LONDON (Breakingviews) - It is the moment that every chronic debtor fears: when his or her borrowing is used to meet interest payments on past debts.

Both the debtor and his lenders know that this is unsustainable. Countries occasionally face the same crisis situation -- usually emerging markets, but not always. Indeed, the U.S. may be there already. This is potentially calamitous news for the dollar.

The root of the problem lies with the U.S. current account deficit.

Until recently, the U.S. found it easy to cover this gap. During the 1990s, foreigners plugged the hole with almost free money, by investing in the wooden nickel of Internet and high-tech start-ups. Then, after 2001 when direct investment dried up, foreign buyers of U.S. bonds covered the breach.

Again, this was almost painless, thanks to extraordinarily low interest rates. Furthermore, any payments that the U.S. had to make abroad were more than offset by earnings on U.S. investments overseas. As a result, the U.S. slipped back into its comfy chair like an aging plutocrat who has made so much money in the past that he need not worry about making more money tomorrow.

But now that tomorrow has arrived. The current account gap keeps getting bigger, so the U.S. has to take on more debt to cover it.

Interest rates, furthermore, are rising, increasing the cost of that debt. Goldman Sachs economists have crunched the numbers and estimated that during the last quarter of 2004, the U.S. paid a net $3 billion abroad, after allowing for the income received from U.S. investments overseas. That compares to a net $5 billion inflow during the quarter before.

Now $3 billion is peanuts for the U.S. economy. But it points to the start of a worrying trend. The figure could mushroom as interest rates rise and the U.S. debt mountain keeps growing. Furthermore, it implies that even if the trade deficit shrinks to zero the country will have to start taking on new debt in order to pay the interest on its old debts.

This is not the kind of debt dynamic that investors like to see. When it happens to a consumer debtor, lenders usually foreclose. And when it happens to a country, a currency collapse is usually not far away.

Breakingviews is Europe's leading financial commentary and analysis service. Its team of financial journalists comments on the most important financial stories of the day, as they break.