Gallery I
National Bankruptcy
Index Page 2
Index Page 3

Eat, Drink And Make Merry For Tomorrow We Will Be In The Street

By James Donahue

Perhaps there will be wisdom in the excessive alcoholism, rowdy merry-making and football fanaticism exhibited across America this New Year’s Eve. It will be the best way to forget that the nation’s economic picture is so grim the year 2010 may be a block of time many of us might like to skip over rather than face head-on.

It also will be a way of forgetting that we have sons and daughters, friends and relatives fighting two wars in Iraq and Afghanistan, with plans to escalate the fighting in Afghanistan.

And it will be a way of blocking out the critical need for repairing our nation’s crumbling roads, bridges and water and sewer systems, building mass transit systems to ease automobile traffic on gridlocked roads, find alternative energy systems to replace oil and coal, fix our failed education system, deal with extreme climate change, and head off increasing acts of terrorism at home and abroad.

All of this needs to be fixed, but thanks to greedy power brokers and elected national leadership during the last decade, our nation is all but bankrupt. At the last count we were over $12 trillion in debt, the Senate just approved an increase of another $200 billion to keep the wheels of government and the military going for a few more months, and we are told there is a need to raise the approved debt ceiling to $14 trillion within the next few months.

To put that into perspective, the estimated population in the United States is 307,551,390. To cover $12.1 trillion, every man, woman and child would share a personal debt of $39,412.46.

To date, $915.1 billion has been allocated to the wars in Afghanistan and Iraq, and the 2010 budget calls for another $130 billion, thus making our total cost of the two unnecessary wars at over $1 trillion.

The national debt is increasing at an average of $3.79 billion every day since the start of the 2008-09 fiscal year. This debt has escalated to the extreme since the so-called mortgage crisis that caused Congress to dump incredible blocks of money this government did not have into keeping the big banks and lending institutions solvent.

What did we get for that money? The bank CEO’s went home last Christmas with billion dollar bonuses but little if any of the cash trickled down to American businesses. This led to massive layoffs and business shut-downs that continue to this day. And bank foreclosures on American homes continue.

Today’s soup line is portrayed in the federal food stamp program. Federal money is pouring into state unemployment insurance programs to keep money flowing, at least artificially, but there has to be a limit to how long this can continue.

The interest on our national debt is costing our government over $50 million every hour. What is worse, foreign interests own a major share of our marketable treasury debt.

Porter Stansberry, founder of Stansberry & Associates Investment Research, warned in a recent newsletter that the U.S. Treasury may have trouble paying the 44 percent interest on its short term debt of over $2 trillion from foreign banks. He believes foreign investors may be reluctant to extend these loans if the nation goes into default.

Just as the  subprime lenders that included Fannie Mae, Freddie Mack, and those major banks, Stansberry said the Treasury “tried to minimize its interest burden by borrowing for short durations and then rolling over the loans when they come due.”

When a nation gets deep enough in debt he said “the creditors wake up and ask themselves: What are the chances I will ever actually be repaid? And that’s when the trouble starts. Interest rates go up dramatically. Funding costs soar. The party is over.”

Stansberry wrote that economists Alan Greenspan and Pablo Guidotti published an academic paper in 1999 that established a formula for determining high risk situations in international lending. It has been called the Greenspan-Guidotti Rule.

The rule states that to avoid default, a country must maintain hard currency reserves equal to at least 100 percent of their short-term foreign debt maturities. “The principle behind the rule is       simple,” Stansberry wrote. “If you can’t pay off all of your foreign debts in the next 12 months, you’re a terrible credit risk. Speculators are going to target your bonds and your currency, making it impossible to refinance your debts. A default is assured.”

He said the total reserves in gold, oil and foreign currency reserves presently totals about $500 billion, while our short term debt that matures within the next 12 months is $2 trillion. The interest due on that debt, at 44 percent, will be at least $880 billion, far more than America has in its reserves.

But the debt is expected to grow much larger before 2010 is over. The Office of Management and Budget predicts a $1.5 trillion budget deficit, which calls for even more borrowing . . . a possible deficit of $3.5 trillion.

Stansberry noted that the domestic savings in the U.S. amounts to about $600 billion a year, and that may be during good times when people are working and money is flowing. But considering this as a valid number, he wrote that “even if we all put every penny of our savings into US. Treasury debt, we’re still going to come up nearly $3 trillion short.”

So how can the treasury get out of this? The only solution will be to print more paper money. And doing that will severely weaken the value of the dollar, devalue existing Treasury bonds, and lead to runaway inflation, especially when buying items manufactured  overseas.

And if you haven’t already noticed, the reason the job market has dried up in America is because most manufacturing facilities have moved overseas. Nearly everything we buy, from television sets and sewing machines to cars and the steel with which they are made, come from foreign countries.