For the past several weeks, investors have been obsessed by the continuing carnage in European bond markets. But a looming US deadline is about to remind the world that debt is not just a European issue.

The Super Committee, the 12-member group of US lawmakers that was given the task of identifying big US budget deficit cuts, faces a deadline next Wednesday. The bipartisan committee has until November 23, just before the Thanksgiving holiday, to identify at least $1.2 trillion in budget reductions over the next decade. The US Congress then has until December 23 to approve their recommendations. Failure on either score will trigger $1.2 trillion in automatic budget cuts over the next decade, beginning in January 2013, and evenly divided between domestic and defence programs.

At this stage, the prospects of the Super Committee reaching an agreement are bleak. As always, the stumbling blocks are taxes, and cuts to the country’s large entitlement programs such as Medicare, Medicaid and Social Security — the same issues that killed the chances of a compromise during July’s rancorous debate over the US debt ceiling.

Last week, the Republican members of the panel proposed a plan that would overhaul the US tax code, lowering tax rates but eliminating or limiting dozens of tax deductions. They estimated that this plan would raise $300 billion in additional tax revenue over the next decade. Democrats, however, rejected the proposal, pointing out that it would result in even more tax cuts for the wealthy.

For their part, Democrats are reluctant to accept steep cuts in entitlement programs, such as Medicare and Medicaid, in exchange for modest increases in tax revenues. At the same time, extremists in both parties have set to work, attacking even modest concessions that have leaked from the committee’s secret negotiations.

With the Super Committee struggling to reach a deal just days out from its November 23 deadline, a large bipartisan group of US lawmakers overnight urged the panel to “go big” and slice as much as $4 trillion off US government deficits over the next decade. In their view, the committee should recommend major cuts in entitlement programs, as well as large tax increases, in order make a serious dent in the US debt trajectory. Failure to do so, they warned, could shake world markets and further erode confidence in the US government.

But many commentators are more sanguine. They doubt that US borrowing costs will rise even if the US government shows that it is incapable of making tough decisions to bring its mounting public deficits under control. In fact, they point out that the controversy over the US debt ceiling actually sent US bond yields lower, because investors increasingly sought out the safety of US government bonds. Even now, US 10-year bonds are currently trading close to 2%, showing that there’s little investor anxiety. What’s more, they argue that China and Japan have little choice but to keep buying US government bonds in order to keep their own currencies from rising sharply, which would dent their exports.

But others are less optimistic. They argue that the big lesson that the US can draw from the European experience is that investors are often happy to finance ballooning public budget deficits for long periods of time. But there comes a point at which investors take fright, and when this happens markets can turn rapidly. At that time, the US could find itself confronted with a sharp increase in its interest rates, which would exacerbate its budget woes.

*This article first appeared on Business Spectator