Last week’s budget deal in Washington, D.C., which prevented yet another government shutdown, confronts Americans with a grim new reality: trillion-dollar deficits as far as the eye can see and federal debt that, even in percentage terms, could surpass the highest in U.S. history.

This, I believe, has been a big contributor to the sharp run-up in yields on the 10-year Treasury note TMUBMUSD10Y, 0.701% since the beginning of the year, which in turn has rocked stock markets globally, pushing the Dow Jones Industrial Average DJIA, -0.87% and S&P 500 SPX, -1.11% into a full 10% correction.

But investors in both the stock and bond markets have yet to grasp the longer-term implications of mind-boggling deficits and an onerous, permanent debt burden. It’s no longer a question of “whether” the massive debt will start to squeeze the economy; the only issue is when, and how we’re going to manage it.

Ironically—and many commentators already have pointed this out—this comes when Republicans control the White House and both houses of Congress.

The same people who came to power railing against the debt built up under a Democratic administration—including our sitting president, who on the campaign trail repeatedly blamed the nation’s economic woes on the $9 trillion President Obama added all by himself to the national debt (although every penny had to be allocated by a mostly Republican Congress)—are now enthusiastically digging us deeper into the fiscal ditch.

Last week’s spending bill was just the lime on the margarita glass. It authorized $320 billion in net new military and domestic spending over the next 10 years, essentially ending the spending caps put into place under the Budget Control Act of 2011. For that, it delayed a government shutdown for two years, well beyond the be-all-and-end-all midterm elections.

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That comes on the heels of the tax cut Republicans tout as their crowning achievement. That law, the nonpartisan Committee for a Responsible Federal Budget (CRFB) estimates, would add $1.5 trillion to the national debt over the next decade. CRFB projects the tax cuts and new spending spree would push our annual deficit to $1.2 trillion in fiscal 2019, which begins in October.

Furthermore, given Washington’s penchant to make “temporary” spending permanent, CRFB projects the tax cuts and budget deal will result in $2 trillion-plus annual deficits by 2027. That same year, federal debt owned by the public could reach 109% of GDP, from around 75% now. That would be higher than the previous peak at the end of World War II.

It also would reverse years of real progress. A growing economy and spending constraints under the Budget Control Act (the dreaded “sequester”), which President Obama signed to end the debt-ceiling crisis of 2011, caused the annual deficit to plunge by two-thirds, from $1.4 trillion in fiscal 2009 to $439 billion in fiscal 2015.

Since then, Congress has been trying to wiggle out of the sequester’s restrictions, and the deficit has edged up, but the latest tax cuts and spending bills have thrown all restraint out the window.

Now under two successive Republican presidents (George W. Bush and Donald J. Trump), a GOP-run Congress ballooned the debt and deficits, with several big tax cuts and an estimated $5 trillion in total spending on losing wars in Iraq and Afghanistan. (Obama and the Democrats, whom we know are fiscally responsible, dug us deeper in the hole with the stimulus and other spending bills during and after the Great Recession, as well as continuing Bush-era policies.)

So, now, we’re faced with gigantic deficits and debt eight years into an economic recovery. What will happen when the next recession hits and tax receipts plummet? Will rates have to rise to get investors to buy Treasurys to finance the U.S. government, even as the economy sinks? Will the higher interest costs put the country even deeper in the hole? And what about Medicare and Social Security, which already have serious long-term funding issues? That’s likely to set off an epic political battle that makes our current divisions look like peace and harmony.

How will investors react to that? Not well. Once it sinks in that our debt problems are here to stay, the rumblings of the past couple of weeks will be only the beginning.

Howard R. Gold is a MarketWatch columnist and founder and editor of GoldenEgg Investing, which offers exclusive market commentary and simple, low-cost, low-risk retirement investing plans. Follow him on Twitter @howardrgold.

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