Let’s play a little game. Assume you run a small local bank. You’ve worked with Bob, a small local business owner for many years. You made a small loan to Bob to start his business, and several other times to help him expand.

All loans were paid on time with no drama — and you gave Bob very attractive interest rates on the loans as a really good customer.

But over the past few years, Bob’s business isn’t quite as profitable, and his debt load has continued to grow. He still is making his payment, but you’re getting a little worried about Bob’s ability to pay you back.

So, will you keep making new loans to Bob? And if so, will you continue to extend the low interest rates offered to your best customers? Or will you only reluctantly lend Bob money, and at much higher interest rates?  

Well, this story applies to all borrowers, even countries. The United States is the world’s largest borrower, accounting for a little more than 34% of the world’s total government debt.

Now, everyone knows that U.S. treasuries are considered the world’s safest investment, right?

Our nation’s debt is backed by the full faith and credit of the United States government. This means that the U.S. government promises to repay its debt using its ability to tax, borrow and print money.

So far, so good.

The authority to borrow on the full faith and credit of the United States is vested in Congress by the Constitution (Article 1, Section 8, Clause 2).

And that’s where the rub comes. It appears our congressional representatives have never seen a spending bill they don’t love, and approve.

So what if we don’t have enough tax money coming in. We’ll just borrow the money knowing investors around the world will buy our debt — and we can keep our constituents happy by giving them everything they would ever want.

Our budget deficit is projected to be nearly $2 trillion in 2025, and perhaps more than $20 trillion over the next 10 years.  

This is where Mark Twain’s quote, “It’s what you know for sure that just ain’t so, that can get you in trouble,” comes in.

Will bond investors around the world continue to eagerly gobble up our nation’s debt with our full faith and credit guarantee — or will they start to worry about our ability to pay them back like a Third World country?

This year has already started with a selloff across global government bond markets with Britain and France caught in the crosshairs. And who can forget Greece and Argentina?

The United States is clearly not there yet, but this problem is slowly sneaking up on us.

Will the bond vigilantes start to appear, demanding higher yields in return for taking on higher risk?

The term bond vigilantes was coined in the 1980s, referring to bond investors seeking to impose fiscal discipline on governments that seem unable to do so themselves by raising their borrowing costs.

It can also apply to monetary policy if the investors think central banks are failing to control inflation. Any of this sound familiar?

Citi Research noted “as debt levels rise, we have no way to predict danger thresholds or the amount of debt that is simply ‘too much.’ But it’s unwise for policymakers to experiment or test where these thresholds might be. In our view, the prudent path for fiscal policy is, at a minimum, to not push debt further upward from today’s elevated levels.”

But why should we “regular people” worry about this? Because it can hit you hard in your pocketbook.

Higher interest rates on our government debt will eventually have to result in potentially painful spending cuts and/or higher taxes so the government can make higher interest payments on our debt.

Higher interest rates on credit cards and mortgages will consume more of your budget. Higher borrowing costs for businesses will be passed on to you, the customer.

Maybe we will again see rampant inflation raising prices on everything you buy. Not a pretty picture no matter how you look at it.

So far, everyone seems to give lip service to the issue. At least a few members of Congress are meekly mentioning the deficit and saying we need to deal with it.

But when a spending bill hits the floor that includes a project for their constituents, the desire to get re-elected kicks in.

As Winston Churchill said, “I no longer listen to what people say, I just watch what they do.  Behavior never lies.”

Makes me think about the beginning of the final voyage of the Titanic — the world’s unsinkable ship. And we all know how well that ended.

Maybe time for all of us voters to demand some fiscal responsibility from our federal, state and local government officials. Or just party on, dudes!