IT'S IMPOSSIBLE TO OVERSTATE DEFLATION:

What you may not have noticed is the sharp decline in another indicator, one that generates fewer fireworks than the stock market but to my mind is a more important economic variable: the interest rate. The yield, or interest rate paid, on the 10-year Treasury note fell to an all-time low of 1.33 percent Tuesday. Based on data since the early 1960s, the average yield on this type of security has been slightly north of 6 percent. [...]

[I]t is not incidental that even in the midst of all of our political craziness, from our volatile tweeter-in-chief to debate dynamics that would embarrass a third-grader, our public debt is still considered the safest in the world, meaning the risk of default (when the borrower fails to repay the lender) is as close to zero as you can get.

You might think that given their low returns -- yields were historically low even before the virus hit -- investors would think twice before boarding this flight to safety. But what matters in such times of stress is not just the absolute yield; it's the relative yield, meaning what's on offer from other countries lending low-risk debt. It so happens that in Europe and Japan, comparable rates to our low 10-year yield are negative, a weird situation of lenders paying borrowers to hold their money that predated the virus.

The main reason rates have been so low for so long is because economies here and abroad have hovered between pretty weak (Europe) and not that strong (United States). Interest rates tend to rise when economies threaten to overheat and push up inflation, but such pressures have been minimal for years.

This development is especially notable given that our unemployment rate is near a 50-year low and our fiscal deficits are unusually high. Econ 101 teaches that low unemployment and high deficits are a recipe for overheating, rising inflation and interest rates. But those textbooks hopefully are being rewritten, as reality says otherwise.

Globalization -- the much-increased integration of formerly dispersed economies -- means that everything, from exports and imports to viruses to capital, now flows much more freely around the globe. 

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