After The Recent Bailouts, How Close Is The United States Government To A Total Collapse?

Written by cliffland
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Our national debt is now $10.6 trillion - $34,640 for every living US citizen. The scariest thing is that this debt doesn't count the billions in bailouts already approved or still to come. President Elect Obama's best ideas won't happen with this staggering debt. Our future will be dictated by bond markets, not government - a future that may include a financial collapse that dwarfs the Great Depression.

As citizens of the US, we've heard gigantic numbers in the media in recent years to pay for extraordinary events not initially considered when our government establishes its budget:



$32 billion immediately following the September 11, 2001 attacks



Up to $200 billion for Hurricane Katrina



$500 billion and more for the War in Iraq



Given the impact of extraordinary events like these most of us already expected that the federal government was going to face massive deficits this year - even before the financial crisis started.



As 2008 comes nears the end, however, we've been presented with an astronomical new set of numbers associated with the bailouts either already approved or still being considered by the federal government:



$200 billion to offset the future losses of Fannie Mae and Freddie Mac



$700 billion for the Troubled Asset Relief Program



Up to $1 trillion being considered in infrastructure projects to jump start the US economy



After many years of simply not paying attention, I decided to do some on-line research on the financial condition of the US federal government. Quite frankly, I was shocked by what I discovered:



The national debt just hit $10.6 trillion dollars and is exploding higher every day.



$451 billion was spent by the federal government to pay interest on the national debt during the fiscal year that just ended in September, 2008. Interest expense is now the 3rd largest item in the federal budget trailing only the Departments of Health/Human Services and Defense.



The Office of Budget and Management referred to the short term budget situation as sobering.



But here's something most Americans might not realize.



Our leaders in Congress continue to push more regulation and oversight and seem to feel that this could have prevented the collapses at Enron, Fannie Mae, and Freddie Mac.



So I was shocked to learn that the Government Accounting Office (GAO) reported this month serious material weaknesses in the financial reporting processes of the federal government - preventing the GAO from expressing opinions on the financial statements of a significant number of federal agencies. The GAO concluded the federal government did not maintain an effective internal control over financial reporting - a system that could lead to waste, overpayments, and inefficient use of government resources.



The General Accounting Office is pointing to the same federal government that has the nerve to tell you that it plans to closely oversight the billions lent to bail out the financial and auto industries.



All of the numbers point to a mathematical certainty - that we are moving straight towards the largest financial crisis ever - the total financial collapse of the federal government - Armageddon.



To pay for some of the most recent bailouts announced, the treasury department has announced its intent to borrow $550 billion in the 4th quarter of 2008 and $ 368 billion in the 1st quarter of next year.



Future borrowing on this scale might not sound like anything new to you. You've heard these kinds of numbers thrown around before.



There's just one problem.



Governments do not have an endless ability to borrow. Major cracks are already showing on the surface. Some of the biggest states in the country are having trouble selling their bonds to investors including the states of Florida and California - that's something most of us have never seen in our lifetimes. California is already approaching the federal government asking for billions to help them out of their current crisis.



You see, we've reached a point in our history where only the Federal government seems to have a fully functioning line of credit. But now that you know the staggering amount of money that has to be spent on interest to service trillions in debt, how long can the federal government keep borrowing?



When will the institution and mutual fund investors who buy our T-bills and other debt from the Federal government finally decide that they don't want to buy any more government bonds? What do you think will happen when those investors get nervous about the Federal governments ability to pay the debt back? They are only going to do one of two things - either demand very high interest rates or simply invest their money elsewhere.



Once that happens, it will only take a few months before the Federal government has to shut down - one agency at a time.



That's why no matter how ambitious President Elect Barack Obama's plans for the future are, his presidency is largely going to consist of supervising the bankruptcy of the federal government - not further expansion of government social programs.



Now I don't expect our new president elect to take this lying down. He is not going to sit by quietly and preside over a bankruptcy and miss his chance to create a legacy. In order to prevent a total financial collapse that will marginalize his presidency you should expect him to allow the Bush tax cuts to expire and to create brand new taxes - up to and including taking control of your personal assets and property.



You have to take the following steps to protect yourself as we move closer towards this financial day of reckoning - a day when the federal government won't be able to borrow want it wants to in the debt markets:



If you have bond investments, don't assume that your principal is not at risk - find out what exactly what these bond funds are investing in. If there is any risk that you will lose your investment, get out of that fund.



Invest in precious metals including gold. They will be solid investments for many years to come. In post World War I Germany when it took a wheel barrel full of money to buy a loaf of bread, a person who could pay with gold had nothing to worry about.



Buy real estate during these troubled times. Those who own their homes will be in a much better position than those who rent during a financial collapse. If you want proof of that just take a look at those who owned homes in Brazil and Argentina during their years of 100% inflation - quite frankly, landlords there held all of the cards.



Pay down your mortgage. Owning a home outright will be far better for you then having a mortgage.



Last but not least, consider keeping at least an emergency stash of liquid cash in your house for the toughest of times.



I wish our new president the best of luck in taking the mess that he is going to inherit. However, our crushing national debt is going to severely limit his options. I intend to prepare for the financial collapse before it happens - you should too!

Michael Letcher is a former Fortune 500 executive and is a licensed CPA.


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National debt

This is the first time that I learned about the national debt which is now "$10.6 trillion - $34,640 for every living US citizen ". I never imagined that I owe this much.

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