Deficits, Debt and the Fate of the Dollar

The shivers that ran through the bond market after the budget deal were a signal the Fed ignores at our peril.

Jan. 9, 2013 7:01 p.m. ET

The year-end "fiscal cliff" tax deal sent shivers through the bond market, driving the price of 10-year Treasurys to the lowest level since April. There was a good reason. The stubborn resistance by President Barack Obama and Senate Majority Leader Harry Reid to spending cuts left no further doubts about their lack of interest in the nation's No. 1 economic problem, massive federal deficits.

The bond-market decline came despite the Federal Reserve's renewed program to gobble up yet more government debt....

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