American-made Debt Crisis Unfolds
Before Our Very Own Eyes

The government, if it were a business, would have been bankrupt years ago. Why? It spends money it doesn’t have. It borrows money from a bank (the Fed) that simply prints it and hands it over to a client (the government) that is insolvent.Here’s a proposed new rule…

If someone wants to be a politician, they must first run their own business for five years, risking their own money every day.

Of course, this rule wouldn’t fly, because 99% of the politicians in Washington would need to quit, as they’ve never run a small business before.

In your own business, or in your personal life, you do not cut checks from a bank account that has no money in it or that a bank line of credit is not attached to.


If you do have a bank loan or credit line when you are running your business, the bank wants to see financial statements each year showing that you are making money; otherwise, they call the loan…a loan that is always limited in size by what the bank believes your business or income can afford to carry without risk to the bank.

The government, if it were a business, would have been bankrupt years ago. Why? It spends money it doesn’t have. It borrows money from a bank (the Fed) that simply prints it and hands it over to a client (the government) that is insolvent.

Democrats and Republicans are fighting it out in Washington these days over $60.0 billion in budget spending cuts this year. The $60.0 billion is not our problem. Our problem is in trillions of dollars, because that’s how the debt the government has accumulated is now measured.

Our current national debt sits at about $14.29 trillion. That’s the official number. By the end of this decade, the number is predicted to be $20.0 trillion. But the numbers are bogus. A real company would need to add future obligations, like retirement benefits, on its balance sheet, while the government doesn’t do that.

As Bill Gross of Pimco so eloquently pointed out in his April 2011 Investment Outlook, when you include unfunded social security, unfunded Medicare, Medicaid, and government agency and student loan liabilities, the true government debt is $75.0 trillion, about 500% of GDP.

How could it have gotten so out of control?

Here’s how the charade is played: The government takes in our tax money and spends it. It needs more to cover its expenses (because it spends more than it takes in), so it sells U.S. Treasury Bills. The Federal Reserve buys those bills with money it literally prints off a printing press. Foreign investors buy about 50% of those T-bills, because they need to for a variety of their own reasons.

President Obama was quoted the other day as saying it would be “inexcusable” for Congress not to pass the 2011-2012 budget, because it threatens to shut down some federal agencies for the first time in 15 years.

Treasury Secretary Timothy Geithner warns of “severe hardship” if the Congress doesn’t increase the government’s maximum borrowing limit past $14.29 trillion by May 16, 2011, the day government is expected to reach that limit.

To me, it’s inexcusable that our politicians have let our debt get so out of control. They don’t understand they are playing with fire. As inflation rises and interest rates rise, our debt will balloon in size. The credibility of the U.S. dollar will come into question. It will be a catastrophe for all Americans.

Let the government shut down. Run it like a business. If you don’t have the money, don’t spend it. But we all know the politicians won’t let that happen. They don’t have the guts or intelligence to see what the right thing to do is.

For investors like me and you who see the debt crisis in this country coming, there is a huge opportunity to make money from the rise in the price of precious metals, the decline in the value of the U.S. dollar, the decline in the price of U.S. bonds, and the rise in interest rates. I’ve never seen so much opportunity staring investors right in the eyes like we have today.

Unfortunately, and unpatriotically, we are making money as the country we love so dearly crumbles from the economic power it once was to mediocrity and insolvency.

It would have been nice if the politicians enabled us to make money as the country rebuilt itself. But, at a certain point, you are left with not much else choice but to fend for your own economic survival and progress, because those in power certainly won’t help you. All they know how to do is spend a lot more than they take in…what will eventually become America’s debt crisis and downfall.

Michael’s Personal Notes:

First Greece, then Ireland, now Portugal.

The financial world awakes this morning to hear Portugal has formally asked the European Union for a bailout. Portugal’s 10-year government bonds surged to 8.8% yesterday. The official unemployment rate in the country is 11.1%.

Who’s next? My bet is Spain, then Italy. And then it’s goodbye euro.

How long will Germany continue to prop up and bail out the European Union member countries? Time will tell. The real question is whether the mark will become the new currency of the region or if each country will go back to its own currency.

I can’t see the citizens of France or Germany being happy with using their money (indirectly) to bail out Greece, Ireland or Portugal. Frankly, I’m surprised we have not seen civil unrest over this.

One thing is for sure: whoever thought the euro could take over from the U.S. dollar as being the reserve currency of the world (yes, this was in the media only five years ago) was very wrong.

Gold, baby, nice, shining gold bullion, that’s the reserve currency of the future (and the past). Too bad the geniuses running the majority of world central banks decided to unload most of their gold over the past two decades.

Where the Market Stands; Where it’s Headed:

The Dow Jones Industrial Average opens this morning up 7.3% for 2011. The bear market rally that started in March of 2009 remains intact.

Expect more immediate-term gains from stocks; however, the upside potential is limited. The easy money in this bear market has already been made. The upside profit potential of 10% outweighs the risk.

What He Said:

“What group of stocks is next to fall in light of the softening U.S. housing market? The stocks of companies that sell retail products to the American consumer, I believe, are next on the hit list. Many retail stocks are already reporting soft sales. In my opinion, they haven’t seen anything yet in respect to weaker sales.” Michael Lombardi in PROFIT CONFIDENTIAL, August 30, 2006. According to the Dow Jones Retail Index, retail stocks fell 42% from the fall of 2006 through March 2009.