The debt ceiling may not be an issue, but ultimately America needs to address where it's going in terms of its long-term fiscal issues....

Half of the demand for treasuries comes from other countries central banks who use the dollar for their foreign currency reserves. Obviously the Yuan is not going to seriously hurt dollar hegemony in the short term, however, it is increasingly becoming a more valid option and obviously in light of what has happened to emerging market currencies so far this year, a lot of emerging markets and other central banks will eventually want to have a decent composition of Yuan in their foreign currency reserves portfolio in order to manage their exchange rate relative to the Yuan, which is increasingly becoming important to them. As this begins happening, you will see incrementally lower demand for the dollar as a reserve currency - not to a situation where it is no longer the reserve currency, but eventually to where it becomes part of a general basket of currencies that other central banks will want in their portfolios. And when this begins happening, suddenly the long term fiscal issues of the United States will increasingly become more of a concern to those who are suddenly making a choice among various reserve currency options, including the dollar. Simply put, it will at least somewhat erode the dollar's ability to sell itself as a reserve currency at levels which a divorced from the underlying fiscal realities behind the dollar. This will, at least incrementally, increase the cost of debt service for the US government as it begins to roll over its debt and issue new debt.

Obviously that won't happen right away, but it is a very real issue. And when that happens, the budgetary deficit issues suddenly become a much larger concern and one without any real clear answers.