After years of multi-hundred-billion-dollar money-printing by the Fed with no negative consequences so far, many people have come to believe that this method of financing our debt can go on indefinitely.
But we know from history that that isn’t the case, and that severe problems will occur if Congress passes over-the-cliff deals like Obama’s.
There are organizations whose job it is to warn investors about governments that refuse to stop profligate spending — the bond-rating agencies like Standard & Poor’s, etc.
If Obama’s budget deal is approved, with its minimal spending cuts that would assure trillion-dollar budget deficits ad infinitum, the rating agencies would be as blameworthy as our Congress if they didn’t respond by sending out alarm bells to warn investors about our increasingly risky bonds.
But will the bond agencies do their job? Unless they lower U.S. bond ratings after Obama’s deal is approved, we will know that they will have abandoned their responsibilities.
I guess the 64 Trillion dollar question is when does the music stop? Japan is at 190% of GDP because of a captive debt market (postal savings system). The government could require that we all put treasuries in our 401Ks for instance.