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Three Horrifying Facts About the US Debt "Situation"

By Graham Summers      Printer Friendly Version Bookmark and Share
Oct 13 2010 10:48AM

Since too often financial articles consist of some stooge blathering on and on with opinions instead of facts, I thought today we’d simply focus on some FACTS about our current financial system which few if any want to acknowledge.

#1: The US Fed is now the second largest owner of US Treasuries.

That’s right, this week we overtook Japan, leaving China as the only country with greater ownership of US Debt. And we’re printing money to buy it. Setting aside the fact that this is abject lunacy, this policy is trashing our currency which has fallen 13% since June… as in four months ago. Want an explanation for why stocks, commodities, and Gold are exploding higher? Here it is.


#2:  “There are only about $550 billion of Treasuries outstanding with a remaining maturity of greater than 10 years.?

This horrifying fact comes courtesy of Morgan Stanley analyst David Greenlaw. And it confirms what I’ve been saying since the end of 2009, that the US has entered a debt spiral: a time in which fewer and fewer investors are willing to lend to us for any long period of time… at the exact same time that we must roll over trillions in old debt and issue an additional $100-150 billion in NEW debt per month in order to finance our massive deficit.

And only $550 billion of the debt we’ve got to roll over has a maturity greater than 10 years!?!?

 So we’re talking about TRILLIONS of old debt coming due in the next decade. The below chart depicting the debt coming due between 2009 and 2039 comes courtesy of the US Treasury itself. In plain terms, we’ve got some much debt that needs to be rolled over that you can’t even fit it on one page and still read it.

maturing treasuries

#3: The US will Default on its Debt

… either that or experience hyperinflation. There is simply no other option. We can NEVER pay off our debts. If we include unfunded liabilities, every US family would have to pay $31,000 a year for 75 years for us to get debt free.

Bear in mind, I’m completely ignoring the debt we took on with the nationalization of Fannie and Freddie, AIG, and the slew of other garbage we nationalized or shifted onto the Fed’s balance sheet. And yet we’re STILL talking about every US family making $31,000 in debt payments per year for 75 years to pay off our national debt.

Obviously that ain’t going to happen.

So default is in the cards. Either that or hyperinflation (which occurs when investors flee a currency). Either of these will be massively US Dollar negative and horrible for the quality of life in the US. But they’re our only options, so get ready.

I’ve said it before and I’ll say it again… the US economy today is not about a recession or a housing bust… it’s about an Empire in DECLINE.

We’ve got all the tell-tale signs: we’re engaged in endless foreign military excursions that bring nothing to the country, we’re depreciating our currency at a rapid rate, we’re trashing the national balance sheet and falling further and further into debt.

Indeed, the US was already bordering on bankruptcy BEFORE the Financial Crisis began. And SINCE the Crisis began the “powers that be? have implemented a ton of emergency measures, NOT ONE of which has been positive for the US Dollar OR the US balance sheet.

At some point, and I cannot tell you when, the US is going to find itself facing a situation very similar to that of Greece. Indeed, if Greece’s numbers are “Crisis Worthy? investors should consider that the US’s fiscal condition is in fact AS BAD IF NOT WORSE than Greece’s.

The US is expected to run a $1.7 trillion deficit in 2010. Assuming that the GDP numbers are accurate (they’re not, but that’s an article for another time), the US economy is in the ballpark of $14 trillion. This means we’re running a deficit equal to 12.3% of GDP. That’s RIGHT next to Greece.

Then of course, you’ve got our Debt-to-GDP ratio. If you ignore unfunded liabilities like Social Security and Medicare, the US already has a Debt-to-GDP ratio of 98.1%. That’s only slightly off of Greece’s Debt-to-GDP of 112%.

Throw in Fannie and Freddie’s mortgage debts (Uncle Sam own $5 trillion of these now too), and we’re already well over a Debt to GDP of 112% (actually it’s 130% or so). And when you include Social Security and Medicare ($45 trillion) this puts total US Debt-to-GDP at 421% ($59 trillion of Debt on a GDP of $14 trillion).

Those investors who believe the US is somehow immune to a debt collapse are in for a VERY rude surprise.  If you’re looking for an explanation of why Gold, the only currency that CAN’T be devalued is exploding higher, you’ve got it.

If you enjoyed this piece and would like to see more of my views and articles, swing by for more!

Good Investing!

Graham Summers



I call it The Financial Crisis “Round Two” Survival Kit. And its 17 pages contain a wealth of information about portfolio protection, which investments to own and how to take out Catastrophe Insurance on the stock market (this “insurance” paid out triple digit gains in the Autumn of 2008).

If you enjoyed this piece and would like to see more of my views and articles, swing by for more!