The Treasury Curve puzzle

NY Fed Model: 1-in-125 Chance of 2012 Double-Dip Mark Perry watches this for us.

How can we have a Double Dip if the Treasury curve is still steep? The indicator assumes the Treasury curve is a proxy for the general aggregate yield curve. That may be the problem, the double dip comes from bankruptcy of Congress and is no longer a good proxy.
Likely what happens is Congress goes about current spending and budget cuts next year. Traders play that game putting Congress in a squeeze, Congress goes belly up.

Remember the Senate Goodie factory really limits the terms of trade for Congress. The minimum debt ceiling needed to completely goose the Goodie Factory has likely risen. Congress will spend most of its debt capacity by year's end.
Here is a chart that explains the Goodie Factory effect:

 From the Economics Help blog.  The difference between WW2 and today is that WW2 the debt peaked, then the economy adapted and drove it back down.  Today the debt has peaked and remained at the current high level.  Senate Goodies have long term and short term components.  In 1940 we really didn't have such an expanded Goodie Factory.