Precisely what the business and financial community feared most has now happened: a highly publicized "negotiation" between President Reagan and key congressional Democrats to bring the federal budget back under control has failed.

For the moment, that exposes the nation to thhkind of economic disaster that former Economic council chairman Charles L. Schultze a few days ago said he didn't even want to think about. Like many other rational observers, Schultze did not want to admit the possibility that responsible government leaders would expose the nation to massive deficits for which there are no historical precedents.

But that is exactly the fix we now are in.

And we are in that fix because the Reagan economic program (as passed with the submissive help of the Democrats last year) didn't work: the massive "supply-side" tax cut and a major escalation in defense spending ensured record dificits, getting bigger rather than smaller in the years down the road.

On top of the, the Reagaon-Volcker tight money policy produced high interest rates that in turn produced a serious recession, exacerbating the size fo the deficit. Just three months ago, despite warnings form key Republicans in the Senate, the president produced a totally unrealistic budget for fiscal 1983 that did not address the obvious need for a major shift in policy.

The president, in his address to the nation, again laid the blame for mounting deficits on past Democratic administrations. But as John Kenneth Galbraith said Thursday at the National Press Cclub on how the press has dealt with the economy:

"All public officials of whatever political faith should be held fully responsible for any serious inflation or recession in their own time. When a public official takes refuge in history, ask him if that was what he promised in his campaign."

To be sure, there could yet be an 11th-hour compromise forced by Congress as it deals with thee budget resolution and appropriation bills for defense and social legislation. But that seems like the thinnest reed of hope, given the president's commitment to the big tax cut, and the line now drawn by Democrats against further cuts in social programs. Both parties -facing a bitter congressional election in November -will seek to avoid the political blame for an economic mess that seems inevitable.

Treasury Secretary Donald T. Regan accuses the Democrats of "stone-walling." But Regan admitted to reporters after the president's address to thee nation that no part of a highly publicized $122 billion in revenue additions that the president was said to be willing to accept involves withdrawal of the huge personal income tax cut, mostly benefiting upper-income brackets, that was passed last year.

Business leaders around the country and investment bankers in Wall Street are blunt: "You wouldn't believe what some of these fellows are saying privately about Reagan," says a junior partner about his senior colleagues, every one of them a GOP blue blood.

The big concern is the size of the deficit -not only the one for 1983, but also those that follow in later years -and the impact they will have on interest rates. Jack Albertine, president of thh American Business Conference, told this reporter after the talks broke off:

"What our people -leading chief executive officers -wnat is a budget proposal produced by Congress and signed by Reagan that significantly reduces the rate of growth of the budget deficit over the next five years."

In a telephone interview, Henry Kaufman of Salomon Bros. -who gets under Reaganite skins for having been right so often -said that the deficit now in prospect for fiscal 1983 not only will "crowd out" the private sector, "especially those corporations whose liquidity [cash position] is threatened," but also that the Federal Reserve will be unable to relax its tight hold on the economy.

What Kaufman and others fear is that a number of corporations -short of cash, and unable to borrow at higher and higher interest rates -will go broke. A wave fo bankruptcies could bring back into currency that feared word -depression. Any hope of a significant or prolonged recovery form the current recession has been washed away.

Schultze points out that "it's hard to analyze what the impact on the economy will be-assuming nothing further is done--because we've never had a time in which we've had a deficit of this size, combined with a tight money policy. So it's outside our historical experience."

But Kaufman provides some data that offer a guide--and it's scary:

Start with the $182 billion budget deficit figure, which the negotiators agreed is the most realistic deficit figure for fiscal 1983. Working backward from that particular "unified" budget calculation, the amount that would have to be financed by Treasury borrowings in the open market (including so-called off-budget programs) would be a shocking $150 billion to $165 billion, Kaufman calculates.

That's twice the $75 billion Treasury borrowing is fiscal 1975 that sent financial markets into a tizzy--and in those years, the Federal Reserve was not following a rigid monetarist approach. That meant that corporation were willing--and could afford--to borrow in the longterm market. And local governments could sell their bonds to the banks.

But now, corporations along with everybody else compete for funds in the short-term market. The municipal bond market has all but dried up. "It's a very bad situation for the economy and the financial markets," Kaufman said, "and it leaves the Federal Reserve in a very inflexible situation.

What it comes down to is that the large budget deficits are a direct threat to the American business corporation."

At the White House one day last week, representatives of four key corporate lobby groups delivered much the same message to White House counselor Edwin Meese III and other Reagan advisers. Their reponses, said one businessman, indicated a full understanding of the problem.

But the businessmen, as well as many influential congressmen and senators who recently visited the White House, report they came away with this "gut" feeling: Reagan is wedded to the third-year of the Kemp-Roth tax cut with a passion bordering on divine guidance.

"The president," said one of these White House visitors, "has come to feel that having been spared--having survived the assassination attempt--he has a mission to get that tax cut through. He asks, 'If I don't do it, who will?'"