Australian rates, too, all of which have moved similarly, and all of which have pursued different monetary/fiscal approaches.
Trying to tell a good story about why this or that country has low borrowing costs tends to become difficult.
That being said… as Krugman acknowledges, each of these countries has seen interesting currency fluctuations, the more realistic avenue for global markets to express their “vote” on a country’s policy.
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