WASHINGTON - With President-elect Barack Obama and congressional Democrats considering a massive spending package aimed at pulling the nation out of recession, the national debt is projected to jump by as much as $2 trillion this year, an unprecedented increase that could test the world's appetite for financing US government spending.

For now, investors are frantically stuffing money into the relative safety of the US Treasury, which has come to serve as the world's mattress in troubled times. Interest rates on Treasury bills have plummeted to historic lows, with some short-term investors literally giving the government money for free.

But about 40 percent of the debt held by private investors will mature in a year or less, according to Treasury officials. When those loans come due, the Treasury will have to borrow more money to repay them.

With the government planning to roll over its short-term loans into more stable, long-term securities, analysts say investors are likely to demand a greater return on their money, saddling taxpayers with huge new interest payments for years to come.

Some analysts also worry that foreign investors, the largest US creditors, may prove unable to absorb the skyrocketing debt, undermining confidence in the United States as the bedrock of the global financial system.

After the nation slipped into recession in the wake of a housing foreclosure crisis, Washington approved $168 billion in spending to spur economic activity, $700 billion to prevent the collapse of the US financial system, and multibillion-dollar bailouts for a variety of financial institutions, including insurer American International Group and mortgage financiers Fannie Mae and Freddie Mac .

Now, Washington is debating as much as $850 billion in new federal spending, as well as tax cuts, to stimulate the economy.

WASHINGTON POST

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