Anxiety over the economy is likely to punish President Barack Obama's Democrats at November's midterm elections because of perceptions of big deficits caused by government spending and high unemployment. If these are only "perceptions of big deficits" I'd hate to see the real thing.
Republican Senator Judd Gregg warned of fiscal calamity. "Today's CBO outlook only underscores what we already know -- the current pace of U.S. spending is unaffordable and unsustainable and without a change in direction this country is headed for fiscal calamity," said Gregg, the senior Republican on the Senate Budget Committee.
As if to illustrate the severity of the economic challenge ahead, the CBO forecast was released as new data dealt another blow to the fragile U.S. economy, driving prices on U.S. government debt higher and yields lower.
The benchmark 10-year Treasury note yield fell to a 17-month low of 2.56 percent this week.
Concerns about the massive deficit, and the U.S. triple-A credit rating, are not expected to lift Treasury debt yields from current low levels any time soon.
"We think bond yields are going lower, mostly on revised growth expectations -- all the shops are revising down their forecasts for inflation and growth," said Sergey Bondarchuk, U.S. interest rate strategist with BNP Paribas in New York.