Krugman’s blog, 9/17/15

There were two posts yesterday.  The first was “Fear the Rating Agencies:”

Or, maybe not. Remember how it was a big deal when S&P downgraded the United States — except nothing at all happened in the markets? Well, that was America, the world’s reserve-currency nation. Nobody else can shrug such things off, right?

Ahem. Japan just got downgraded; it has huge debt relative to GDP, the yen isn’t much of a reserve currency, and …

Japan 10-year bond
Japan 10-year bond, Bloomberg News

See the big reaction? Neither do I.

Yesterday’s second post was “European Lowflation:”

There is good reason to believe that the conventional 2 percent inflation target is too low, even for the United States; the risks of hitting the zero lower bound are clearly much higher than people believed when 2 percent became orthodoxy. But whatever the case for a higher US target, the case is much, much stronger for Europe, which combines Japan-style demography — a shrinking working-age population, making secular stagnation more likely — with adjustment problems that get much harder when inflation is low. It’s important to realize that it matters not at all whether the overall rate is slightly positive or slightly negative; as the IMF says, “lowflation” creates all the problems we associate with deflation, even if the headline number is greater than zero.

So how’s it going? Terribly. Despite QE, euro area core inflation is stuck below 1 percent.

The euro remains a slow-motion disaster, despite the constant claims that a bit of growth here or there somehow vindicates all the suffering.


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