Budweiser More Reliable Than Spain, Lenders Say : Planet Money How long-term interest rates explain the world.

Budweiser More Reliable Than Spain, Lenders Say

Interest rates explain the world. (That's hyperbole. But they explain a lot.)

Rates on long-term U.S. debt haven't changed much recently, suggesting that investors aren't panicking over the long-term implications of the debt debate. And, as we suggested earlier this week, even a downgrade of America's credit by a rating agency might not have much of an impact on the country's borrowing costs.

Still, it seems like a good moment to ask a simple question: What are the interest rates on 30-year loans for different borrowers?

Interest rate on 30-year debt

Interest cost

Four things this graph says about the world:

Ratings matter, except when they don't.

Yes, interest rates tend to increase as ratings fall. But there are lots of exceptions to this rule (as well as lots of variation within each rating). Japan's borrowing rates are among the lowest in the world, and they didn't budge when the country got downgraded recently. There are lots of special factors about Japan — it has very low inflation, and the vast majority of its debt is held domestically. But there are also special factors about the U.S. The dollar is still the world's reserve currency, and will remain so for many years to come. Foreigners need to hold dollars, and Treasuries are still the safest way to do so.

U.S. Homeowners can borrow really cheaply.

This is partly due to the fact that the lender can repossess the house if a borrower defaults on the mortgage. (You can't repossess countries anymore.) But it's also a function of the government's bailout of Fannie and Freddie, the companies that guarantee most U.S. mortgages. This is effectively a massive government subsidy that keeps mortgage rates down.

Lenders love Microsoft and Johnson & Johnson.

Microsoft and J&J are two of only four U.S. non-financial companies with AAA ratings. (Exxon Mobil and ADP are the others.) Both companies have big cash piles, low debt levels and stable histories. For a lender, what's not to love?

You don't want to be Greece.

Greece is what a real debt crisis looks like: Lenders get nervous about lending you money, so the interest on your debt starts going up. You have to spend more and more of your money paying interest, so your economy starts shrinking. That makes lenders even more nervous, and they demand even higher interest rates. Etc. The interest rate for Greece would be much, much higher if not for the massive bailouts Europe has promised.