Americans are 'reflating' their way out of the debt crisis, unlike Europe

[Elmore Furth]

Policy-makers have so far relied more on the easier path of reflating domestic demand via monetary policy easing and fiscal expansion. So does the piper eventually have to be paid? Will there be another crash in several years? Quantitative easing has the risk of reinflating a stock market bubble.

U.S. Treasuries prices plunged on Tuesday and yields surged after President Obama proposed a deal to extend tax cuts that would support economic growth but raise national debt levels in the longer term.

"In the short run this is good news, but two or three years down the road foreign buyers of U.S. Treasuries may start to balk," said David Carter, chief investment officer at Lenox Advisers in New York.

"It's becoming increasingly clear the U.S. Is taking a very different approach to the Europeans in dealing with their debt overhang ... they're reflating their way out of it and the Europeans are going the opposite way," said Grant Turley, strategist at ANZ.

U.S. Bond Selloff Continues and Lifts Dollar