As we said just the other day, the bond market seems to have awakened to the danger of the utterly irresponsible spending and borrowing plans of the Obama administration. Bloomberg:

investors from Beijing to Zurich are challenging a president’s attempts to revive the economy with record deficit spending. Fifteen years after forcing Bill Clinton to abandon his own stimulus plans, the so-called bond vigilantes are punishing Barack Obama for quadrupling the budget shortfall to $1.85 trillion. By driving up yields on U.S. debt…The 1.4-percentage-point rise in 10-year Treasury yields this year pushed interest rates on 30-year fixed mortgages to above 5 percent…

Edward Yardeni…“Ten trillion dollars over the next 10 years is just an indication that Washington is really out of control and that there is no fiscal discipline whatsoever”…

Bill Gross, the co-chief investment officer of Newport Beach, California-based Pacific Investment Management Co. and manager of the world’s largest bond fund, said all the cash flooding into the economy means inflation may accelerate to 3 percent to 4 percent…

The bond vigilantes are being led by international investors, who own about 51 percent of the $6.36 trillion in marketable Treasuries outstanding, up from 35 percent in 2000…“The vigilante group is different this time around,” said Mark MacQueen, a partner and money manager at Austin, Texas- based Sage Advisory Services Ltd., which oversees $7.5 billion. “It’s major foreign creditors. This whole idea that we need to spend our way out of our problems is being questioned.”…

Chinese Premier Wen Jiabao said in March that China was “worried” about its $767.9 billion investment…Treasury Secretary Timothy Geithner, who will travel to Beijing next week, will encourage China to boost domestic demand and maintain flexible markets…

“We have daily reminders from bond vigilantes like Bill Gross about the prospect of losing our AAA rating,” Federal Reserve Bank of Dallas President Richard Fisher said in Washington yesterday. “This cannot be allowed to happen.”

It is no wonder that Geithner, Pelosi, and others in the Obama administration are going to China so frequently these days. Foreign investors now own 51% of Treasury securities held by the public, and China alone owns half of those. China has said that it prefers that the dollar lose its place as a reserve currency if the US is going to be even more irresponsible in its finances. If China balks at buying US debt, Obama’s spending plans are DOA. What price will China exact to assist the Obama administration in its folly?

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