Not a pretty picture: with global debt soaring, the endgame of today's recession will not be pretty.

• Author: Rogoff, Kenneth

No one yet has any real idea about when the global financial crisis will end, but one thing is certain: government budget deficits are headed into the stratosphere. Investors in the coming years will need to be persuaded to hold mountains of new debt.

Although governments may try to cram public debt down the throats of local savers (by using, for example, their rising influence over banks to force them to hold a disproportionate quantity of government paper), they will eventually find themselves having to pay much higher interest rates as well. Within a couple years, interest rates on long-term U.S. Treasury notes could easily rise 3-4 percent, with interest rates on other governments' paper rising as much, or more.

Interest rates will rise to compensate investors both for having to accept a larger share of government bonds in their portfolio and for an increasing risk that governments will be tempted to inflate away the value of their debts, or even default.

In research that Carmen Reinhart and I have done on the history of financial crises, we find that public debt typically doubles, even adjusting for inflation, in the three years following a crisis. Many nations, large and small, are now well on the way to meeting this projection.

China's government has clearly indicated that it will use any means necessary to backstop growth in the face of a free fall in exports. The Chinese have $2 trillion in hard currency reserves to back up their promise. President Barack Obama's new budget calls for a stunning $1.75 trillion deficit in the United States, a multiple of the previous record. Even those countries that are not actively engaged in a fiscal orgy are seeing their surpluses collapse and their deficits soar, mainly in the face of falling tax revenues.

Indeed, few governments have submitted remotely realistic budget projections, typically relying on overly rosy economic scenarios. Unfortunately, in 2009, the global economy will not be a bed of roses. Incomes in the United States and euro area both appear to have declined at an annualized rate of roughly 6 percent in the fourth quarter of 2008; Japan's GDP fell at perhaps twice that rate.

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China's claim that its GDP grew at a 6 percent rate, during the end of last year, is suspect. Exports have collapsed throughout Asia, including Korea, Japan, and Singapore. Arguably India, and to a lesser extent Brazil, have been holding out a bit better. But few emerging markets have...