From Dr. Krugman's blog - please follow link to original
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America Is not Exceptional

Uh-oh — Mitt Romney is going to go after me. Maybe I’d better get out of the country and start an apology tour …

Anyway, I was referring to interest rates. Ezra Klein points out, correctly, that the big economic story of 2011 was that the conventional wisdom of Washington about the urgency of deficit reduction was totally contradicted by the bond market. But Ezra makes at least a slight nod in the direction of a new conventional wisdom, which says that it’s about the unique safe haven status of the United States:

This is not, to be fair, a bet on America’s economic strength. It’s a judgment about the rest of the world’s economic weakness. U.S. Treasuries are what savvy investors buy when they’re in a canned-goods-and-ammunition sort of mood and they think gold is overvalued. But though that makes the demand we’re seeing more depressing, it doesn’t make it any less real.

What such stories miss is the fact that interest rates have dropped sharply for every country that borrows in its own currency. Here are 10-year bond rates for a sample:

Note to British readers: every time Cameron takes credit for low British rates, he’s hoping you don’t know that the same thing has been happening in every non-euro advanced country.

What we’re looking at is a world of depressed demand, where government securities look like a good buy everywhere except in countries that either don’t have their own currency or have large debts in foreign currency, making them vulnerable to self-fulfilling panic. It’s a world in which deficit obsession is mad, bad, and dangerous.

PS: Someone is going to notice that the scale for Japan is different; that’s because I just cut and pasted from Bloomberg. And there’s a very good reason why Japanese rates haven’t fallen as much as the others — the zero lower bound