Economists agree. At a meeting of the American Economic Association, a panel of distinguished economists said that the fiscal situation "frightens all of us".

It undoubtedly also frightens Ben Bernanke, the Federal Reserve chairman, and at least some of his colleagues. They have been keeping interest rates close to zero to encourage borrowing and to make cheap funds available to banks to re-lend, so that they can build up their profits and capital bases. And they have been printing money with which to buy all those government IOUs.

The Fed says it knows how to cut back on all its stimulus policies, but is waiting until it is certain the economic recovery is sustainable, and the job market is on the mend. But if the federal government keeps spending as if tomorrow will never come, the Fed will have to make its move sooner rather than later. With no end in sight to huge deficits, with the rating agencies warning that America's triple-A rating is not a permanent gift, but an honour to be earned and re-earned, the Fed might, just might, feel obliged to tighten sooner and harder than it otherwise would. Once the economy is growing steadily - it seems likely to have racked up a 4% annualised growth rate in the final quarter of last year - the Fed might feel uncomfortable throwing the kerosene of cheap money onto the flames created by large deficits.

Voters have been disturbed by the deficits, but now that other agenda items are checked off, they will focus even more intently on the administration's spending. Not that the specific numbers, or the specific proposals, will be etched on the memories of any people other than full-time political geeks. Instead, most voters understand something more human than policy wonks' talk of pay- as-you-go plans to require new spending to be deficit neutral (unenforceable), or a line-item veto that allows the president to veto specific items in the budget (unattainable), or wasteful spending (inevitable). They don't like the idea of leaving a huge bill for their children and grandchildren to pay.

The president and Congress have no such compunction. Indeed, with the 85,000 drop in employment in December, Congress is pushing for a second stimulus package. Rather like Britain's politicians, the time horizon of our lawmakers is the next election, not the coming of age of their grandchildren. Which is why spending is for now, and deficit reduction for another day. That strategy just might backfire. The fragile recovery could come to an abrupt halt if the Fed is forced by a profligate government to tighten too soon. And with it the recovery, and the public lives of more than a few politicians.

David Fuller's view It will be interesting to see if Fed Chairman Ben Bernanke becomes more critical of deficit spending once he is formally reappointed as Chairman of the Federal Reserve for another four years, after expiry of his current term on 31st January 2010. It is just possible, but unlikely in my view. Bernanke has been a team player to date and was appointed to ensure that widespread deflation did not occur.

Meanwhile, the main risk to economic recovery will surface when long-dated interest rates back up, presumably as quantitative easing (QE) is phased out. However, every seasoned financial observer, including those at the Fed and US Treasury, will be aware of this risk. Therefore, will they blur the date at which QE supposedly ends? Will they extend it? Might they agree to no more than a partial phase-out, retaining the freedom to squeeze 'bond vigilantes' if rates rise too quickly?

My guess in response to these questions is, yes, one way or another. After all, the Fed has always been active in government bond markets and it will not want to leave yields looking exposed, like ducks in a shooting gallery. Whether the Fed and US Treasury can prevent rates from rising too quickly, possibly later this year, remains to be seen.

I will take my cue from the chart action, with particular interest in how higher yields affect stock markets. For me, a sustained move above 4% by US 10-Year Treasuries (historic, monthly & weekly) will be equivalent to a yellow caution light for equity investors. Above 5%, stock markets could be in dangerous territory, as we saw in the last cycle.

However every forecast for a precise repetition of a previous cycle assumes that all other factors remain equal, which of course, is never the case. Therefore stock markets, which remain mostly in consistent uptrends today, could weaken sooner or later relative to long-term rates.

Consequently I will continue to view US Treasury 10-Year yields as a lead indicator. Currently, they are still in a 'sweet spot'. However when they move higher I will monitor stock market indices, particularly for Wall Street, even more closely for signs of fatigue in the form of inconsistencies, not least a loss of upward momentum.

Lastly, an eventual break in 10-Year yields to the downside below 3%, which I do not expect, could also be bearish for equities by signalling weaker GDP growth and rising deflationary pressures.