Paul Solman at The Business Desk contemplates a “scorched earth”:
So what’s going on? Well, rather obviously, investors are a lot more worried about the credit of Greece — or Spain or Italy — than ours. Investors are also more worried about stock investments. Investors are also more worried about almost any other asset into which they might put their money.
Investors also seem pretty sure that U.S.inflation is not going to be a problem anytime soon. If inflation scared them, they’d hardly let the United States lock in an interest rate of less than 2 percent for an entire decade.
So then why isn’t it plausible to draw the following conclusion: that U.S. interest rates have been going in the “wrong” direction because investors are scared that the U.S. is going to reduce its debt and deficits, and such a reduction might horse-collar the world economy?
But that’s not the only answer, or even the “best” one.
Alternatively: US interest rates have been going in the “wrong” direction because investors are scared that the Fed is not going to try and bring NGDP to a reasonable level, and maintaining NGDP too low, while the ECB is doing the same, will (not might) horse-caller the world economy.