Treasury bond auctions may eventually fail because investors will see federal deficits as too unsustainable, Columbia finance professor warns

• Ballooning government deficits could lead to failed Treasury auction soon, a Columbia Business School professor said.
• Fears about mounting US debt have already worried investors, contributing to a sell-off in bonds.
• In a failed auction, the Fed would have to step in and buy US bonds, fanning inflation.

There are two levers that policymakers use to toggle the amount of money in the markets: monetary policy and fiscal policy. But what happens when one creates a problem for the other?

According to Columbia Business School professor Charles Calomiris, it’s a dilemma the US is facing right now. Soon enough, the federal deficit is going to swell to the point where no one will want to take on government-issued debt, and the only people who will save a failed Treasury auction will be the central bank.