For Queen Elizabeth, 1992, the year Windsor Palace caught on fire and several of her kids separated, was a an annus horribilis, for the rest of us the coming year may well turn out to be horrible too.

While our leaders and the media continue to tell us that we have turned an economic corner and that all will be well soon, the underlying data, for those willing to look, tell a far different story.

Just as climate scientists debate the existence of a “tipping point”, beyond which rising global temperatures are uncontrollable, there may exist an economic tipping point beyond which control of the US and global economies is beyond the powers of government.

Although another economy-crushing oil price spike in the next 12 months is a possibility, it is the sovereign debt crisis and all that it entails that seems to be a more imminent threat as we enter 2010. Oil prices, however, are back over $80 a barrel, and although few are predicting a price surge in the near future, China, India and several other Asian economies are growing rapidly. There is a good market for the oil that is being produced somewhere and OPEC production has been climbing of late, eating into the cartel’s spare capacity to produce more oil.

Of immediate concern, however, is the situation surrounding national debts, particularly that of the U.S. which happens to issue the world’s reserve currency. For the last nine months, Washington has been engaging in a variety of unprecedented fiscal activities which hopefully will prevent the US economy from sinking into further economic difficulties. The government has bought up nearly a trillion dollars worth of bad assets from the banks in order to free up capital and keep them solvent.

To support the policy of keeping federal interest rates close to zero, the U.S. Federal Reserve also has been buying up billions dollars worth of new treasury securities. Thanks to the $1 trillion plus deficit the U.S. is now running, Treasury securities are being issued in quantities that have never been seen before and as government revenues continue to plunge are likely to be issued in ever greater quantities.

Amidst the chaos of rising unemployment, spiraling foreclosures, collapsing real estate prices, amazingly enough, the U.S. equity markets have been rising steadily. Some astute observers are beginning to question just what it going on. How can tens of billions of U.S. Treasury securities be auctioned off at such low interest rates each week while many traditional foreign buyers, like China, are backing away from purchasing more U.S. debt as fast as they can without crashing the value of their holdings? How can sensible investors be buying so much stock that prices continue to rise steadily at a time when real unemployment likely is above 20 percent and the prospects for earnings growth by US companies is as bad as it has been in the last 80 years?

The answer, of course is that they probably can’t, and this is why suspicions about just what is going on are starting to be raised. Close examination of available data suggests to some that traditional buyers of U.S. stocks such as retail investors, hedge and mutual funds and foreigners simply aren’t there on a scale needed to support nine months of some of the fastest growth the equity markets have ever seen.

There are suspicions about the Treasury’s auctions too which are consistently oversubscribed with buyers clamoring to buy massive quantities of debt. Obviously there is only one place that all these billions can be coming from and that is the US Federal Reserve which has the capability of creating unlimited amounts of money simply by typing on a computer – you don’t even have to bother to print money anymore.

The theory of what is going on is simple – the Federal Reserve creates a trillion or so dollars and sends lots of it to the big investment banks, called primary dealers, in return for stacks of nearly worthless mortgages the banks collected during the recent housing boom. In return for letting them unload nearly a trillion dollars of worthless securities on the taxpayer, the banks oblige the government by using many of those billions to buy Treasury securities from the government at close to zero interest and to buy enough stocks to keep the market steadily rising.

Everybody is happy. The great depression has been halted in its tracks, the stock market is soaring, signaling to the unwary that all is well, and Wall Street’s multi-million dollar salaries and bonuses are preserved for yet another year.

The question of the year is how long this federal effort can continue. The controlling factor will be interest rates and the length of time the government can keep interest rates close to zero as it issues trillions in new and refinanced securities. A few interest points higher and housing becomes unaffordable given the strictures on lending. A few more and the U.S. debt becomes unaffordable.

However, this is not our only problem. Some people who follow and understand the intricacies of the U.S. money supply say that it is in contraction. Whenever this has happened in the past, the economic situation has gotten worse – sometimes much worse. Then we have the Chinese who seem likely to use their massive foreign reserves to import more oil and spark another price strike. If this is not enough, there are always the Iranians who have managed to get themselves so wrapped up in theocracy they might just set off another Middle East war threatening much of the world’s oil supply.

If any of these developments should occur in the next 12 months we are going to see not only an annus horribilis, but many anni horribiles (“dreadful years”) too.

Tom Whipple is a retired government analyst and has been following the peak oil issue for several years.