Krugman Blog- Rates of Wrath

[n2doc]

Not good news in stock markets — but you really have to look at the bond markets to get the full awfulness of the situation.

The US 10-year bond rate is now down to 2.5%. So much for those bond vigilantes. What this rate is saying is that markets are pricing in terrible economic performance, quite possibly a double dip. And it also says that Washington’s deficit obsession has been utterly, totally wrong-headed.

Meanwhile, Italy’s spread against German bonds is soaring even further. What are markets pricing in here? Default as a real possibility; maybe even euro breakup. The latter certainly sounds a lot more plausible now than it did a few months ago.

Oh, by the way, how do I know that falling rates in America and rising rates in Italy are both bad news? Part of the answer is that you have to look at the context. My old teacher Charles Kindleberger used to say about balance of payments analysis that everyone wanted a single number that told you whether things were good or bad, but what you really needed, always, was a story.


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http://krugman.blogs.nytimes.com/2011/08/04/rates-of-wrath/

[DrDan]

1. not a pretty picture

[matmar]

2. My worthless opinion....

the market is crashing because there is no demand coming from anywhere and stocks are over-valued.