So interest rates on US debt remain low despite large deficits, and we're told that this reflects very special factors, indeed that the low rates present a "conundrum".
But is it really a conundrum if it was completely predictable – and predicted?
What happened is that after the housing bust, the private sector moved from modest financial deficit to huge financial surplus:
This pushed us into a liquidity trap, and as I explained three years ago, this meant that budget deficits would not, in fact, put upward pressure on rates.
This wasn't exotic theory invented on the fly, it was basic IS-LM, the sort of thing every macroeconomist should know. The same analysis, not incidentally, predicted no inflationary consequences of massive "money printing" on the part of the Fed
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