Must-Read: Paul Krugman: The Great Capitulation

Must-Read: Paul Krugman: The Great Capitulation: “On Friday, the U.S. 10-year closed at 1.36, almost a hundred basis points down from its level on Dec. 15…

…when the Fed made what was supposed to be the first of many rate hikes…. It’s all pretty awesome. What’s it all about? People are still out there blaming central banks for imposing “artificially low” rates, which is kind of amazing and depressing. Artificially low compared to what? If central banks were engaged in excessive monetary ease, the results should be visible in the form of rising inflation–which was in fact what the critics of QE claimed would happen. But it didn’t, and now I have no idea what their criterion for a not-artificially low rate is….

There is no indication this time around of a flight to safety…. We don’t seem to be looking at a risk-off situation, with government bonds as a safe haven.
What’s consistent with the data… is the notion that investors are throwing in the towel and accepting secular stagnation as the new normal. Almost 8 years after Lehman, no sign of a really strong recovery in sight anywhere; perceived private-sector investment opportunities remain weak. Stock and land prices are pretty high, but probably because of low discounting rather than expected high returns.

Call it the Great Capitulation.