The long-term trends, if left unchallenged by our politicians, would make the problem bigger year by year. # There's very little chance that our political leaders will tackle any of our debt problems -- from the federal budget to the current-account deficit -- until the handwriting on the wall is written in letters of fire 6 feet tall. In this column I'm going to take a look at the way these deferred bills are putting the squeeze on all our futures and what you and I can do about it as investors and individuals. The Global Tease The period between 2010 and 2030 will see overseas investors gradually present their IOUs for payment. Right now, the world is awash in excess capital, largely the result of mindboggling savings rates in Asia. That makes it easy for the U.S. to fund its twin deficits by selling bonds, equities and assets to overseas investors. And borrowing this money is cheap. A 10-year U.S. Treasury bond yields just under 4.7% right now. That's near 20-year lows for yields, which averaged 6.4% from 1986 through 2005. Why should the global teaser rate go up for the U.S.? Two reasons: # Overseas investors are going to need their own money back to pay for their own old age. Japan is the biggest holder of U.S. Treasuries, and, demographically, it is the oldest country in the developed world. Europe isn't far behind. The U.S. is aging, too, but at a comparatively slower rate. The real demographic story, however, is taking place in China and India. By 2020, the median age of China's huge population will be higher than that of the U.S. India is further behind, but by 2050 the median age of its population will be 37.9 years, making the country as old as the U.S. is today. China and India are both going to get old before they get rich. Because of global demographics, we're looking at a world in transition from a period of surplus capital to a world of tight capital as aging populations go from savers to consumers of savings. Tighter capital means higher interest rates. # Overseas investors may lose faith in our intention to pay our debts. Sovereign nations saddled with too much debt have an option that's not available to the overstretched homeowner. Instead of declaring bankruptcy, they can just roll the printing presses and create money in order to inflate their way out of the debts. But overseas investors aren't likely to sit still as the value of the dollars they hold and the dollars they receive in interest are slashed as the presses roll. As countries such as Argentina have learned, once investors have decided that the government has lost all discipline, they will demand punitive interest rates. Short-term interest rates broke 100% in Argentina in 2002, for example. Once a country has forfeited the faith of the markets, it takes a long time to earn it back. In Brazil, now lauded for its fiscal responsibility, the equivalent of the U.S. federal funds rate was above 16% in December. Stealing From the Future Look at a recent bit of budget sleight of hand in Washington and see how much confidence you'd feel if you were a lender to the U.S. The Bush administration and the Republicans want to extend the tax cut on dividends and capital-gains investment that will otherwise expire at the end of 2008. Whether you think this is a good idea or not, you'll have to agree that it's expensive. The cost of the two-year extension proposed by the House of Representatives is $51 billion, according to the Center on Budget and Policy Priorities. That's a hard sell when, even by the government's accounting, the budget deficit is set to swell to $423 billion in fiscal 2006, a new record in dollar terms. But Congress knows how to fix the problem. It's called, "Shove it into what are called the 'out' years." Those are the years beyond the five-year period covered by the government's budget projections. So here's one idea currently in discussion between House and Senate committees: The extension of the dividend and capital-gains tax cut would be paid for by a measure to allow individuals to convert their current retirement accounts, which require you to pay taxes when you withdraw the money, into new retirement accounts that offer tax-free withdrawals. Investors would have to pay taxes at the time of the conversion, and that would produce a huge short-term boost to tax revenue. Of course, the government would lose all those future taxes on the withdrawals. And that just adds to a huge future deficit in the years when baby boomers start to retire, when spending on health care and Social Security are set to soar. The politicians who created these problems will be long gone by the time we have to pay the piper. But we're going to get stuck with the bill -- for the federal budget deficit that's being piled up in the out years, for the trade and current-account deficits, and for the consumer debt that's powering the consumer spending boom.