THE PROSPECT of a budget disaster is, and should be, thoroughly unsettling to people in this country. Uneasiness, however, is not limited to these shores. Concern is growing also among America's foreign creditors. For years now, foreign investors have helped to fuel this economy by financing our immense and growing deficits. Because of foreign capital, successive Democratic congresses and Republican administrations have been able to dodge politically difficult budget decisions and to postpone America's day of fiscal reckoning. Now, foreign capital -- or the possible lack or increasing cost of it -- may help force an end to Washington's game of escape and evasion on the budget deficit.

Treasury Secretary Nicholas F. Brady brought home this point last week in an interview with the foreign press. "So we're {the United States} on notice in a gentle, sloping way that the rest of the world is no longer going to fund the deficits that we come up with each year." Mr. Brady was referring to the 50 percent drop in foreign purchases of U.S. government debt issues since last year. He could have added that for the first time since 1982, America's chief creditor, Japan, was a net seller of U.S. debt securities through June of this year. With President Bush and Congress's performance, it's a safe bet that no group of foreigners will be eager to fill the Japanese void -- and those that do will expect us to pay up in the form of higher interest rates. As long as Washington politicians are unable to do anything about the deficit, our dependency on foreign borrowing continues. And the alternatives to floating foreign loans are limited, since our own meager savings are too small to finance our still-robust investment requirements.

The budget debacle is only underscoring the anxiety abroad that the United States, facing a looming recession and addicted to the politics of self-indulgence, is incapable of governing itself. The way of convincing the world otherwise and restoring U.S. credibility in world markets is for President Bush and Congress to get hold of the deficit and put it on a downward path. Quick enactment of a balanced deficit reduction plan would be of enormous restorative value to the American economy -- and also to our reputation in the world.