Deficit fears don't appear to bother bond market
The U.S. government debt is rising inexorably, according to the conventional wisdom in Washington, and the political system is too paralyzed to take unpopular actions to rein it in. Privately, many policymakers take it as a given that the situation will change only when the nation faces a Greek-style fiscal crisis.</br></br>But apparently nobody told the people who lend the U.S. government money. On Friday, they were willing to hand over their cash to the Treasury for 10 years for 3.3 percent interest, a level so low it implies they consider the United States among the safest investments in the world. Collectively, those investors -- think mutual funds, pension funds and foreign central banks -- could lose hundreds of billions of dollars if they're mistaken and the United States has a debt crisis.</br></br>Perceptions inside the Beltway rest on this idea: Although the current large budget deficit is caused mainly by the weak economy and a short-term economic stimulus that will soon expire, in the longer run the government faces a vast unfunded burden, particularly tied to Medicare and Medicaid.</br></br>The mix of spending cuts and tax increases that could close the gap are wildly unpopular. With the threat of a filibuster in the Senate hanging over anything remotely controversial, a bipartisan budget accord seems unlikely. And many Republicans have declared they will not vote for a package that includes a tax increase under any circumstance.</br></br>This situation led Moody's, the debt-rating firm, to state in March that the U.S. government is nearer to being at risk of losing its Aaa credit rating and that maintaining the rating might require adjustments to tax and spending policy "of a magnitude that, in some cases, will test social cohesion."