It seems to me that the pieces are in place for debt reduction to be one of the major issues of President Obama's first term. The NYT reports that in 10 years, the government will have to pay $700 billion in interest on the debt, up from $200 billion this year. But the recession puts policy makers in a precarious spot. Like a guy with his feet on two ice sheets floating in opposite directions, the White House wants two things: (1) to keep up aggressive deficit spending to fill the gaps in private demand and (2) to keep its eye on a long term deficit reduction plan than it considers politically feasible.

Evan Bayh wants to get Idea #2 rolling, so he's floated the idea of a Budget Commission: a binding, bipartisan resolution that would (in his words) "force members of Congress to take -- or reject -- a single gulp of politically difficult medicine to treat the fiscal problems that are ailing our country." Matt Yglesias isn't impressed.

I agree with him that bipartisan commissions, like the base closing resolution, succeed when politicians are in broad agreement but need the commission to hammer out the ugly, and potentially unpopular, details so they can save face on otherwise embarrassing slights to their constituents. But I also think today's news offers a glimpse at how debt reduction could shift from fringey, wonky discussion of interest rates into a mainstream war over money.

The public is (I think prematurely) fretting about our 2009 deficit. But in the long-term, their concern is perfectly rational. Due to the government's crush on short-term Treasury bills, more than $1.6 trillion is owed on those bonds by April. What's more, interest rates will climb when the US demonstrates sustainable growth, at which point the Federal Reserve must start selling off its assets to shrink the money supply and avoid rapid inflation.

2010 will be a year about jobs, but it will also be a year of intense speculation about the Fed's interest rate. Nobody knows how long unemployment will stick around the 10 percent mark, and nobody quite knows how the bond market is going to react to a sustained economic recovery. All we know now is what we owe now, and we already can't afford the government we're fielding on the taxes we're paying.

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