This is Westpac's summary:
"Should the future evolve in line with our alternative scenarios, bond issuance will need to be significantly larger than currently anticipated. Absent a large and prolonged extension of QE, net bond supply will increase, and so too will the portion of yields that reflects supply. Such an outcome would put into motion a recursive process in which higher net interest costs beget higher deficits which in turn beget higher borrowing needs, increasing net supply.
That this may happen at a time when the largest holders of Treasury securities are reaching a point where capital needs to be repatriated to support their own ageing populations and or are seeking to diversify away from US Treasuries, could magnify this change in yields and debt service, necessitating even greater cuts to government spending. It also bears remembering that the central role played by Treasury yields as a benchmark for private borrowing rates means that private expenditure might also suffer. This would depress for tax receipts as well. The confluence of subdued growth, a slack jobs market and higher borrowing costs has the potential to put the US Federal Government in a particularly precarious position – the longer material reform is absent, the greater the likelihood of such an outcome. S&P’s overnight announcement may help to spur necessary action, but it seems unlikely to be of a scale necessary to head off the significant fiscal problems that loom over the horizon."
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