A few commenters have suggested, in response to my post on the utter failure of the claim that budget deficits would drive up interest rates even in a liquidity trap, that things might look different if we looked at real rather than nominal rates.
Well, no. Thanks to inflation-protected securities, we can look at real rates directly — and here they are:
There was a bump in real rates in the months following Lehman’s failure — that was caused by a flight to liquidity, which meant that only plain-vanilla Treasuries were wanted. But since then real rates have dropped to extraordinarily low levels: less than 1 percent on 10-years, negative on 5-years.
A corporation would see borrowing costs this low as a strong incentive to borrow more and invest. In Washington, however, all you hear is fear of deficits.