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if the United States succumbs to a fiscal crisis, as an increasing number of economic experts fear it may, then the entire balance of global economic power could shift.

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The deficit for the fiscal year 2009 came in at more than $1.4 trillion-about 11.2 percent of GDP, according to the Congressional Budget Office (CBO). That’s a bigger deficit than any seen in the past 60 years-only slightly larger in relative terms than the deficit in 1942. We are, it seems, having the fiscal policy of a world war, without the war.

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And that $1.4 trillion is just for starters. According to the CBO’s most recent projections, the federal deficit will decline from 11.2 percent of GDP this year to 9.6 percent in 2010, 6.1 percent in 2011, and 3.7 percent in 2012. After that it will stay above 3 percent for the foreseeable future. Meanwhile, in dollar terms, the total debt held by the public (excluding government agencies, but including foreigners) rises from $5.8 trillion in 2008 to $14.3 trillion in 2019-from 41 percent of GDP to 68 percent.

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No sweat, reply the Keynesians. We can easily finance $1 trillion a year of new government debt. Just look at the way Japan’s households and financial institutions funded the explosion of Japanese public debt (up to 200 percent of GDP) during the two "lost decades" of near-zero growth that began in 1990.

Unfortunately for this argument, the evidence to support it is lacking. American households were, in fact, net sellers of Treasuries in the second quarter of 2009, and on a massive scale. Purchases by mutual funds were modest ($142 billion), while purchases by pension funds and insurance companies were trivial ($12 billion and $10 billion, respectively). The key, therefore, becomes the banks. Currently, according to the Bridgewater hedge fund, U.S. banks’ asset allocation to government bonds is about 13 percent, which is relatively low by historical standards. If they raised that proportion back to where it was in the early 1990s, it’s conceivable they could absorb "about $250 billion a year of government bond purchases." But that’s a big "if." Data for October showed commercial banks selling Treasuries.

That just leaves two potential buyers : the Federal Reserve, which bought the bulk of Treasuries issued in the second quarter ; and foreigners, who bought $380 billion. Morgan Stanley’s analysts have crunched the numbers and concluded that, in the year ending June 2010, there could be a shortfall in demand on the order of $598 billion-about a third of projected new issuance.

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As the U.S. is unlikely to default on its debt, since it’s all in dollars, the key question, therefore, is whether we are going to see the Fed "printing money"-buying newly minted Treasuries in exchange for even more newly minted greenbacks-followed by the familiar story of rising prices and declining real-debt burdens. It’s a scenario many investors around the world fear. That is why they are selling dollars. That is why they are buying gold.

So here’s another scenario-which in many ways is worse than the inflation scenario. What happens is that we get a rise in the real interest rate, which is the actual interest rate minus inflation.

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This is how empires decline. It begins with a debt explosion. It ends with an inexorable reduction in the resources available for the Army, Navy, and Air Force.

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The precedents are certainly there. Habsburg Spain defaulted on all or part of its debt 14 times between 1557 and 1696 and also succumbed to inflation due to a surfeit of New World silver. Prerevolutionary France was spending 62 percent of royal revenue on debt service by 1788. The Ottoman Empire went the same way : interest payments and amortization rose from 15 percent of the budget in 1860 to 50 percent in 1875. And don’t forget the last great English-speaking empire. By the interwar years, interest payments were consuming 44 percent of the British budget, making it intensely difficult to rearm in the face of a new German threat.

Call it the fatal arithmetic of imperial decline. Without radical fiscal reform, it could apply to America next.