Aftershock: Protect Yourself and Profit In The Next Global Financial Meltdown, Second Edition

The Biggest, Baddest, Bad Loan of Them All

As bad as the financial judgment of private sector bankers and investment bankers is, even worse is the incredible irresponsibility and bad judgment of the public sector—the U.S. government. The government has been involved in the biggest bad loan of them all: the monstrous government debt bubble. We can’t possibly pay it off. Our tax base in a good year is only $2.5 trillion. In a bad year, it’s more like $2 trillion. The total government debt bubble will soon be over $15 trillion and rising rapidly. If you look at the loan from the perspective of any rational loan officer at a bank, you would see a debt-to-income ratio of over 7 to 1. That’s pretty steep. Most loan officers would not approve such a loan. And that’s assuming interest rates stay at their current incredibly low level. What if interest rates rose to 10 percent? We would have a hard time just paying the interest!

Our track record of repayment is not too good, either. Except for some token payments in the best years of the last couple of decades, we have never made any payments to reduce the debt. It’s clearly a bad loan, the biggest bad loan in world history. A technical default on our huge government debt will have history-making consequences. Just when most people think things will improve and the Bubblequake is ending in Phase I, the next shoe will drop in Phase II, the Aftershock, as described in the next chapter. What then?

The economic cheerleaders say recovery is on ...