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I don't understand why this is surprising. To my understanding it is the case that countries that are bad with money give you a better interest because they're

I don't understand why this is surprising. To my understanding it is the case that countries that are bad with money give you a better interest because they're a higher risk to give money to. Germany is good with money, the US is not. Therefore the US gives higher interest than Germany. Is there a profound insight I am missing that makes this state more unusual than it seems to me right now?

Arnt 8y ago
No, just a discrepancy between numbers and attitude. The US of A is indebted almost like Italy and pays a risk premium almost like Italy, and the Americans seem to act as if it isn't a problem.
- Tsubasachan 8y ago
  Truth. If the United States applied for EU membership they would be denied. Too much debt, too much budget deficit.
  - mcv 8y ago
    That wouldn't be the biggest issue. The US is too large and therefore too destabilising for the EU (this is also part of the reason for Turkey). Also, the death penalty. It might also be an issue that the US is not democratic enough, although there are some EU members (as well as the EU itself) that aren't as democratic as they should be.
    - kgwgk 8y ago
      And it's in the wrong continent (this is also part of the reason for Turkey).
kgwgk 8y ago
How do you explain that the yield of the US 10y bond was 3% 5 years ago, 1.5% 2 years and a half ago, and it's 3% currently? Did the United States "get better with money" somehow in the last years before becoming "bad with money" again? Edit: to be clear, I do know that there are many factors (including as well inflation expectations, for example). It´s not just a question of default risk due to being bad with money.
- Arnt 8y ago
  Those interest rates don't move on their own. If the competition changes, those interest rates change too. For example, if the share outlook for the next years looks unusually good/bad volatile/stable (compared to how it looked a couple of years earlier), then that makes shares more/less attractive to investors, and bond issuers have to adjust the rates they offer.
- drjesusphd 8y ago
  There are many factors of the global economy that determine the market-determined yield at a given time. The only way a country being "good with money" is in comparison to the yield of other central banks at the same time. I don't have the data, but if Germany's yield followed a similar trend down then up, but remained below the US throughout, then the hypothesis holds.
  - RobertoG 8y ago
    The elephant in the room in this kind of reasoning is Japan. Japan shows that the narrative of "good country" vs. "bad country" and interest rates beyond the control of the Central Bank have little to do with reality.
  - kgwgk 8y ago
    For reference, German yield was around 1.5%, 0% and 0.25% on those dates (vs 3%, 1.5% and 3% for the US).
- ric2b 8y ago
  > Did the United States "get better with money" somehow in the last years before becoming "bad with money" again? Yes, the economy started to boom but then the government went and issued massive corporate tax cuts while simultaneously increasing spending by quite a bit, which means increase in deficit.
RobertoG 8y ago
How your theory explain Japan? Are they extraordinarily good with money? The interest rate is chosen by the central bank, not by "the market" [1]. A different issue is who try to influence that decision [2]. [1] - http://bilbo.economicoutlook.net/blog/?p=40250 http://bilbo.economicoutlook.net/blog/?p=40250 [2] - http://bilbo.economicoutlook.net/blog/?p=32029 http://bilbo.economicoutlook.net/blog/?p=32029
- Arnt 8y ago
  That wasn't my phrasing... but isn't Japan's debt mostly bought by Japanese? https://www.statista.com/statistics/756192/japanese-government-bonds-by-type-of-holders/ https://www.statista.com/statistics/756192/japanese-governme... lists foreigners as holding 5%. From the Japanese point of view, Japanese bonds are extraordinary in that they carry no currency risk. (Does the central bank usually set the interest rate? Why do lenders accept that decision?)
  - RobertoG 8y ago
    When you say that Japan's debt is mostly bought by Japanese it sounds like it's a particularity of the Japanese people. That's not the case. Who is buying that debt is really the Central Bank of Japan, so, it's really a political decision. Yes, the central bank have a target interest rate and operate to keep it inside their chosen parameters. Lenders accept that decision because they have not other option. From http://bilbo.economicoutlook.net/blog/?p=40937 http://bilbo.economicoutlook.net/blog/?p=40937 : "That is what the Japanese experience since the early 1990s tells us. And all the stories about special cases; cultural peculiarities, closed markets, etc that the mainstream economists wheel out when another one of their predictions about how Japan is about to sink into the sea as a result of its public debt levels, or that interest rates are about to go through the roof because of the on-going and substantial fiscal deficits; or that inflation is about to accelerate because of the massive monetary injections; and more, are just smokescreens to divert our attention from the poverty of their analytical framework. The Japanese 10-year bond trade is called the ‘widow maker’ because hedge funds who try to short it lose big [..]"
- pas 8y ago
gammateam 8y ago
> Is there a profound insight I am missing that makes this state more unusual than it seems to me right now? EXTREMELY The European Central Bank (ECB) has been buying sovereign and corporate debt, the entire yield curve, with new money with the purpose of making yields negative. This lowers interest rates in the eurozone. This is its own comedy troupe that has nothing to do with the risk of the countries, especially the anything outside of the Eurozone and ESPECIALLY US monetary policy and the market's expectations of US debt.

Arnt 8y ago

No, just a discrepancy between numbers and attitude. The US of A is indebted almost like Italy and pays a risk premium almost like Italy, and the Americans seem to act as if it isn't a problem.

Tsubasachan 8y ago
Truth. If the United States applied for EU membership they would be denied. Too much debt, too much budget deficit.
- mcv 8y ago
  That wouldn't be the biggest issue. The US is too large and therefore too destabilising for the EU (this is also part of the reason for Turkey). Also, the death penalty. It might also be an issue that the US is not democratic enough, although there are some EU members (as well as the EU itself) that aren't as democratic as they should be.
  - kgwgk 8y ago
    And it's in the wrong continent (this is also part of the reason for Turkey).

kgwgk 8y ago

How do you explain that the yield of the US 10y bond was 3% 5 years ago, 1.5% 2 years and a half ago, and it's 3% currently? Did the United States "get better with money" somehow in the last years before becoming "bad with money" again? Edit: to be clear, I do know that there are many factors (including as well inflation expectations, for example). It´s not just a question of default risk due to being bad with money.

Arnt 8y ago
Those interest rates don't move on their own. If the competition changes, those interest rates change too. For example, if the share outlook for the next years looks unusually good/bad volatile/stable (compared to how it looked a couple of years earlier), then that makes shares more/less attractive to investors, and bond issuers have to adjust the rates they offer.
drjesusphd 8y ago
There are many factors of the global economy that determine the market-determined yield at a given time. The only way a country being "good with money" is in comparison to the yield of other central banks at the same time. I don't have the data, but if Germany's yield followed a similar trend down then up, but remained below the US throughout, then the hypothesis holds.
- RobertoG 8y ago
  The elephant in the room in this kind of reasoning is Japan. Japan shows that the narrative of "good country" vs. "bad country" and interest rates beyond the control of the Central Bank have little to do with reality.
- kgwgk 8y ago
  For reference, German yield was around 1.5%, 0% and 0.25% on those dates (vs 3%, 1.5% and 3% for the US).
ric2b 8y ago
> Did the United States "get better with money" somehow in the last years before becoming "bad with money" again? Yes, the economy started to boom but then the government went and issued massive corporate tax cuts while simultaneously increasing spending by quite a bit, which means increase in deficit.

RobertoG 8y ago

How your theory explain Japan? Are they extraordinarily good with money? The interest rate is chosen by the central bank, not by "the market" [1]. A different issue is who try to influence that decision [2]. [1] - http://bilbo.economicoutlook.net/blog/?p=40250 http://bilbo.economicoutlook.net/blog/?p=40250 [2] - http://bilbo.economicoutlook.net/blog/?p=32029 http://bilbo.economicoutlook.net/blog/?p=32029

Arnt 8y ago
That wasn't my phrasing... but isn't Japan's debt mostly bought by Japanese? https://www.statista.com/statistics/756192/japanese-government-bonds-by-type-of-holders/ https://www.statista.com/statistics/756192/japanese-governme... lists foreigners as holding 5%. From the Japanese point of view, Japanese bonds are extraordinary in that they carry no currency risk. (Does the central bank usually set the interest rate? Why do lenders accept that decision?)
- RobertoG 8y ago
  When you say that Japan's debt is mostly bought by Japanese it sounds like it's a particularity of the Japanese people. That's not the case. Who is buying that debt is really the Central Bank of Japan, so, it's really a political decision. Yes, the central bank have a target interest rate and operate to keep it inside their chosen parameters. Lenders accept that decision because they have not other option. From http://bilbo.economicoutlook.net/blog/?p=40937 http://bilbo.economicoutlook.net/blog/?p=40937 : "That is what the Japanese experience since the early 1990s tells us. And all the stories about special cases; cultural peculiarities, closed markets, etc that the mainstream economists wheel out when another one of their predictions about how Japan is about to sink into the sea as a result of its public debt levels, or that interest rates are about to go through the roof because of the on-going and substantial fiscal deficits; or that inflation is about to accelerate because of the massive monetary injections; and more, are just smokescreens to divert our attention from the poverty of their analytical framework. The Japanese 10-year bond trade is called the ‘widow maker’ because hedge funds who try to short it lose big [..]"
pas 8y ago

gammateam 8y ago

> Is there a profound insight I am missing that makes this state more unusual than it seems to me right now? EXTREMELY The European Central Bank (ECB) has been buying sovereign and corporate debt, the entire yield curve, with new money with the purpose of making yields negative. This lowers interest rates in the eurozone. This is its own comedy troupe that has nothing to do with the risk of the countries, especially the anything outside of the Eurozone and ESPECIALLY US monetary policy and the market's expectations of US debt.