US bonds fell yesterday. The feds borrowed more. The deficit for January was nearly $50 billion. The record for January was hit two years ago – $63 billion.

This puts the US on track for a record deficit of $1.5 trillion.

Wait a minute. This is the 5th year after the crisis began. You’d think federal finances would be getting back to normal. And normal means deficits of 2% or 3%, not 10%.

What gives? They cut taxes!

Associated Press has more of the details:

The Congressional Budget Office is projecting a record deficit of $1.5 trillion this budget year, which ends in September. The estimate was revised upward last month based on a tax-cut package brokered between the White House and Republicans that will add $400 billion to this year’s red ink.

That will mark the third consecutive year that the government’s deficit has been over $1 trillion, unprecedented imbalances that have been caused by the worst recession since the 1930s. That meant a sharp drop in government tax collections as millions of people lost their jobs while at the same time the government was boosting spending to stimulate the economy and stabilize the banking system.

Obama is facing GOP demands to slash billions from government programs as he prepares to unveil his budget for 2012 on Monday. That spending blueprint will contain a five-year freeze on many domestic government programs but GOP House members contend it is far too timid in slashing deficits. They are putting together a proposal for the current 2011 budget year that will trim spending by $32 billion, a downpayment on their pledge to roll total spending back to 2008 levels.

The feds are spending $1.50 for every dollar they collect in taxes. We have no comment on this kind of public finance program. Anything we could say, no matter how provocative or grotesque, is dwarfed by the facts.

But what is really puzzling is how they get away with it. Where are the bond vigilantes?

The funny thing is that if you believe the "recovery" story, you naturally think inflation will pick up and bonds will go down. You should be a vigilante. You should sell bonds. Bonds should go down.

If you don’t believe the recovery story, you can buy bonds without worrying. If the economy weakens, bonds should go up. Heck, the Fed will probably keep buying them, helping to keep prices high.

At least for a while. There’s the rub. There’s the itch. There’s the festering sore.

If the economy “recovers,” bonds go down.

If the economy doesn’t recover, the Feds buy bonds with dollars they created out of nowhere. Dollar holders everywhere – including those who own US Treasury bonds – should be alarmed. They should be vigilantes too.

Either way, sooner or later, bonds should go down.

The one thing that bothers us about this logic is the fact that so many people think it is true. Everyone now seems to expect stocks to rise and bonds to fall. What if it is the other way around?

Wouldn’t surprise us.

But what if you don’t like stocks or bonds? What if you think the whole damned capital structure is going to fall down? What if you think stocks will sink with the economy…and bonds will sink with the dollar?

Not necessarily in that order.

What do you do then?

You buy gold. You wait.

How long?

A year? Two years? Five years?

What’s the hurry?

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.