A family that spends more than it earns year after year is headed for trouble. Mom and Dad will run up their credit cards, then borrow away their home equity and hock the family silver. Next comes bankruptcy.

The economy of nations works very differently from that of families. But the basic lesson is the same: A country that spends much more than it brings in year after year is risking serious pain.

The United States is doing precisely that now. We've been running a trade deficit for two decades - buying more from foreigners than we sell to them. But the deficit has gotten much worse in recent years, and it hit a monumental $631 billion last year. That equals 5.4 percent of all that America produces.

In effect, foreigners are shipping us valuable goods and we're sending them little green pieces of paper, or their electronic equivalent. For now, they're using many of those dollars to buy U.S. assets: stocks, factories, real estate and lots of American debt.

In effect, America is hocking the family silver. Those foreign purchases are a claim on American labor, profits and taxes in the future. That's not a pleasant thought.

The situation is made worse by our ballooning federal budget deficit. The Congressional Budget Office expects it to hit a record $448 billion this year, up 9 percent from last year. Since President George W. Bush took office, federal debt has been growing much faster than the economy that must service it.

Asian nations now are among the top buyers of U.S. Treasury debt. So, when you write your check to Uncle Sam on April 15, think of it as paying interest to China. After all, government debt must be repaid with interest through Americans' taxes.

In effect, we're running America on the "buy now, pay later" plan. We're extracting a sort of reverse inheritance from our children. We'll spend their money now; they'll pay our debt later.

The Bush administration's tax cuts account for about half the federal budget deficit. Those cuts were heavily tilted toward the rich, through cuts in upper tax brackets and on dividends and capital gains. The Bush theory holds that that such cuts encourage wealthy people to invest, creating jobs. Instead, Uncle Sam is borrowing back that tax-cut money to fund the deficit.

So, any investment oomph from tax cuts goes poof. Worse, the government is competing against private industry for capital. Over the long term, that tends to drive interest rates up, slow the economy and cost jobs.

Normally, big foreign trade deficits have an automatic correction mechanism. The debtor country ships so much money abroad that the price of its currency falls. That slows the flow of imports, while making a country's exports cheaper. Gradually, the trade deficit shrinks.

That took a while to happen in America, but it's under way now. The dollar has dropped 15 percent against a mix of major currencies since 2002. We are now seeing the effect in terms of rising industrial production in the United States. But the dollar's drop has been uneven. It's down heavily against the euro, less against the Japanese yen and not at all against the Chinese yuan. The Chinese account for a quarter of our trade imbalance. They, like some smaller Asian nations, peg their currencies to the dollar at an artificially cheap level. This keeps Chinese factories humming at the expense of America, and there's little we can do about it except complain.

A gentle decline for the dollar helps the United States. The danger here is that the decline will become a rout. If foreign investors lose confidence, they'll bail rapidly out of dollar-denominated assets. Down goes the stock market while up goes interest rates and inflation. Recession, here we come.

Such unpleasantness is possible but not probable. After all, the American economy is still growing faster than Europe's, making it a better investment choice for foreigners. And Asian investors have been buying lots of dollars to keep their own currencies from rising.

In the long run, however, the United States will have to control its spending to avoid the painful consequences of megadebt. The United Nations recently warned that America's twin deficits are throwing the entire world's economy off balance. It echoes similar warnings from the International Monetary Fund.

We should start with the federal deficit, using the same formula that worked in the 1990s. Back then, some moderate tax increases and strict federal spending limits set the stage for solvency. That restraint combined with a booming economy to create the first budget surpluses in three decades.

That won't happen under the Bush administration, which combines tax-phobia with a reckless attitude toward federal spending and debt. Bush's mistake in Iraq will cost us nearly $80 billion more this year, and he's toying with the idea of adding $1 trillion to $2 trillion in federal debt in order to privatize Social Security.

That way lies penury. Hope lies in the U.S. Senate, where moderate members from both parties see the danger. They should put aside party loyalty and insist on fiscal sanity.

- St. Louis Post-Dispatch