It's been a year since Standard and Poor's downgraded U.S. government debt. The downgrade touched a nerve. It played into the narrative of American decline, of an irresponsible nation spending beyond its means.
But one key group ignored the S&P downgrade, and the subsequent worry over debt and decline: The investors around the world who actually lend trillions of dollars to the U.S. government.
When lenders get nervous, they demand higher interest rates. When they get more comfortable with a borrower, they lend at a lower rate. Throughout last summer — through the debt-ceiling brinkmanship, through the downgrade — the interest rate on U.S. government debt fell.
That trend has continued. Late last month, the interest rate on 10-year Treasury bonds hit an all-time low of 1.4 percent. After accounting for inflation, these investors are actually paying the U.S. government to hold their money.
A caveat: The Federal Reserve has been pushing down long-term interest rates in order to boost the economy, and now holds over $1.65 trillion in U.S. government debt. So that's part of the reason rates are so low.
But most of the decline in the government's borrowing costs over the past year has come from investors, not from the Fed, according to Joe Gagnon, a former Fed economist.
Investors, of course, can be wrong. They can change their minds. Low interest rates today don't necessarily mean low interest rates tomorrow. The U.S. really does have a long-term structural problem that will eventually require some combination of higher taxes and slower spending growth.
But as the debt-and-decline hand-wringing continues, it's worth remembering that the market for U.S. Treasury bonds is one of the biggest, most liquid, most transparent markets in the world, and that market is sending a clear signal.
Investors want to save money "with someone they trust," Gagnon told me this morning. "And that has been the U.S. government."