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Early warnings signs of this scenario include surging government bond yields, a slumping U.S. dollar, and the fading of the bear market rally in U.S. stocks.

Optimists hope that a fragile two-month rally in world stock markets, a rise in U.S. Treasury yields from record lows during the depths of the crisis in late 2008, and some less scary economic data all signal that a recovery is around the corner.

But gloomy analysts insist that thinking is delusional.

Once Credit Crisis Version 2.0 ramps up, foreign investors may punish the U.S. government for borrowing trillions of dollars too much by refusing to buy its debt until bond prices plunge to much cheaper levels.

The telling harbinger is benchmark Treasury note yields’ surge to six-month highs around 3.75 percent this week, as investors began to balk at the record U.S. government borrowing requirement this year.

The U.S. Treasury plans to sell about $2 trillion in new debt this year to fund a $1.8 trillion fiscal deficit.

Heavy selling of U.S. dollar-denominated assets could trigger a full-blown currency crisis and usher in surging inflation, forcing mortgage rates and corporate bond yields up, undermining any rebound in economic activity.

“The financial crisis is a downward spiral with two twists,” said George Feiger, chief executive of Contango Capital Advisors in Berkeley, California.

First came the banking crisis and a huge contraction of credit, starting in mid-2007 which resulted in the stock market panic of 2008 which triggered the deepest U.S. recession in at least two decades.

“Once you have got a recession you have good old-fashioned credit losses,” Feiger said. “The second leg is now the consequences of the massive recession and it is just now working its way out,” he said.

Investors, many of them foreigners who own a large chunk of the U.S. Treasury market, are steadily demanding higher yields.

The price of the historic rescues of banks, insurers, manufacturers, and securities markets, to prevent a complete collapse during the worst financial crisis since the Great Depression, has meant a record U.S. government borrowing requirement.

But by issuing so much debt, the United States risks repulsing a critical buyer: foreign central banks, who own more than a quarter of marketable U.S. Treasuries. China recently overtook Japan as the biggest such buyer.

“We are getting into that stage which I call ‘the markets revenge'”, said Martin Weiss, president of Weiss Research Inc. in Jupiter, Florida.

Weiss, known for his especially pessimistic views on the banking system and economy, recently published a book entitled: “The Ultimate Depression Survival Guide”.

“The market attacked anyone who had the toxic assets,” he said.

Now, foreign investors’ primary target is the U.S. government because it has bought many of the tarnished securities from banks and some of the failing institutions itself, but the selloff will soon spread to all U.S. dollar-denominated assets, Weiss expects.

Selling could push up the 10-year Treasury note’s yield to about 6.0 percent Weiss warns. For now, he urges investors to stash much of their savings in short term Treasury bills, which carry minimal interest rate risk.

Foreign investors are running out of patience with the U.S. government’s debt issuance, he argued.

“What happened at the end of this month is the beginning of the end of that goodwill period,” Weiss said. “There could be a major near-term selloff in the dollar.”

This month, the euro has gained nearly 7.0 percent against the U.S. dollar. Meanwhile, the benchmark ten-year U.S. Treasury note’s yield has surged to six-month highs around 3.75 percent, nearly doubling from its lowest level in 50 years of 2.04 percent seen last December.

Ultimately, corporate bond yields, although still at very wide yield spreads of more than four percentage points above Treasuries according to Merrill Lynch data, will also spike again, Weiss warned. The S&P 500 stock index may fall to 500 points in this next phase of the crisis he added, down from 911 points early on Friday, he said.

On the other hand, many economists reckon the U.S. government and Federal Reserve have averted a rerun of the Great Depression by swiftly orchestrating financial rescues and monetary and fiscal stimulus to offset sagging consumer spending.

Yet even as the U.S. economy and banking system struggle to recover from two years of turmoil, Europe’s banks are even more debilitated, raising the threat of a second global systemic crisis spreading back across the Atlantic to the United States, some analysts fear.

The report highlighted that even as the government and major banks have scrambled to deal with the impaired securities the banks own, the institutions have been plagued by an unprecedented volume of old-fashioned loans going bad.

Of the entire book of loans and leases at all banks — totaling $7.7 trillion at the end of March — 7.75 percent were showing some sign of distress, the F.D.I.C. reported. That was up from 6.9 percent at the end of 2008 and from 4.1 percent a year earlier. It also exceeded the previous high of 7.26 percent set in 1990 and 1991, during the last crisis in American banking.

The F.D.I.C. has been collecting the figures since 1984.

Virtually the only encouraging news in the report was that the banks’ loan portfolio might be worsening more slowly than it was. While the increase of 3.65 percentage points in a year is the highest ever, the quarterly rise was smaller than in the fourth quarter of last year.

The figures, as shown in the accompanying charts, include loans that are more than 30 days behind in payments, a category that will include some loans that catch up and become current. But the percentage that are at least 90 days overdue, or on which the bank has stopped accruing interest or written off, is also higher than at any time since 1984.

As recently as mid-2006, the proportion of troubled loans was at a historic low, and bank regulators were confident that the institutions were well capitalized and could survive any likely economic downturn. They were wrong, it turned out.

This time it’s different because the Congressional Budget Office projects Obama’s spending plan will expand the deficit this year to about four times the previous record, and cause a $1.38 trillion shortfall in fiscal 2010. The U.S. will need to raise $3.25 trillion this year to finance its objectives, up from less than $1 trillion in 2008, according to Goldman Sachs Group Inc., one of 16 primary dealers of U.S. government securities that are obligated to bid at Treasury auctions.

“The deficit and funding the deficit has become front and center,” said Jim Bianco, president of Bianco Research LLC in Chicago. “The Fed is going to have to walk a fine line here and has to continue with a policy of printing money to buy Treasuries while at the same time convince the market that this isn’t going to end in tears with fits of inflation.”

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The bond vigilantes are being led by international investors, who own about 51 percent of the $6.36 trillion in marketable Treasuries outstanding, up from 35 percent in 2000, according to data compiled by the Treasury.

New Group

“We have a choice. We can remain the world’s leading importer of oil, or we can become the world’s leading exporter of clean energy,” Obama said, according to a statement from the Department of Energy (DOE).

Obama made the announcement in front of solar panels on the outskirts of Las Vegas, Nevada, at Nellis Air Force Base, home to the country’s largest solar photovoltaic system. The 72,000-panel, 14-megawatt array provides a quarter of the electricity used at the base, where some 12,000 people work and live.

The funding, from the $787bn American Reinvestment and Recovery Act, drew applause from the US Geothermal Energy Association and Solar Energy Industries Association.

“There are more geothermal power projects under development today than have been built in the history of the United States,” Karl Gawell, GEA executive director, says in a statement. ”This stimulus funding will help make sure those projects are successfully completed and will help develop the technology needed to bring tens of thousands of additional megawatts on line.”

Geothermal will receive $350m, “dwarfing previous government commitments,” according to DOE.

Of that, $140m will support demonstration projects focused in new geographic areas and geothermal production “from oil and natural gas fields, geopressured fields, and low to moderate temperature geothermal resources.” Another $80mn is marked for research and development of enhanced geothermal systems, which aim to enable power production in areas with no geothermal water resources. New techniques for exploring, siting and drilling for geothermal energy will get $100m. Finally, $30m will go to a nationwide assessment of geothermal resources.

An investigation by The Times into Sri Lanka’s civilian casualties, however — which was conducted in a week-long visit to Sri Lanka — has found evidence of a civilian death toll of 20,000, almost three times that cited previously. The majority perished under government guns.

Confidential UN documents, the testimony of witnesses who lived through the bombardment and expert analysis of photographs that were taken on a helicopter flight over the no-fire zone attest to the deaths of thousands of Tamils, killed while acting as unwilling human shields by the Tamil Tigers, who claimed to be their liberators.

The trial, scheduled to begin next week, will examine allegations that Shell sought the aid of the former Nigerian regime in silencing Mr Saro-Wiwa, a vociferous critic, in addition to paying soldiers who carried out human rights abuses in the Niger Delta where it operated.

The 12% rise in red ink in 2008 stems from an explosion of federal borrowing during the recession, plus an aging population driving up the costs of Medicare and Social Security.

That’s the biggest leap in the long-term burden on taxpayers since a Medicare prescription drug benefit was added in 2003.

The latest increase raises federal obligations to a record $546,668 per household in 2008, according to the USA TODAY analysis. That’s quadruple what the average U.S. household owes for all mortgages, car loans, credit cards and other debt combined.

“We have a huge implicit mortgage on every household in America — except, unlike a real mortgage, it’s not backed up by a house,” says David Walker, former U.S. comptroller general, the government’s top auditor.

USA TODAY used federal data to compute all government liabilities, from Treasury bonds to Medicare to military pensions.

Bottom line: The government took on $6.8 trillion in new obligations in 2008, pushing the total owed to a record $63.8 trillion.

The numbers measure what’s needed today — set aside in a lump sum, earning interest — to pay benefits that won’t be covered by future taxes.

Congress can reduce or increase the burden by changing laws that determine taxes and benefits for programs such as Medicare and Social Security.

Rep. Jim Cooper, D-Tenn., says exploding debt has focused attention on the government’s financial challenges. “More and more, people are worried about our fiscal future,” he says.

Key federal obligations:

* Social Security. It will grow by 1 million to 2 million beneficiaries a year from 2008 through 2032, up from 500,000 a year in the 1990s, its actuaries say. Average benefit: $12,089 in 2008.

* Medicare. More than 1 million a year will enroll starting in 2011 when the first Baby Boomer turns 65. Average 2008 benefit: $11,018.

Corn and soybeans modified to resist insects and the herbicide glyphosate haven’t been proven to boost yields, the Cambridge, Massachusetts-based group says in a 44-page report.

The modified plants have increased the number of glyphosate-resistant weeds that compete for soil nutrients and moisture, reducing production, the group says.

“The two major types of traits now present in transgenic crops – insect resistance and herbicide tolerance – are often classic contributors to operational yield,” said Doug Gurian- Sherman, a senior scientist in the group and the author of the report.

“Neither trait would be expected to enhance potential or intrinsic yield, and indeed, there is virtually no evidence that they have done so.”

Operational yield is obtained under normal field conditions and includes factors such as pests and other stressors, the report says. Intrinsic yield is the highest that can be achieved with crops grown under ideal conditions.