Alan is right. When the rates start rising it may be swift, painful and
there is nothing the government will be able to do to stop it. When the buyers had for the exits, demand will dry up and rates will rise. It
will be ugly.


=====================================================

http://preview.bloomberg.com/news/2010-06-18/greenspan-says-u-s-nearing- limits-on-borrowing-capacity-restraint-needed.html

Greenspan Says U.S. May Soon Reach Borrowing Limit
By Jacob Greber - Jun 17, 2010

Former Federal Reserve Chairman Alan Greenspan said the U.S. may soon
face higher borrowing costs on its swelling debt and called for a
ôtectonic shiftö in fiscal policy to contain borrowing.

ôPerceptions of a large U.S. borrowing capacity are misleading,ö and
current long-term bond yields are masking AmericaÆs debt challenge,
Greenspan wrote in an opinion piece posted on the Wall Street JournalÆs website. ôLong-term rate increases can emerge with unexpected
suddenness,ö such as the 4 percentage point surge over four months in
1979-80, he said.

Greenspan rebutted ômisplacedö concern that reducing the deficit would
put the economic recovery in danger, entering a debate among global
policy makers about how quickly to exit from stimulus measures adopted
during the financial crisis. U.S. Treasury Secretary Timothy F. Geithner
said this month that while fiscal tightening is needed over the ômedium
term,ö governments must reinforce the recovery in private demand.

ôThe United States, and most of the rest of the developed world, is in
need of a tectonic shift in fiscal policy,ö said Greenspan, 84, who
served at the FedÆs helm from 1987 to 2006. ôIncremental change will not
be adequate.ö

Rein in Debt

Pressure on capital markets would also be eased if the U.S. government ôcontainedö the sale of Treasuries, he wrote.

ôThe federal government is currently saddled with commitments for the
next three decades that it will be unable to meet in real terms,ö
Greenspan said. The ôvery severity of the pending crisis and growing
analogies to Greece set the stage for a serious response.ö

Yields on U.S. Treasuries have benefitted from safe-haven demand in
recent months because of the European debt crisis, a circumstance that
may not last, said Greenspan, who now consults for clients including
Pacific Investment Management Co., which has the worldÆs biggest bond
fund.

Benchmark 10-year Treasury notes yielded 3.20 percent as of 12:11 p.m.
in Tokyo today, down from the yearÆs high of 4.01 percent in April and compared with as high as 5.32 percent in June 2007, before the crisis
began. Yields have remained low ôdespite the surge in federal debt to
the public during the past 18 months to $8.6 trillion from $5.5
trillion,ö Greenspan said.

The swing in demand toward American government debt and away from euro- denominated bonds is ôtemporary,ö he said.

ôOur economy cannot afford a major mistake in underestimating the
corrosive momentum of this fiscal crisis,ö Greenspan said. ôOur policy
focus must therefore err significantly on the side of restraint.ö

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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