The debt load of the United States Government is set to increase by as much as two trillion dollars in the next year according to a report in the Washington Post. That debt will strain global resources as the United States Government will be seeking to rollover existing debt while issuing mountains of new debt. From the Washington Post:

For now, investors are frantically stuffing money into the relative safety of the U.S. Treasury, which has come to serve as the world’s mattress in troubled times. Interest rates on Treasury bills have plummeted to historic lows, with some short-term investors literally giving the government money for free.

But about 40 percent of the debt held by private investors will mature in a year or less, according to Treasury officials. When those loans come due, the Treasury will have to borrow more money to repay them, even as it launches perhaps the most aggressive expansion of U.S. debt in modern history.

With the government planning to roll over its short-term loans into more stable, long-term securities, experts say investors are likely to demand a greater return on their money, saddling taxpayers with huge new interest payments for years to come. Some analysts also worry that foreign investors, the largest U.S. creditors, may prove unable to absorb the skyrocketing debt, undermining confidence in the United States as the bedrock of the global financial system.

That is a lot of debt. I realize that, as Richard Nixon famously said, ““We are all Keynesians now”, and that government is and should be taking measures to stimulate the economy and protect some key sectors. But I assume that everyone agrees that there is some limit to what can be spent in this fashion?? Or am I wrong in that assumption? If there are limits what are they, and are we doing some damage to ourselves in pushing up against those limits? The overall debt of the U.S. Government stands at over $10 trillion.

As of yesterday, the debt stood at nearly $10.7 trillion, of which about $4.3 trillion is owed to other government institutions, such as the Social Security trust fund. Debt held by private investors totals nearly $6.4 trillion, or a little over 40 percent of gross domestic product.

According to the most recent figures, foreign investors held about $3 trillion in U.S. debt at the end of October. China, which in October replaced Japan as the United States’ largest creditor, has increased its holdings by 42 percent over the past year; Britain and the Caribbean banking countries more than doubled their holdings.

Some have raised alarm bells over the very big hole we are digging ourselves into.

Still, some analysts are concerned that the deepening global recession will force some of the largest U.S. creditors to divert cash to domestic needs, such as investing in their own banks and economies. Even if demand for U.S. debt keeps pace with supply, investors are likely to demand higher interest rates, these analysts said, driving up debt-service payments, which last year stood at $250 billion.

“When you accumulate this amount of debt that we’re moving into, it’s not a given that our foreign friends are going to continue on the path they’ve been on,” said G. William Hoagland, a longtime Republican budget analyst who now serves as vice president for public policy at the health insurer Cigna. “There’s going to come a time when we can’t even pay the interest on the money we’ve borrowed. That’s default.”

Many others dismiss such notions, and essentially say the borrowing spree can go on unabated.

Others say those fears are overblown. The market for U.S. Treasurys is by far the largest and most liquid bond market in the world, and big institutional investors have few other places to safely invest large sums of reserve cash.

Despite their growing domestic needs, “China and the oil countries are going to continue running large surpluses,” said C. Fred Bergsten, director of the Peterson Institute for International Economics. “They certainly will be using money elsewhere, but I don’t think that means they won’t give it to us.”

I find myself coming down on the alarmist side here. Old C. Fred above seems to think we should continue to hope for foreign investment. I agree that deficit spending now is required, but like traditional Keynesians expect that a corresponding period of stability would produce offsetting surpluses. But while we had some prosperity we still ran massive deficits, and totally failed to do what was necessary to deal with the looming Social Security and Medicare problems. What the political class has done is kick the can down the road, but that can is getting larger by the hour. From the Wall Street Journal:

The projected cash flow deficits in these two programs are staggering. For Social Security, the trustees estimate the 75-year burden on general revenues at $6.7 trillion. For Medicare the comparable burden on general revenues is $24.2 trillion, even after allowing the current transfers to grow with the economy. Thus the total burden these programs will impose on federal finances over the next 75 years is $31.9 trillion, more than six times the current outstanding federal debt. Looking beyond 75 years into the indefinite future, the combined long-run funding gap for Social Security and Medicare is $74.8 trillion in today’s dollars.

Members of Congress will not have to wait long to experience the practical effects of all of this. Until a few years ago, Social Security and Medicare were taking in more than they spent, on the whole. Thus they provided revenue for other federal programs. That situation is now reversed, and last year the combined deficits in the two programs claimed 5.3% of federal income tax revenues. In 15 years these two programs will require more than a fourth of income tax revenues: In other words, in just 15 years the federal government will have to stop spending one out of every four non-entitlement dollars in order to balance the budget and keep its promises to the elderly.

People made fun of Al Gore’s “lockbox” theory on Social Security, but a careful reading of those numbers shows you why Gore was absolutely correct. It would have forced the Federal Government to confront today the true deficit, and not take the politically expedient route of disguising it by “borrowing” funds from the Social Security Trust and putting in federal I.O.U.’s to replace the surplus Social Security cash.

That is my deficit rant for today. Nobody likes a skunk at a garden party, but at some point someone in Washington is going to have to utter the truth. We are on a course that at least has the potential for utter disaster. Our unwillingness to ever make a difficult economic decision in Washington or to say no to a powerful interest group has a lot to do with our current predicament. Can President Barack Obama say the magic word when the national interest requires it? Just say no! Read the Post story here.