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The Biggest Victim of the Debt Crisis
Just as we’ve been warning, the United States Treasury is the next and
largest victim of this great debt crisis.
Right now, the Treasury’s finances are collapsing ... its bond prices
plunging ... its interest rates surging.
Indeed, the Treasury’s financial crisis looms so large, it could wreck more
havoc on the economy and deliver more pain to average Americans than the
subprime mortgage disaster, the housing bust, the banking crisis, and the
collapse of General Motors put together ...
It could create a rising tide of interest rates that wipes out the effects of any
stimulus, undermines any recovery, and sabotages any new bailouts ...
But unlike GM, Fannie Mae, Citigroup, AIG, and the many others that the U.S.
Treasury has bailed out in recent months, there is no institution on the planet
big or rich enough to bail out the U.S. Treasury itself.
Further, unlike all prior episodes in this great debt crisis, the Treasury’s
financial troubles cannot be covered up, papered over, or kicked down the
road like an empty tin can.
Already, Treasury bond prices are crashing, and doing so with greater speed that at any time in history.
Already, interest rates, which automatically go up when bond prices fall, are surging, with the rate on 10-year U.S. Treasuries nearly DOUBLING in a half year — the most dramatic surge during any recession since the founding
of the Republic.
And already, the interest rates on 30-year fixed mortgages, auto loans, commercial loans, and other debt are going through the roof.
This Is a Game Changer!
If you’re not paying attention to this new phase of the debt crisis, you’re
making a grave error. And if you’re not taking swift action to protect yourself,
you’re taking your financial life in your hands.
In this report, I’ll show why it’s going to get worse, why the Federal Reserve
is powerless to stop it, how it will impact each major sector of the economy,
and what you must do immediately to protect yourself and your family from
the inevitable fallout.
Why This Is Just the Beginning of the Treasury’s Crisis. Why It’s Going to Get a Heck of a Lot Worse This Year.
And Why It Could Continue for Years Beyond 2009.
It’s widely known that America’s federal deficit is out of control.
But so many dire deficit warnings have been issued so often, they now fall
mostly on deaf ears. Wall Street pundits roll their eyes. Washington
politicians laugh at those who would cry “wolf.”
What they don’t realize is that this time, due to a series of devastating facts
they’ve chosen to ignore, the day of reckoning is here:
Fact #1. Sheer size. According to the government’s official estimate, the
federal deficit for fiscal year 2009 will be $1.84 trillion, or 13.4 percent
of GDP!*
It is the worst deficit in U.S. history.
It means the deficit has now exploded to a level which is so far beyond the
range of anything we’ve experienced before, it’s impossible to imagine any
scenario in which it does not have a devastating impact.
Fact #2. The actual deficit could be much larger. The administration’s
$1.84 trillion deficit forecast presupposes a dramatic turnaround in the
economy, which, by definition, is virtually impossible with the government
running trillion-dollar deficits!
How can the administration possibly predict an economic turnaround when its
own Treasury Department is sucking nearly $2 trillion in funds out of credit
markets — the same credit markets that derailed the economy late last year?
Similarly, how can the government predict a turnaround when its own
borrowing frenzy is already driving up mortgage rates and undermining real
estate, the one sector that’s most responsible for the economy’s decline in
the first place?
Fact #3. No end in sight. Since the United States declared its
independence nearly 233 years ago, the only time the federal deficit
approached or exceeded 10 percent of GDP was during major wars — the
Civil War, World War I, and World War II. But in each case, the deficit
financing began promptly — and ended promptly — with the war.
Unfortunately, that’s not the case this time. Although the U.S. is fighting
wars in Iraq and Afghanistan, their cost represents only a small fraction of
the budget shortfall. Even if the Iraqi and Afghan wars could be ended
tomorrow, America’s great budget crisis would still be just beginning.
Fact #4. Today’s deficits are far worse
than those of the Great Depression.
America’s first big, multi-year peacetime
deficits came in the 1930s. Tax revenues
plunged with the sinking economy. And in
the years that ensued, government
expenditures — mostly for a series of
programs to bail out the economy — went
through the roof.
But even with a 90 percent collapse in the
stock market in 1929-32 and even after
three years of double-digit GDP declines
that make today’s look mild by comparison,
the federal deficit in 1933 was just 3.27
percent of GDP, less than one-fourth of
what’s projected for this year.
And subsequently, even when the U.S.
government embarked on the most
ambitious stimulus and bailout programs of
its 150-year history, the biggest single deficit — in 1936 — was 4.76 percent
of GDP, only about one-third the size of today’s.
Fact #5. Structural deficits. Our nation’s second encounter with giant
peacetime deficits was in the 1980s, but with a big difference: This time,
there was no Great Depression. This time, the government’s fiscal woes were
mostly structural — deeply ingrained in the bloated size of government and
in our society’s dependence on government for much of its sustenance.
And even then, the federal deficit never rose to more than 5.63 percent of
GDP, less than HALF its size today.
The big difference today: Our current structural deficits are far larger than in
the 1980s because the government is now liable for $65 trillion in future
payments for Social Security, Medicare, government pension benefits, and
other obligations that are now kicking in at a quickening pace.
Fact #6. Massive new commitments. Beyond the $1.84 trillion of red ink
projected for 2009 and beyond the trillions more in future obligations, the
U.S. government has just assumed responsibility for nearly $14 trillion in
new loans, commitments, and guarantees to bail out brokers, banks, insurers,
auto makers, and the broader economy.
If just one of these suffers greater-than-expected losses, we could see wave
after wave of new demands on the government to honor its guarantees,
bloating the deficit further yet.
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