5. Many on the left are boasting that the U.S. government could borrow lots more (look at the current T-Bill rate), forgetting they used to warn us that international capital flows, as amplified through noise traders and speculators, mean that crises can arrive in a single, whiplash moment, bringing countries from riches to rags virtually overnight. Somehow those old narratives are being forgotten, I wonder why.
We have essentially replaced a risk bubble with a safety bubble. And there are lots of good reasons to think that this bubble, which manifests itself as an almost bottomless demand for U.S. treasuries, will continue for a long time. But a long time isn't forever, and we're planning to sell upwards of $3 trillion in treasuries over the next 30 months. So when will the tipping point come? After $1 trillion? $2 trillion? Never? I hope the answer is never, but if the past couple of years has taught us anything, it's that we don't know — and that never is probably the least likely answer. And when the market does turn on us, it's going to turn ferociously and without notice. I sure hope Geithner and Summers and the rest of the crew are prepared for this, because the odds are that we're going to be paying for the profligacy of the Bush administration for a long time to come.