The “Exit Strategy” the Fed’s Bernanke is contemplating is nothing less than a total, unadulterated myth. This is the fairy tale you read to your young children at night where the government cuts back its spending and the Fed shrinks its lending. The private economy then picks up the slack, and the rest of us live happily ever after.

Unfortunately, this time there will be no Prince Charming riding in on a white horse. In 2009, the US ran an unprecedented $1.5 trillion budget deficit, financing the shortfall by issuing Treasury bonds. The Fed happily obliged by soaking up this tsunami of paper, either directly, or indirectly through mortgage purchases.

This boosted its own balance sheet from $800 million to a mind boggling $2 trillion in the process, or about 14% of GDP. Were there any other takers of new government debt? China bought $100 billion, and another $200 billion went to a hodgepodge of assorted foreign central banks and sovereign funds, barely 20% of the total.

Back out the Fed as the buyer of last resort, and where are we? The private demand isn’t there, especially if the Fed plans on raising interest rates at the same time. I can already hear the excuses the foreign buyers will be fobbing off on Tim Geithner; I’m sorry, but I’ve got to rush off to a Peking duck dinner; it’s Ramadan; I have a date with my mistress; the dog ate my homework; etc; etc; etc;. The $3.8 trillion budget Obama proposed for this year, with another kick in the groin, $1.6 trillion deficit and $1 trillion in tax increases, isn’t encouraging me to back off from this ledge.

There are only two possible outcomes to the greatest financing gap in history. Interest rates have to soar to unimaginable levels to attract recalcitrant investors, or the plunge in spending sends us into a postponed Great Depression II.

Let me know which one it is, will you? I’ll be hiding out in my camouflaged underground bunker in the desert. And if you do come calling, be a peach and bring me some MRE’s, a five gallon bottle of water, and a case of 9 mm ammo, will you?