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Paul Krugman Hasn't Finished Reading All the Memos: The 10-Year U.S. Treasury Interest Rate Is Not 3.36% But 3.20%...

Paul Krugman of the Krell-like brain writes:

Rashomon In The OECD - Paul Krugman Blog - NYTimes.com: by the debt-and-deficit criteria the US, UK, and (as you can’t see) Japan look similar enough to the crisis countries that if you didn’t know better, you might expect them to be in the same boat. But they aren’t. As of right now, the interest rates on 10-year bonds are 3.59% in the UK, 3.36% in the US, 1.29% in Japan. CDS spreads for Japan and the UK are only about a third of the level for Italy.

So what does one make of this? One possible answer is, just you wait — any day now there will be a Wile E. Coyote moment, the markets will realize that America is Greece, and all hell will break loose. The other answer is to note that all the crisis countries are in the eurozone, while the US, UK, and Japan aren’t — and to argue that having your own currency makes all the difference. I’ll choose door number 2.

And, indeed, the G-20 blows it, choosing the wrong time to give up fiscal expansion.

A good sign is that Tresury Secretary Tim Geithner protests, writing:

TEXT - Geithner letter to G20 finance ministers: The G-20's strong policy response to the crisis has played a pivotal role in restoring economic growth, but concerns about growth as Europe makes needed policy adjustments threaten to undercut the momentum of the recovery.... Third, achieving a strong and sustainable global recovery requires that we make further progress on rebalancing global demand. Given the broader shifts underway in the U.S. economy toward higher domestic savings, without further progress on rebalancing global demand, global growth rates will fall short of potential. In this context, we are concerned by the projected weakness in domestic demand in Europe and Japan. In keeping with the Pittsburgh Framework on Strong, Sustainable, and Balanced Growth, the necessary shift toward higher savings in the United States needs to be complemented by stronger domestic demand growth in Japan and in the European surplus countries, and sustained growth in private demand, together with a more flexible exchange rate policy, in China....

[While] we need to put in place credible commitments to restore fiscal sustainability over the medium term... plans need to be designed, to borrow the IMF's phrase, in ways that are 'growth friendly.'... Fiscal reforms are necessary for growth, but they will not succeed unless we are able to strengthen confidence in the global recovery. The challenge is to demonstrate the capacity to deliver fiscal sustainability over the medium term without creating the perception that this will require a generalized, undifferentiated, move to pull forward [fiscal] consolidation plans. The necessary and inevitable withdrawal of fiscal and monetary stimulus needs to be calibrated to proceed in step with the strengthening of the private sector recovery...

But Chris Giles and Christian Oliver for the FT write that he had little or no influence:

G20 drops support for fiscal stimulus: “The recent events highlight the importance of sustainable public finances and the need for our countries to put in place credible, growth-friendly measures, to deliver fiscal sustainability,” the communiqué stated. “Those countries with serious fiscal challenges need to accelerate the pace of consolidation,” it added. “We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal frameworks and institutions”...

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