The debt-to-GDP ratio is too high. The U.S. is not Greece or Italy — yet. But if we stay on the current path, at some point an auction of Treasury securities will fail in the sense that there will be no bidders from the private sector. The Fed could bail out Treasury by purchasing the entire new issue. But that is a policy choice that the Fed must make. The really scary part of all this is that nobody knows the debt-to-GDP ratio at which an auction will fail. There will be warnings, however. Watch for rising interest rates on TIPS (Treasury Inflation Protected Securities).
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