In previous blogs I have discussed provocative topics like the Trillion Dollar Meltdown written by author Ron Morris. I have talked about the upcoming book (due out in December) by futurist thinker Harry Dent who argues that the 2010 timeframe will be ugly for financial markets. As I wrote these blogs in the past 6 weeks I must admit I felt a tad uneasy advancing topics so unsettling.

But, it’s like the world has started to spin faster on its axis. Things are happening at full tilt. What seemed far fetched a mere 6 weeks ago is now reality. Fannie Mae and Freddie Mac being nationalized over the course of one weekend in September. Lehman Brothers imploding after a 158 year existence. Merrill Lynch choking on bad debt investments and having to turn to Bank of America for emergency First Aid. AIG Insurance having to take an $85 billion lifeline from the Fed and the Treasury to avoid rocking the entire global financial system to its very core. ( Geez, I thought those life insurance premiums I pay each month to AIG were getting invested sensibly by a seasoned group of actuaries, not getting pissed into the wind by a bunch of swashbuckling financial pirates loading up on sub prime debt…). And now, as I write this blog Hank Paulson and company are hunkered down somewhere in Washington assembling the pieces of what will be a BIG BAD BANK. This BAD BANK will effectively buy up all the outstanding bad debt investments that stand to threaten what is left of the US financial system. These bad debts will rot and fester in this newly created entity just like the vegetable matter in my back-yard compost pile.

If you think this BAD BANK will mean happy times ahead for all, think again. The USA is currently saddled with a $9 trillion debt load. The bailout debt ( and we’re not sure what the total bill will be) for Fannie and Freddie apparently has been placed onto a separate set of books somewhere in Washington. The US budget deficit for 2008 is projected to be $407 billion. The 2009 projected deficit is $439 billion. America is spending over $1 for every 10 cents of tax revenue taken in. The jig is up. There’s no use trying to hide this stuff on separate sets of books. Now here is where it really gets scary. Add in the cost of future social security, Medicare and Medicaid costs and your head will spin round. The real debt number that America is facing with everything factored in is closer to $53 trillion. Yes that’s right – 4 times current GDP !!

At present, 42% of US debt is owned by foreigners. How much longer will foreign investors tolerate this crap? Not much longer I say. Interest rates will start to creep higher as foreigners start demanding higher returns for taking on the risk of US debt. America’s credit rating is about to be downgraded. These higher interest rates will start to be evidenced when credit card companies begin screaming for help as consumers default on payments. Regional banks will feel the pain too as people default on car loans and home equity loans. But fear not, all this hubris will be shoveled up and dumped into the Hank Paulson BAD BANK where it will fester and rot.

America has reached the tipping point. From here on in, the taxpayer will bear the burden of all the bad debt because Hank Paulson has said so. Spending programs for education, infrastructure and the like will be scaled back to pay for the rotting debt in the BAD BANK. The US currency will resume its downtrend as money supply is ramped up to help pay for these debts. This will mean the consumer shall pay more (and de facto be taxed) to purchase imported goods. Take a good look at your lifestyle as it exists today, for it will never be the same.

The party atmosphere brought on by the tremendous gravity-defying run of economic expansion engineered by Greenspan and company is now over. America is broken, humbled, humiliated. How sad. How truly, truly sad. If there ever was a time to buy Gold and Silver - its is now. More on this notion in future blogs - stay tuned....