The Trillion Dollar Debt Countdown

By: David_Vaughn

Has anyone forgotten the national debt? And I don't mean the yearly imbalance that merely makes up a fraction of the whole. We seem to discount this theme quite easily most of the time. Part of the reason for this is that we continue to add sand to a sand castle that is already too high and has begun to be buffeted by the waves. We have an election coming up that is probably the most important presidential election in years. In the past four decades there have been tremendous ideological shifts in political theory. Now long over due liberal trends and social changes are right on our horizon. In other words begin to look for even more government intervention in our lives.

“Sharp Drop in Jobs Adds to Grim Economic Picture” "The worst fears of consumers, investors and Washington officials were confirmed on Friday (March 7, 2008), as deepening paralysis on Wall Street collided with stark new evidence of falling employment and a likely recession.” "In a report that was far worse than most analysts had expected, the Labor Department estimated that the nation lost 63,000 jobs in February. It was the second consecutive monthly decline…”“…the jobs report was so bleak that many of the few remaining optimists on Wall Street threw in the towel and conceded that the United States was already in a recession.” New York Times

At the heart of this change will be the unwinding of the present credit bubble and trillions of dollars coming home to roost. I have followed the economy for years and I have never witnessed the change now standing at our very door.

“Debt is dumb.  Most normal people are just plain broke because they are in debt up to their eyeballs with no hope of help. If you're in debt, then you're a slave because you do not have the freedom to use your money to help change your family tree . According to a recent USA Today article about debt, 78% of Baby Boomers have mortgage debt, 59% have credit card debt , and 56% have car payments. It takes a lot of will, discipline, courage and help to slay the debt monster. But it can be done. Imagine how much you could put toward retirement if you just didn't have a stinking car payment? This is how the wealthy really build their wealth. Debt is dumb. Welcome to the real world!” Dave Ramsey

What have I said before? At a minimum in preparation get out of debt. I know this forecast is frightening and nerve racking but I believe it to be the truth. Our economy is weakening and continues to do so under our very eyes. The subprime mortgage mess is only a small taste of the difficulties that will play out in other financial assets down the road. Again, get out of debt. Write downs, defaults, begin to see more of this activity.

“…rock-solid companies have been caught short because the markets are devaluing the collateral they had posted to back billions of dollars in loans. Much of that collateral consists of mortgages.” New York Times

From humble credit cards to high yield bonds. It has been estimated that just the subprime losses amount to over 500 billion dollars. And this is just the first wall to collapse as the asset write down grows. And now the great credit bubble erodes around us. A lot of these circumstances go back to Greenspan when he created the era of easy money to be thrown at every looming economic crisis. That era led to the belief by consumers that the Federal Reserve will always be there to bail us out. And for the Fed they have run out of magic bullets.

The world now is awash in funny money and this situation is not going to last. A perfect storm is now facing our economy. The outstanding public debt as of 6-3-2008 stands at over 9 trillion dollars. Even as we speak the US Dollar is slowly and gradually being replaced by the Euro as the international trade standard. Many analysts estimate the entire world debt at over 100 trillion dollars.

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By David Vaughn
Gold Letter, Inc.
David4054@charter.net

© Copyright 2008, Gold Letter Inc.

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