The giant, global beer maker, SABMiller recently sold a large chunk of 10-year bonds for the money to buy Australia’s Foster’s Beer. Buyers of the bonds gobbled them up at only 3.75% interest. In the same week, interest on French national 10-year bonds rose to 3.10% from a lack of willing buyers.
The world over, those with money are free to lend it to whomever they please by buying—or not buying—the offered bonds. Just like a mortgage, a higher interest rate compensates for a lower confidence in the ability of the debtor to repay.
This means the credit markets are only a little less confident in SABMiller’s continued ability to sell beer against highly effective competitors over the next 10 years than they are about the willingness of French citizens to vote for politicians who will tax and borrow in proportions that assure repayment of its debts.
The same would be true for the U.S. except, unlike France who uses the euro, we can—and do—print as much money as we want to keep the interest rates at whatever we want. But the consequences are just as bad.