In a remarkable year, we have seen financial bubbles burst throughout the world. It is, say the market gurus, a deleveraging of historic proportions, unwinding decades of overreliance on easy money.

But one bubble remains. It is the U.S. fiscal bubble. While other borrowers around the world are getting crushed by the sudden disappearance of credit, the U.S. Treasury is tapping bond markets at a once-unimaginable pace. On Nov. 3, Treasury announced it would have to raise $550 billion in the quarter ending Dec. 31. That is on top of the $530 billion it raised from July to September. More than $1 trillion in new debt. In six months.

It can't go on.

I know, many of you are saying, “Budget Cassandras are always predicting the coming debacle. And they are always wrong.”

But think about it. Washington has kept its fiscal head above water in recent years thanks only to a succession of special circumstances. First, a booming domestic stock market produced unexpectedly high revenues from capital gains taxes. Then, robust corporate earnings generated bigger-than-anticipated business tax revenues. At the same time, foreign lenders such as China and India, awash in dollars thanks to their booming exports to the U.S., soaked up Treasury bonds. All of this made it possible to pay for at least some of the profligate spending of the Bush years.

Today, sinking worldwide financial markets are keeping Treasuries afloat. Unwilling to put money anywhere else, investors have been swallowing negative real returns for the safety of short-term U.S. paper (for one awful day in September, they even accepted negative nominal returns—essentially paying Treasury to take their money). This won't last for long.

Neither will the good revenue fortune of the past two decades. Both stock prices and corporate profits are falling off the table, and tax revenues will surely follow. With U.S. consumers dialing back in the face of a slumping economy, exports to the U.S. also will plummet, dramatically reducing foreign demand for Treasuries.

In the long run, the story will be even worse. I won't recount the now-familiar tale of how run-away health care costs will push federal spending far beyond the limits of the current tax code. I'll let CBO Director Peter Orszag tell you. But even after the economy returns to its normal growth rate of roughly 3.3 percent, there is no possibility that, without profound structural changes in fiscal policy, we'll be able to finance the massive government spending we are promising. As we should have learned in recent months, living on leverage is exceedingly dangerous. It is no less true for government than for homeowners or banks.

Bob Rubin used to warn that while there was no way to know when markets would fall out of love with U.S. debt, they inevitably would. And when they did, the plunge would be fast and ugly. That is what has happened to most every other borrower on the planet over the past year, and it is naïve to think U.S. Treasuries will somehow be immune. It is this risk, and not the vicissitudes of today's slumping economy, that may prove to be Barack Obama's biggest challenge.