A funny thing happened when the sovereign debt menace began stalking the weak siblings of Europe.
The U.S. dollar rose.
The reason, of course, is that the fiscal troubles facing Greece and Portugal are really all of Europe's problem. It's all for one, and one for all in the euro zone. So the euro takes a hit.
The Financial Times reported that figures from the Chicago Mercantile Exchange show that traders and hedge funds have amassed bets of roughly $8-billion (U.S.) against the euro - the largest-ever short position in the currency.
And when the euro goes down, other currencies rise by default, particularly the U.S. dollar - the world's reserve currency.
But economists worry about the fickle nature of these bond vigilantes now targeting Europe.
It might not be long before the focus would shift to other countries with large and rising debts, most notably the United States. So the dollar's ascent could prove very short-lived.
New York University economist Nouriel Roubini, who led most of his peers in recognizing the gravity of the global financial crisis, has now laid out a troubling scenario in which investors will start applying pressure to the bonds that the U.S. depends on to finance its swelling deficit and debt.
"Today the trouble is in Greece and the euro zone. Tomorrow it could be Ireland, the U.K. or Germany, or the U.S. or Japan," he told Bloomberg Television on the weekend.
Mr. Roubini doesn't think the threat is imminent. But he is convinced it's inevitable that the focus will shift to the United States, perhaps as early as next year.
"Eventually the bond market vigilantes will wake up, even to the U.S," he said.
Mr. Roubini is particularly worried about the threat of political paralysis next year in the United States. Wall Street typically thrives during periods of divided government, when Democrats and Republicans share control of the White House and Congress. That's based on the cynical notion that government can do no harm if it can't agree on anything.
That might be good thing when the country isn't facing some tough decisions. But not now, according to Mr. Roubini. He predicted that if the Republicans seize control of the House of Representatives in next November's midterm congressional elections, it will paralyze the U.S. government and delay any serious effort to deal with the deficit, which is on course to hit nearly $1.6-trillion (U.S.) under Barack Obama's 2010 budget.
The answer to the U.S. fiscal challenge is mathematically simple, but politically problematic. The country must gradually raise taxes and make sharp spending cuts, particularly to the cherished programs that are most responsible for rising costs - Medicare, Medicaid and Social Security.
It is a challenge that Canada tackled and largely resolved in the 1990s.
Mr. Roubini is predicting a political impasse in the United States.
With control of Congress divided, Republicans will veto any tax increases, and the Democrats will likewise resist any spending cuts, particularly to so-called "entitlements," such as Social Security. And outside of entitlements and interest payments, any cuts would simply nibble away at the problem.
"That implies bigger government, for longer," Mr. Roubini lamented. "Eventually, there is a train wreck."
And time isn't necessarily on the side of the United States.
Everyone who looks at the state of U.S. finances agrees that it's unsustainable. The question is when that reality sinks in. When is the tipping point?
Unlike Mr. Roubini, who frets about the politics. Goldman Sachs economist Ed McKelvey is preoccupied with the math. He's been tracking the U.S. primary deficit, or the annual budget shortfall after eliminating interest payments. Keep the primary deficit near zero - as a percentage of the overall economy - and the debt is manageable, Mr. McKelvey argued.
Unfortunately, that's not what's happening. This year, the primary deficit is likely to equal 10 per cent of gross domestic product, a post-Second World War high. The recession has decimated tax revenue and forced the government to dramatically increase spending.
Even after the recession, the future doesn't look much better. Mr. McKelvey can't envision a scenario with anything less than a primary deficit of less than 2 per cent of GDP over the next decade.
To change the forecast, the United States must change its ways, and take a serious run at the deficit.
If it doesn't, the debt threat could soon be headed to a market near you.