Our biggest problem - get out your wallet

Pie chart is for background information about who holds our debt.

Very simply, here is a basic and irreducible problem. In 2010 the United States government will need to borrow $2,500,000,000,000. Note that this number doesn't even include the recent debt of $3 TRILLION that expires and needs to be re-sold this year, for a total of over $5 Trillion. There are three sources of money for that.

One is people and companies inside the United States. Last year they loaned the government $200 billion, or about 8% of what will be needed for the new debt this year.

The second source is people outside the U.S., who sold nearly as much as they bought in 2009, and in the second half of the year were net sellers: They were very unwilling to loan more, especially short-term debt, which is most of what will be needed in 2010. Several major lenders have publicly stated that they are not planning to lend more, and that the U.S. is being "reckless," "irresponsible," and "endangering the world economy." Hardly a way to get people to loan you money.

The third source is printing money, which is where a large part of the money came from in 2009. This is essentially a parlor trick of your left hand borrowing from your right hand. It is not a serious strategy one can do for long. It's like moving money from your wallet to your bank account and back again. Ridiculous.

So, if foreigners won't lend, and printing money heads us towards what they call the "death spiral" (and the Fed claims they won't do it much longer), that leaves people within the U.S. What do you think the chances are that people here will suddenly, starting January 1, start lending TWELVE TIMES as much to our government to make this come out ok? As they say, slim or none, and slim is out of town.

A failure to borrow enough money to run our government means either much higher interest rates paid and a plunge into depression, or bond auction failure, which means game over. Hmmm.