It's become an all-too-familiar ritual: The federal government maxes out the national credit card and the White House, rather than exercise greater fiscal prudence, simply asks Congress for a higher credit limit.
This bit of monetary kabuki was played out again last week as Treasury Secretary Henry M. Paulson Jr. told lawmakers that the government would hit its current debt ceiling of $8.96 trillion at the end of the month. He urged Congress to raise the country's credit limit as quickly as possible.
It's the fifth time a higher cap on federal borrowing has been required since President Bush took office in 2001.
Why do you care? Because the nation's debt load will almost certainly result in significantly higher taxes down the road, economists say, as well as a likelihood of higher interest rates due to the greater risk our profligate ways will pose to creditors.
Rising rates, in turn, would drive up annual interest payments on the nation's credit card, which would probably require even higher taxes or -- irony alert! -- increased borrowing.
It's not pretty. And with millions of baby boomers preparing to place unprecedented strain on entitlement programs, things are about to get much, much worse.
"Debt right now isn't out of control," said Brian Riedl, senior budget analyst at the conservative Heritage Foundation. "The bigger danger is that over the next 10, 20, 30 years, the debt could skyrocket because of Social Security and Medicare."
To put that in perspective, the national debt now represents about 38% of the overall economy, which is pretty much where it's been since the end of World War II. During the war, our debt load actually hit 100% of gross domestic product.
According to Riedl's calculations, the debt-to-GDP ratio could climb as high as 300% over the next 40 years unless steps are taken to reverse the trend. In other words, we'd owe three times as much as all our goods and services are worth in a single year.
"Suddenly you're Zimbabwe," Riedl said.
The national debt represents an accumulation of the annual budget deficits that have become an all-too-common fact of life in Washington. The Bush administration is forecasting a reduced shortfall of $205 billion this year. What that actually means is that the national debt will grow by $205 billion.
The country's debt burden was $5.7 trillion when Bush took office. Thanks primarily to the wars in Iraq and Afghanistan, and nearly $2 trillion in tax cuts, the debt has risen about 58% over the last six years.
Meanwhile, spending on Medicare is forecast to grow by 14% this year after increasing 12% last year. Social Security costs are growing by about 6% a year, and combined funding for Medicaid and the State Children's Health Insurance Program is growing by about 9% annually.
"With the three biggest entitlement programs growing by 6% to 14% a year, there's no way we can make the budget deficit keep declining," Riedl said. "Deficits will grow, and debt will grow."
What's needed, he said, is entitlement reform that will keep costs in check. This probably will be achieved through higher taxes, reduced benefits or both.
"What scares me," Riedl said, "is that if lawmakers can't accept the political pain of today's reforms, how will they accept the far more painful reforms that will have to be made in the future?"
UCLA economist Edward Leamer was equally troubled by the lack of urgency among political leaders when it comes to reining in entitlement costs and runaway debt. I asked if he saw any reason for hope.
"None whatsoever," Leamer answered.
"It's a huge problem," he said. "We're getting older as a nation and we're not preparing for it. There are a lot of Americans who are 40 or 50 years old who are relying on the federal government to take care of them. The reality is that we won't be able to do that."
Meanwhile, we're increasingly relying on foreign powers to keep us afloat. About half of the government's debt is to itself, such as emptying the Social Security trust fund and leaving an IOU for future generations.
The other half is in the form of publicly offered U.S. Treasuries. Of this amount, we've borrowed about $611 billion from Japan and $408 billion from China. Other major creditors include oil-exporting nations like Venezuela, Iran, Iraq, Kuwait, Saudi Arabia, the United Arab Emirates and Libya.
You can only wonder how our growing indebtedness will affect foreign policy.
I wrote last week about the danger to consumers of going too deep into debt (which you can find at latimes.com /lazarus). But compared with the federal government, most of us are models of fiscal probity.
"The thing about debt is that you have to pay it back and you have to pay interest on it," said Riedl at the Heritage Foundation. "Every year that we wait to address this issue, the cost will go up."
At a news conference last week, Bush was asked about the state of the economy and whether there was a risk of recession.
"You need to talk to economists," he replied. "I think I got a B in Econ 101. I got an A, however, in keeping taxes low, and being fiscally responsible with the people's money."
A transcript shows Bush got grades of 71 and 72 in economics as a college student. That corresponds with a C-minus.
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