Strange things are happening in the world economy: falling interest rates on long-term securities, declining spreads between returns on safe and riskier assets, large fiscal deficits and huge global current account "imbalances" should not, in normal circumstances, coincide. So what is going on?

Alan Greenspan, chairman of the Federal Reserve, admits that he is puzzled. He has referred to the decline in interest rates on long-term bonds at a time of rising short-term rates as a "conundrum". He returned to the issue last week when he remarked that "the unusual behaviour of long-term rates first became apparent almost a year ago."* Markets tried to push long-term rates up early last summer and again in March this year, but in both cases "forces came into play to make those increases short-lived. But what," continued Mr Greenspan, "are those forces? Clearly, they are not operating solely in the United States."