The Obama administration has released a preliminary summary of their proposed budget in which they judge the deficit for the fiscal year to come in at 1.7 trillion dollars or about 12.3 % of the US GDP which in current dollars is $ 14.26 trillion. This is a substantial number the largest deficit since the Second world war.So the budget deficit is actually barely a third of what it was during the peak of the war years, when almost none of the expenditures were going to meet domestic needs.
During the war years the deficit was 14.2 % of the GDP in 1942, 30.3 % in 1943, 22.7 % in 1944 and 21.5 % in 1945 including both on and off budget items. (source Table 1.2 p.23, Budget of the U.S. Government Historical Tables , 2008, Office of management of the budget).During the 1930s the deficits as a percentage of the GDP were much smaller peaking at 5.9 % in 1934.
Another key point that is distorted in public discourse: the holders of U.S. public debt do include China but that nation holds only 6% of the total:
As of February, 2009 there was a total of 10,877 billion dollars of US debt outstanding. A total of 3076.9 billion was held by foreign non residents or 28 %.Both are worth reading in full.
Of this amount as of december 2008 the Chinese held just 6 % of the debt outstanding, the Japanese just 5 %, the oil exporting countries principally the Gulf states plus Libya,Nigeria,Ecuador , Venezuela and Nigeria held 1 % and the Caribbean banking centres in the Bahamas, Bermuda, the Cayman islands the Dutch Antilles and Panama about 1 %.
All the other foreign holders held much less than that including the U.K., Brazil, Russia, Switzerland, Germany, Mexico, Singapore, Thailand, Korea, India, Italy, and France. intergovernmental holdings of the debt amounted to 4,297 billion or close to 40 %.So there is no large problem for the US to continue to finance its debt for the forseeable future.