A Fiscal Train Wreck

A couple days ago, Bloomberg reported:

The bond market is saying that it’s safer to lend to Warren Buffett than Barack Obama.

Two-year notes sold by the billionaire’s Berkshire Hathaway Inc. in February yield 3.5 basis points less than Treasuries of similar maturity, according to data compiled by Bloomberg. Procter & Gamble Co., Johnson & Johnson and Lowe’s Cos. debt also traded at lower yields in recent weeks, a situation former Lehman Brothers Holdings Inc. chief fixed-income strategist Jack Malvey calls an “exceedingly rare” event in the history of the bond market.

We have a crisis looming. It seems likely that the politicians will react to the crisis the way irresponsible governments usually do, by printing money. Interest rates will soar. The alternative will be to raise taxes substantially, until the tax rate as a percentage of GDP will reach levels that are common in Europe but have never been seen in the U.S.