Now, like Maddof, this Ponzi Scheme is in danger of unraveling. Not only are the Surpluses dwindling but those who could be expected to recycle these Surpluses in normal times have their own needs for them to shore up their own economies. In fact, it is quite possible that holders of our debt might even become net sellers with the obvious effect of increasing rates on these securities.
The Oil Producers, China and Japan are seeing severe reductions in their own trade balances and the are initiating their own Stimulus Plans. They simply do not have the appetite for our Debt that they historically have had and this at a time when we are issuing monumental amounts into the Markets.
That's where the Fed comes in. They sop up the surplus, putting it on their balance sheet by, in effect, expanding the Money Supply. However,this can only go so far so I expect that, after a slight dip in interest rates, the rates will start to rise - This despite the seeming reduction in commodity inflation.
Stocks Drop Around Globe, Led by Banks, as Euro Declines, Treasuries Rise
http://www.bloomberg.com/?b=0&Intro=intro3