Haha, take the gold north .. not sure why, but Begala's cracked me up with that .. can't stop laughing! .. this one is not directly on the sequester, but does underline again the conservative scare tactic (on purpose error?) in talking about the the debt level's influence on interest rates, while ignoring the importance of the fact that the US produces it's own currency ..
As Applebaum says, Japan poses a big problem for this kind of analysis. So the question is whether Japan is a special case. The argument that it isn’t revolves around the suggestion that what really matters is borrowing in your own currency – in which case the US and the UK are, in terms of borrowing costs, like Japan rather than Greece. That’s certainly what the De Grauwe (pdf) analysis suggests.
Even the quickest look at the data suggests that there’s something to this argument; for example, taking data from the paper itself, and dividing the countries into euro and non-euro, we get a scatterplot like this:
It’s not just Japan, off at the far right, that looks different; Canada, the UK and the US, the three red squares along the middle bottom, also seem to have borrowing costs well below what euro-area experience might have suggested.
Furthermore, the experience since mid-2012, in which the ECB drove spreads down sharply after it signaled its willingness to head off self-fulfilling liquidity crises — which can’t happen to countries with their own currencies – also suggests that the own-currency issue is crucial.
So how do Greenlaw et al respond to this issue? Well, they don’t – not at all. They don’t even cite De Grauwe. So as far as I can tell this paper isn’t helpful at all; it ignores the key question in the whole debate.
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