Doomsayers insist the recent rapid rise in yields means the nation's creditors are finally getting fed up with financing U.S. deficits. But a stronger argument says the cause is better-than-expected economic reports that have been piling up recently.
Nouriel Roubini, the NYU economics professor who has earned the nickname "Dr. Doom" for his predictions, says he's concerned the tax cut compromise struck by President Obama and GOP leaders could expose the U.S. to bond vigilantes who will drive up bond yields, resulting in higher borrowing costs for the federal government.
For Germany, Britain and the U.S., three of the world's major economies, their lawmakers' rush to cut budget deficits is the worst thing to do now. By taking demand out of their economies at this crucial time, they could spark another recession.
The bond vigilantes have made their presence known in Greece, Spain, Portugal, Italy and Ireland, forcing up their borrowing costs and making slash budgets. The U.S. needs to act now to ensure it's not next.
As the bond vigilantes attack Greece's economy, and set their sights on other debt-plagued nations, European Union officials are preparing an emergency stabilization package to resolve the sovereign debt crisis. But unless the world's central banks get involved too, the EU moves won't be enough.