You know what happened. Standard & Poor's issued a "negative" outlook for the US and affirmed the triple-A rating. Inflation is coming and the US is set for higher interest rates, increased oil costs, and higher taxes. Inflation is here and like a train just starting to leave the station, the steam needs to build. Expect the US to raise rates like the did in the 80s and expect further taxation from the government. Seeking Alpha played out the best scenario I have heard thus far, "If China raises the consumption share of GDP faster than investment declines, this will result in a reduction in China’s current account surplus. Clearly if China’s current account surplus drops, the amount of capital it exports must drop in tandem – since a rising share of consumption means a declining share of savings and so a declining excess of savings over investment which must be exported." If the Chinese CA surplus declines look for the Chinese to cut back on bond purchases and thus force the face values to re-calibrate to the new market equilibrium with this loss of demand.
US Yield Curve
US, Germany, & U.K. Prime Rate and US Dollar LIBOR Overnight
