Yes, we have a major entitlement problem down the road (and health care is the largest part of it), but here and now we have a spending problem along with a credit problem.  We're junkies and unwilling to reform, to be blunt, and the world is coming to realize that we will continue to play them for patsies for as long as they'll allow it.

Worse, since Obama has declared that he feels perfectly free in rewriting statutes from his chair in the West Wing, the Chinese and others have to wonder - what if he simply decides to not pay foreign-owned T-bills?  Exactly what would the holders do about it? 

Yell? 

That worked real well for the Chrysler and GM bondholders, didn't it?

Were I China, sitting on some trillion dollars plus of Treasury bonds, I'd be nervous too.  In fact, I'd be shortening duration like a madman, laying off anything but the shortest end of the T-bill curve and hedging like crazy, all the while doing my damnedest not to get caught so as to not ignite a stampede and risk getting trampled.

Oh wait: They are.

Hmmm...

This week we will be treated to the US Government attempting to sell $100 billion in new Treasuries to finance its profligate spending habits. 

Bernanke, for his part, is on the cusp of losing control of the long end of the bond curve. If it gets away from him he will have only two choices: pull liquidity and allow the curve to spike higher, repeating almost exactly what happened in the 1930s, or ramp up his "monetization campaign" to meet the issuance, risking an immediate tender of the entire outstanding float, resulting in an even worse outcome - a choice between collapse of the government or an Argentina-style currency implosion followed by that same collapse.

My bet is that is if push comes to shove Bernanke will back off and swallow The Depression that inevitably must follow, because the alternative is that he may literally swing from a lamppost - if not at the hands of angry citizens once the government and rule of law have fallen then from Congress, who, if he goes "all in" ramping up the monetization and loses, will find themselves unable to fund the government's operations.