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US stares at a $1 trillion deficit. How bad is that?

The number ballooned amid the banking bailout. Tax hikes may lie ahead.

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Mr. Walker is part of an effort called the Fiscal Wake-Up Tour, which is traveling around the nation meeting with editorial boards and holding town-hall gatherings to explain the budget situation. Next year, the group, sponsored by the Concord Coalition, will focus on solutions.

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Walker's focus is not just the national debt, which will grow to more than $10 trillion this year. Instead, he is looking at the national debt plus all the unfunded promises such as Social Security and Medicare, which have no future tax revenues to cover them. "At the end of the last fiscal year, that came to $53 trillion or about $550,000 per household," he says. "We may well have passed the point where the federal government's total financial hole exceeds the net worth of all Americans."

Walker estimates the US has about five years to show fiscal responsibility: "We will have to send a strong signal we can get our house in order."

That's not going to happen this fiscal year. Congress is expected to pile on new spending, such as an $80 billion reduction in taxes for individuals who would otherwise fall under the Alternative Minimum Tax (AMT) and $8 billion in hurricane Ike relief funds. So far, Congress has only appropriated $70 billion for the Iraq and Afghanistan effort, despite the fact that the wars have been costing about $150 billion per year. And revenues are likely to be considerably lower than anticipated.

"We have fewer people working, lower corporate profits, and losses in the markets," says Mr. Collender, who says one of the implications of the huge deficit will be that any of the plans by the presidential candidates for tax cuts or new spending programs will be put on hold.

"It also makes a tax increase in the future much more likely," he says. "No one is talking about raising taxes now. But by the end of 2009 or beginning of 2010, that could be a consideration, especially if there is a threat of higher interest rates."

Higher interest rates could be in the mix if some of the world's lenders were to start to diversify their assets.

"We don't look like such a great bet anymore," says Ms. MacGuineas, who worries that the next "bubble" will be government debt.

However, not everyone sees the picture in such bleak terms. In an analysis on Wednesday, Drew Matus, US economist for Merrill Lynch & Co., projects interest rates on 10-year US Treasury bonds falling below 3 percent in large part because inflation will fall more rapidly than expected. And he anticipates supply and demand for the securities – estimated to total $3.2 trillion over five years – will be about equal. "We put our emphasis on the fundamentals over the medium term and continue to be bullish on Treasuries," he writes.

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