Treasury Secretary Donald T. Regan inched forward in his chair, eyes rolling heavenward, heaving a sigh as though exasperated at being asked for the umpteenth time one of the most nettlesome questions of his administration this year: do deficits matter?

It is not only an issue that Regan must deftly handle during the rest of the year, but it will be a major question for Congress to answer when it returns from the August recess.

It is a problem because if deficits do matter, that is if they "crowd out" the private sector from the credit pool, it could lead to higher interest rates. The higher rates threaten to slow the recovery and keep unemployment rates high, compelling Congress and the administration to do something about it. The choices are to raise taxes, which the administration opposes and traditionally has been unpalatable before an election, make further budget cuts, which Congress seems unable to do, or do both.

If deficits don't matter and don't necessarily raise interest rates, as some in the administration maintain, then there is no pressure for tax increases.

"Everybody's jumping to the conclusion that crowding out is going to happen in 30 days," Regan said in an interview. "It's not going to happen in three months."

Many economists, including those within the administration, have their own versions about whether deficits matter, under what circumstances they matter, whether they are already threatening the recovery and what should be done about them.

Some factions within the administration, notably Council of Economic Advisors Chairman Martin S. Feldstein, as well as Federal Reserve Board Chairman Paul A. Volcker, appear more concerned about the deficits and "crowding out" than Regan does. After initially saying deficits do matter, Treasury now says there is no definite link between large deficits and high interest rates. Anyway, if such a connection definitely existed, the economic climate existing now would not be conducive to pushing interest rates upward causing "crowding out," Treasury said.

"At the current moment, business loans are below what they were in December 1982," Regan said. "True, there is an increase in demand for consumer loans." However, he said business demand is down and corporations have raised a lot of money internally to be used instead of new borrowing. Regan said problems could develop down the road, perhaps two years from now, "if we persist with these huge deficits in the future." But he said the deficits are coming down. "Everybody's trying to anticipate this clash," Regan fumed.

Volcker, in testimony before a Senate banking subcommitee, said the budget clash could happen before 1985 if Congress does not increase taxes or cut spending. "You have some indications of that in the market now," he said.

"Rising private credit demands, in reflection of rising private activity, are beginning to clash with the continuing heavy financing needs of the government," Volcker said.

Feldstein told the Senate Banking Committee last month, "The fundamental reason for the high level of real interest rates is the widespread expectation of large budget deficits for the remainder of the decade." Budget deficits between $150 billion and $200 billion "would absorb funds equal to between half and two-thirds of the net private saving of households, businesses, and state and local governments. To reduce the borrowing demand of private investors and households to the remaining small amount of funds would inevitably require high real interest rates.

"In the near term, large anticipated budget deficits and the high real interest rates that they cause make the recovery unbalanced and therefore inherently more fragile," Feldstein said.

Whether "crowding out" is occurring and budget deficits are important depends on the economic climate, which is often difficult to gauge except in hindsight. Generally, "crowding out" occurs when the economy is running at full capacity, with no room for expanded output; the pool of savings is low leaving little funds for investment; demand for credit by the private sector, businesses and households, is high and bumps against government financing needs, or international investors expect credit demands to remain high for some time.

Of course, a lot depends on an economist's perception of high or low levels of activity. One economists' high credit demand could be moderate to another.

A detailed Treasury Department report said the effects of government deficits depend on a number of economic conditions, such as whether deficits are caused by spending increases or tax cuts. If the culprit is tax cuts, such as those supply-side reductions implemented by the administration, then they could help businesses increase cash flow that could be used for investment instead of external borrowing. In this case, tax cut-induced deficits may cause interest rates to decline, Treasury said.

In addition to internal corporate funds, more money is provided by foreign investors and Americans will begin saving more as the recovery continues, said Manuel Johnson, assistant Treasury secretary for economic policy.

Besides, the Treasury report noted, someone is always crowded out no matter what interest rates are and because some interest-sensitive sectors cannot afford high rates doesn't mean all industries will suffer.

Johnson said the administration has always maintained that it is the level of spending, not the deficits per se, that are the problem. For a balanced budget high government expenditures must be paid for by increased taxes, which would make less money available to businesses and consumers, Johnson said.

Everyone, however, doesn't agree with Treasury's scenario of events.

"I traveled around quite a bit talking to business leaders," said Senate Finance Committee Chairman Robert J. Dole (R-Kan.). "They've never seen the Treasury study, but they don't believe it. These people are Republicans. They're not people looking to fault the administration. They see the recovery as the number one priority."

Dole said, "Taxes alone are out of the question," although they could be combined with more budget cuts. He said he hopes a bipartisan summit led by "the supreme leaders," President Reagan and House Speaker Thomas P. (Tip) O'Neill (D-Mass.), with other congressional and administration members can work out a tax and budget cutting compromise within the first few weeks after Labor Day.

"The Treasury is wrong," said former Federal Reserve Board member Andrew Brimmer, who contends crowding out is a more serious problem than Regan makes it out to be and that it is already taking place. Brimmer disagreed with Treasury's contention that business has plenty of internal funds to finance investment instead of borrowing. "It is true, business built up a great deal of liquidity during the recession," Brimmer said. "But business does not have an inexhaustible supply of liquidity.

"Businesses, on balance, are expanding their loans," and drawing down their internal funds, Brimmer continued. Because businesses must replenish inventories that were run down during the recession, credit demands will increase further, he said. In addition, household credit demands have jumped, he said.

"You just can't assert that companies have cash and don't need to borrow," Brimmer said.

The deficits will keep interest rates high and moderate growth, Brimmer said. That in turn will keep unemployment levels high as well, he said.

Economist Alan Greenspan has his own slightly different version of what is happening in the economy. He said very little crowding out is occuring now because credit demands have declined. However, he said, "budget deficits do affect interest rates."

Greenspan, however, doesn't see the problem as a short-term one that can be solved by tax increases. The international financial community perceives continuous crowding out over the next 10 to 20 years that will affect private credit demands. Consequently, these financiers feel the Fed will accommodate those demands, creating excessive growth in the money supply which will lead to inflationary pressures on long-term interest rates, Greenspan said.

If interest rates were two or three percentage points lower, next year "would be a very strong year," Greenspan said. As it stands, he doesn't see any significant change in long-term interest rates to "alter the pattern of modest growth in 1984."

Greenspan said he didn't see a problem with crowding out in the near future. However, he added, "I am nonetheless concerned."