“The verdict is in,” says Britain’s Daily Telegraph. “The Fed’s emergency rate cuts in January have failed to halt the downward spiral towards a full-blown debt deflation.”

According to the paper: “Yields on two-year US Treasuries plummeted to 1.63% on Friday in a flight to safety, foretelling financial winter. The debt markets are freezing ever deeper, a full eight months into the crunch. Contagion is spreading into the safest pockets of the US credit universe.”

Meanwhile, US house prices continue to dive. The Case-Shiller index, which measures the value of the US residential housing market, dropped 9.1% year-on-year in December and 18% in the fourth quarter last year.

“Long-term Treasuries may no longer provide that safe haven for investors,” says Martin Hutchinson, ” and they actually may pose the danger of substantial capital losses. ”

“At some point, the Fed will have to increase its interest rates and whichever administration is in power will have to cut the federal budget deficit. Since it’s unlikely that politicians or the Fed will recognize this unpleasant necessity voluntarily, they will have to be forced into it. The way they get forced is through the Treasury market: prices drop sharply and the regular Treasury bond auctions suddenly find no subscribers, except at the short end. ”