"For better or for worse, the reason most investors are now much more confident than they were a few months ago is that governments around the world have cast a vast safety net under much of the financial system.
At the same time, they have propped up economies by running massive deficits, while central banks have cut interest rates nearly to zero.
But can blanket government largesse be the final answer? Government backstops work because taxpayers have deep pockets, but no pocket is bottomless.
And when governments, particularly large ones, get into trouble, there is no backstop. With government debt levels around the world reaching heights usually seen only after wars, it is obvious that the current strategy is not sustainable."
What is the danger to the US of a debt crisis? What would probably happen to interest rates, exchange rates, net exports (NX), inflation, and investment (I)?
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