Six Steps to Financial Doomsday STEP #2: Government Debt Exploding!

Yesterday, in the first installment of his “Six Steps to Financial Doomsday Series,” Mike Larson examined the first massive blunder Washington has made to bring us to this point — out-of-control spending. Today, Mike continues his series by looking at the impact of America’s massive debts. I strongly recommend that you do NOT miss a single word!  — Nilus Mattive

$14.6 trillion.

The number is so big, it’s hard to wrap your mind around it. But look at it this way:

That’s $46,800 for every man, woman, and child in the U.S. Or $2,100 for every person on the face of the Earth.

If you had $14.6 trillion in your pocket, you could buy more than 918 million Toyota Corollas or 292,000 Gulfstream G550 private jets.

Heck, you could buy almost six $300,000 Rolls-Royce Phantoms for every one of New York City’s 8.2 million people!

Puts our national debt load into perspective, doesn’t it? Worse, that debt load is going to keep ballooning — to a stunning $20.8 trillion in 2021, according to the CBO’s April analysis.

It’s shocking. Appalling. Revolting. Pick your adjective.

Uncle Sam is now routinely selling tens of billions of dollars in longer-term Treasuries every few weeks. Just in one week in August alone, we dumped $32 billion in 3-year Notes … $24 billion in 10-year Notes … and $16 billion in 30-year Bonds on the market. It’s nuts!

Indeed, just since the middle of the last decade, our debt load has exploded by 92 percent. And thanks to our legislators in Congress and the Obama administration, Uncle Sam now has the authority to go up to another $2.8 trillion in hock! 

The Endgame

What’s the endgame here? Why is this so dangerous? How is this second step down the road to perdition so perilous?

Again, look at Europe. Greece was allowed to run up its national credit card for years. It owed 195.4 billion euros in 2005. That ballooned to 328.6 billion euros last year. Ireland’s outstanding debt surged from 44.4 billion euros to 148 billion. And Portugal’s soared from 96.5 billion to 160 billion. As a result, their debt-to-GDP ratios exploded to 143 percent, 96 percent, and 92 percent as of 2010.

For a while, those countries got away with it. But then, out of nowhere, their creditors started turning off the spigot. They cut up those nations’ credit cards. And the result is the carnage we’re seeing now.

Now, with Europe’s economy slowing, the tax revenues needed to service all of that debt are disappearing.

The economies of Greece and Portugal have been in recession for some time now. Growth in Spain and Italy is virtually non-existent. And the carnage is spreading far beyond those ravaged nations.

Britain’s economy grew only 0.2 percent in April, May and June. Disposable income fell 2.7 percent in the 12 months prior to March of 2011. Retailers are going bankrupt right and left. And to make matters worse, Britain’s austerity program is expected to eliminate 300,000 government jobs.

Now, Germany — the most vibrant economy in the EU — is flagging. Daimler, Deutsche Bank and Siemens are suffering. Germany’s largest utility is cutting thousands of jobs. 

Now, Europe’s banking sector is being pushed to the brink. This month, the European Central Bank had to expand cheap loans to banks to make sure none of them run short of cash.

The clock is ticking, folks. Here in the States, our debt-to-GDP ratio already surged to 62 percent at year end 2010, and it’s projected to hit 72 percent this year.

Meanwhile last Friday, the University of Michigan reported that Consumer Confidence just hit the lowest level since 1980 — 31 long years ago!

In short, we’re buried in debt and our economy is slumping back toward recession! With no changes forthcoming to get us off this pitiful path, a mammoth crisis is all but inevitable!

And still — neither the spending crisis we looked at yesterday or the debt crisis we’ve just examined are the ultimate crisis — only giant steps toward it that virtually guarantee the historic, world-changing event that will soon alter all of our lives forever.

So be sure to watch your inbox all week this week for more on this rapidly accelerating crisis — and also how you can protect yourself and profit.

Best wishes,

Mike Larson