The economy is soaring, and now so is the deficit. That’s a bad combination.

But in plum times, deficits this big carry real risks. To start with, financing these deficits will require the government to borrow more money via the bond market. And to attract enough investors, they may have to pay higher interest rates, in the form of higher bond yields. But that only makes the budget situation even worse, forcing the government to pay back its debt at higher rates.

Private businesses would feel the squeeze, too. If the government starts paying higher interest on its bonds, companies will have to do the same for corporate bonds. That’ll make it costlier for them to raise money, reducing investment and even dampening overall productivity.

This was less of a problem during the Great Recession and its aftermath because bond yields were held down by the Federal Reserve. Among other things, the Fed engaged in a massive bond-purchasing enterprise called quantitative easing, which created a kind of backstop to ensure that the government could find buyers without having to raise payouts.

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