U.S. Deficits Stir Financing Worries

From Businessweek.com

Rates for long-term Treasuries are rising, which could drive up both mortgage rates and business borrowing costs. Could stagflation result?

The federal government is being forced to greatly expand its sales of Treasury bills, notes, and bonds to cover a deficit that is projected to soar this year to eye-popping levels. So far, the new debt has been selling at low interest rates because investors prefer the safety of Treasury securities in uncertain times. But what would happen if that changed?

If China and other foreign investors suddenly stopped buying U.S. debt, the cost of borrowing for consumers and businesses could rise—and the value of the dollar could fall, raising the threat of inflation.

Chances of that outcome still remain remote, but analysts worry about what might happen if Congress and the Obama Administration don't do a better job of curbing deficit spending. Here are questions and answers examining the links between the government's borrowing needs and the economy.