The blue line tells me that the core functions of Congress are threatened when interest payments exceed 3% of the economy.
The red line is the interest rate Congress pays, and it cannot get any lower as foreign investors withdraw.
Hence, the finance community knows that a minor recession elicits another round of QE, else Congress stalls. Being at the edge, as we are, means Congress is frozen, it will not change anything that threatens huge interest charges in the budget.
What's with foreign investors?
They are separated from their gains by one trade book uncertainty in the FX markets. The uncertainty is large and quantized and bound. Congress has a corridor, and a very long can kick. The ten year is limited to about 2.1% at the low end and 2.5% on the upper, or 40 basis points.
Inflation is a Congress killer
In an environment where 15% of GDP is being rolled over in treasuries each year then we have a highly liquid market and very responsive to inflation. Congress sees the interest charges from inflation way before it sees any tax gains from it. The Fed is in no hurry to suddenly revert to another QE, another QE and we are Japan. But the CBO has debt to GDP climbing. There is no fixed point ahead, the betting distribution is incomplete, bit error unbound, coordination failure looms, maybe a sudden dollar crash!!
Or, we could kick the 85 yarder.
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