won't this cause large bond investors to stop rolling over their debt and / or liquidate large holdings because they no longer have as much safety in recovering their money in the case of a default? i know that there was talk of putting the government as the first to get repaid for putting up a loan now, cutting in front of all senior debts- if this new auto bailout gets passed with this as the standard i think it could end up causing more carnage in the bond markets...
The problem is this: Can you suggest a safer place for people to put the money? Obviously most investors have not come up with an answer to that or the Treasury would not have a negative yield on it. I can't imagine anyone with half a brain who thinks the hole we are digging for ourselves is a good thing, but relative to other countries we are still in good shape as long as we knock it off with the damn bailouts (big if). For example Europe a hell of a lot more to pay for in terms of social obligations then we do, and look at Dubai. Granted Abu Dhabi is not going to let anything happen there, and they have the oil wealth the play big bailout brother, but Dubai's debt is actually above 100% of GDP, ours is no place near that.