Montreal, Canada.

The United States, like several other European governments, is struggling to sell a truckload of Treasury’s this year. Investors are advised this slow bleed can easily magnify into a full-blown crisis over the next few years if the global economy fails to recover.

From 1981-82 until December 2008 Treasury bonds enjoyed a secular bull market as interest rates collapsed from a Volcker Fed peak of 20% in 1981 to 2.25% in December last year. Zero-coupon bonds – long-term bonds on steroids – have earned big double-digit gains over the last 28 years as rates tumbled handily outpacing most global stock markets.

But the big bond bull market is over. Faced with an unprecedented funding gap amid the worst credit collapse since the 1930s and plunging tax revenues, the United States is now issuing more debt than ever to finance its expenditures. About $2 trillion dollars is estimated to be auctioned this fiscal year. And what it can’t finance, Treasury simply monetizes the debt vis-à-vis the Federal Reserve, or coined “quantitative easing.” Several other central banks are doing the same thing this year, including the Swiss National Bank and The Bank of England.

Yet nobody has the debt the size of America’s. Deficits are clearly out of control with no political resolve to reduce spending. At some point, a major lenders’ strike looms as foreigners balk at financing this paper forcing the United States to perhaps impose a deficit-financing tax or a VAT consumption tax to finance its explosive debt and the interest required to service outstanding Treasury bonds.

The Chinese are stuck with about 40% of this paper, the Japanese about 25% and the British about 10%. Rightfully concerned, the biggest holders of U.S. Treasury debt outside of Japan and England have increased their rhetoric lately as they grow nervous about their declining dollars. The Chinese and the Russians are the most vocal, fed-up with dollar depreciation.

Yesterday, Treasury was successful in selling its tranche of seven-year Treasury bonds. But for the second time this week Treasury attracted poor demand for the sale of five-year and two-year notes. That raises the cost for Treasury as it relies on the Fed to absorb unwanted notes.

If you need to park short-term funds then avoid longer dated notes. In fact, I’d be shorting or betting against 20-year and 30-year Treasury bonds. Stick to the short end of the yield-curve or bonds maturing no later than in 2011-2012. That’s what PIMCO is doing now.

On Tuesday, Treasury suffered its worst five-year auction in history. Yet that news barely makes a headline. It’s not the first time Treasury has struggled to sell its paper and it’s certainly not alone; the Germans, among several other Euro-zone credits, have struggled to auction their debt since last October with four failed or reduced bond auctions. That’s almost mind-boggling because I’d consider the Germans the best government credit in the world, possibly along with the Swiss and Norwegians.

Failed bond auctions in the West since October mark the beginning of the bear market in government bonds. Assuming we don’t slip into a deeper recession or worse, the bond market is the worst place to park long-term funds ahead of the next inflation crisis down the road, a dollar and EUR blow-up and, eventually, higher interest rates to support ever-growing government borrowing.

Have a good weekend. See you on Monday.