That is what we face, in the words of former Clinton chief of staff Erskine Bowles and former senator Alan Simpson (R., Wyo.) — co-chairs of the presidential commission on deficit reduction — and we are running out of time to take the necessary steps to prevent it.

“This problem is going to happen. . . . we’re going to have to face up to, in maybe two years, maybe a little less, maybe a little more,” Bowles said in testimony before the Senate Budget Committee earlier this week.

“I think it will come before two years,” Simpson countered. “I think within a year, at the end of the year, if [the people who hold our debt] just thought you’re playing with fluff—5, 6, 7 percent of this hole—they’re going to say, ‘I want some money for my paper.’ And if there’s anything money guys love, it’s money. And money guys, when they start losing money, panic. And let me tell you they will. It won’t matter what the government does, they’ll say ‘I want my money, I’ve got a better place for it . . . ’ Just saying for me, it won’t be a year.”

But don’t take their word for it.

One of those “money guys” Simpson was referring to is Bill Gross, who runs the world’s biggest mutual fund at Pacific Investment Management Co. ($237 billion in holdings). Gross announced today that he has purged that fund of all United States Treasury notes. Apparently he doesn’t think buying any more U.S. debt — $15 trillion and counting — is such a great investment, and has found more reliable places to put his money:

“We’ve moved into Brazil and Mexico and moved money, yes, at the margin into Spain, which has a better balance sheet than the United States,” Gross told CNBC. [emphasis added]

Yes, Spain. The same country that even Paul Krugman admits is “on the edge of a debt crisis.”

Even Warren Buffett — Obama’s favorite rich guy — doesn’t have enough confidence in the president’s economic stewardship to invest in long-term U.S. bonds any more.

Jim Rogers, a global investment haunch who predicted the recent housing-market crash, told Bloomberg: “U.S. government bonds are not a safe haven . . . I cannot conceive of lending money to the U.S. government for 30 years.”

If fewer people are willing to lend us money, the more we’ll have to shell out in higher interest payments. And if bond buyers lose confidence in our ability to make good on that debt, things could get really ugly, really fast. Much more on this from Kevin Williamson here.

As Sen. Tom Coburn (R., Okla.), who served on the deficit commission and supported its recommendations, pointed out at a press conference this week, the United States has, historically, paid an average of 6 percent interest on its debt. It currently pays about 2 percent. If rates were to return simply to that historical average, it would involve an increase to our overall interest bill of $640 billion — to be paid immediately. “An impossible situation,” in Coburn’s words.

To avoid this kind of disaster scenario from becoming a reality, the International Monetary Fund (among others) warns that the United States must act quickly and decisively to reduce our long-term debt outlook. As Sen. Jeff Sessions (R., Ala.), ranking member on the Senate Budget Committee, argued on the Senate floor today, one of the best ways we could do that would be to approve a continuing resolution that cuts federal spending by a significant amount. As noted here, cutting federal spending by $61 billion over the seven month remaining in the current fiscal year — as called for in the House GOP spending bill, H.R. 1 — would reduce the deficit by $862 billion over the next decade.

Here Sessions makes an urgent appeal for meaningful spending cuts, calling the $61 billion included in the House bill a reasonable, if “minimal” amount (it’s about one percent of the federal budget). “If there’s a disagreement about where the reductions ought to occur, so be it, let’s work that out,” he says. But the final number should be close to that in order to assure the bond market that we are serious about fixing our fiscal mess. If not, “who’s going to buy our debt?” Sessions asks, urging lawmakers to “send a message to the Bill Gross’s of the world . . . that this country is willing to take action, even tough action to get off the unsustainable path we’re on.”

More here.