TweetA good read stout and just to bring up one point, debt should be viewed as a percentage of GDP as opposed to total debt but I digress.
Many years ago we abandoned having our currency backed by precious metals and having a fiat currency that is backed only by the economic might of the US economy. Right now we are in a situation similar to 1991 when deficits were exploding and markets feared our ability to pay back these notes. Oddly enough, the markets (at least temporarily) have rushed into bonds, boosting the dollar and lowering interest rates. My thoughts is two fold on this... one, the greenback has always been a haven for safety and security. Two, this time there is a global recession and the other economies are lowering interest rates aggressively causing a run on their currencies.
If you looked at a prior post I had on the US dollar, I even was surprised at the recent dollars accent considering we want to auction over a TRILLION dollars in new paper. Common sense would tell you that bond rates would need to rise dramatically to attract enough investors to raise this type of capital. The real question is when is the breaking point? As I wrote above, the dollar has been declining in value for years and has had a recent run up (this I DIDN'T SEE COMING) is a good thing for us considering we will have our hands out very soon. Using the government figures, we raise around 5 trillion dollars a year in revenue this includes 1 trillion per year from social security in which the govt keeps throwing IOU's in a box thinking it's their money to spend but that's another story. Would you lend a person money that had $50,000 in income and $120,000 in debt? Maybe? If it was on a long term payback schedule like a 30 year note. Since bill clinton got away from issuance of the longer term notes to save interest on the total debt. Most of this debt is in 5 and 10 year paper. This is a long term problem and can't be solved with short term paper. Soon enough you will see the yield curve increase as bond holders demand higher interest rates. There's a rough road ahead...