The Value Of A Printing Press

Jacob Goldstein reminds us of the time the S&P downgraded the United States’ debt rating and as a result of the loss of market confidence our interest rates were going to skyrocket. Except instead they kept going down:

He describes this as part of a “flight to quality” phenomenon, but I think we can pin it down more specifically than that by joining Joe Weisenthal in examining the divergence between Swedish and Finnish interest rates:

Sweden and Finland are, all things considered, pretty similar countries. There’s no question here of a Brooksian contrast between hardy teutonic values and the comparative torpor of the Latin races, no question that in policy terms both are operating high-tax Nordic welfare states. But the big difference between them is that Finland borrows euros while Sweden borrows in its own currency. The market perception is that it’s impossible for Sweden to run out of krona, just as the UK can’t run out of pounds, the US can’t run out of dollars, and Japan can’t run out of yen. Finland is seen as less likely to run out of euros than is Italy or Spain but the risk is there and the underlying divergence is not between well-behaved and poorly-behaved fiscal policies, it’s between countries with printing presses and countries without them.