I'm not going to get into the issue here of tax cuts versus cutting spending. I think we should do both, whatever is necessary to balance the budget, but however you slice it, whether you think it tastes great or is less filling, the bottom line problem is the deficits and growing debt.
IMO, there are two significant costs to debt (not that these are the only costs). First is interest. The interest expense will exceed $400 billion for the first time ever this year, a little more than half of which relates to "hard" interest payments to debtholders and a little less relates to interest on intra-govt debt like debt owed to the pension (ie SS) trust funds. This annual expense represents a significant obligation of the Govt, and money that cannot be spent (or saved) on other matters, like rebuilding New Orleans twice every year, fighting a couple more wars, or funding *real* tax cuts, not the fake ones we have now that are just deferring current costs to future taxpayers through borrowing.
The other significant cost (or risk) is what the article was talking about -- the effects of squeezing the credit market.
When deficits took off in the 80s, this was the risk that I often read people worrying about. Growing debt, the US Govt taking a bigger and bigger demand of available credit, would send interest rates up and up, squeezing the ability of private companies and individuals to obtain credit.
But it never really happened -- instead interest rates fell. Part of this might be attributable to the fact deficits were brought under control in the 90s, but I think what also prevented it, and what analysists in the 80s didn't anticipate, was the huge global growth in the availability of credit. Even as US debt demands were shrinking, countries like Japan and in the Middle East and more recently China were developing huge pools of capital that they were willing to invest in the US, including US Govt securities (ie debt). The US has two major advantages -- the dollar is recognized as the truly global currency that is perceived to have value, and the US Govt is viewed as one of the most stable, safest places to invest in the world.
Nowdays, you hear a lot less about this kind of credit risk than you did in the late 80s, probably since the predicted higher interest rates never materialized, folks don't give it credence. But that is what this article is talking about, and I'm glad that folks are.
But the danger is still there -- even the global market for credit has some limit and there is some limit to US debt where lenders will perceive greater risk and demand higher interest rates to be willing to invest. China is currently the elephant in the room, holding about a trillion in US debt, last I saw.
The problem is that these factors could develop rapidly, and create significant increase in real interest rates which would both cause US Govt interest payments to rise rapidly and significantly increase the cost of capital which would hurt the economy, and by the time it happens, there isn't a lot to be done about it (without a lot of pain, at least) since it is difficult to pay down a big chunk of the debt without serious budgetary and social consequences. The longer the day of reckoning is put off, the greater the pain.
Is this happening now? Hard to say. China has made noises that there are limits as to how much more it is willing to lend the US. We have seen the Fed raise interest rates, though for raises that are different from the phenonema I'm talking about. On the other hand, long term market rates still are relatively low, suggesting we are not tapping out the credit market yet and there are still lenders out there willing to lend.
However you look at it, though, it is both an expensive (interest) and risky game our Govt is playing. And when you consider the social consequences of the known fact that the boomers will be retiring en masse over the next couple decades with their demand for SS and health care, piling on a huge amount of Govt debt is precisely the wrong (if not immoral) thing to do, and will guarantee a inter-generational war between boomers who will want there retirement benefits and Gen-x and beyond who won't want to pay the much higher tax rates that will be required to pay for those benefits and the massive debt the boomers are leaving them.
