Krugman: This Is The Chart That Debunks What Everyone Says About The National Debt [View all]

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KRUGMAN: This Is The Chart That Debunks What Everyone Says About The National Debt

Joe Weisenthal | Nov. 25, 2012, 11:05 AM | 18,672 | 64

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.

MORE[p]

Krugman Blog LINK: http://krugman.blogs.nytimes.com/2012/11/25/incredible-credibility

- snip -

But won’t that money printing cause inflation? Not as long as the economy remains depressed. Budget deficits could lead people to expect higher inflation down the road, once the slump finally ends — but that would be a good thing for the economy in the short run, discouraging people from sitting on cash and weakening the exchange rate, thereby making exports more competitive.

The point, then, is that the whole “credibility” argument is incoherent.