Yes, Deficits DO Matter

From Bloomberg:

Treasuries Fall on Speculation U.S. to Increase Citigroup Stake

Anybody who's ever accumulated debt on credit cards, which then increased their interest rates by large amounts, knows this situation. Lots of debt at high interest rates means that just paying the interest off becomes a significant part of of expences, slowing the day when principal can be paid and draining funds from other activities. (I know - Iused to be stupid about my credit cards until about 5 years ago.)

So, the world looks on as we move in the direction of $15 Trillion in debt, and wonders if we can really pay it off. That increases doubt and the world wants more yield, lowering prices. At some point, this can become a vicious cycle, where the demand for higher yield raises the doubts, increasing the demand for higher yield.


So far, the effect appear small - but the possibilities are clear.

We are staring into the abyss - and it is staring back, hungrily.