Will the U.S. Economy Collapse Under the Weight of its Debt?

“The U.S. national debt shot up $339.1 billion last week — the largest daily increase in the national debt in history, according to Treasury Department data,” according to Gregory Korte in USA Today (1).

How many people are paying attention to this?

In an interview with BBC News, billionaire and money manager, Jim Rogers, stated that the entire US economy will collapse under the weight of its debt. Rogers further says the U.S. has been piling up debt for the last 50 or 60 years at an ever-increasing rate, with no apparent plans to pay it back (2).

According to the USA Today article, “The increase is largely a matter of accounting, in that the Treasury Department had been using ‘extraordinary measures’ to artificially hold the total U.S. debt under the debt limit imposed by Congress. So on paper, the national debt had been frozen at $18.1 trillion since March, as the Treasury instead deferred payments to pension funds and borrowed from reserve accounts in order to keep the government running.

But once President Obama signed a suspension of the debt limit into law on Monday, the Treasury Department was able to borrow new money for spending Congress had already authorized — averting a potential debt crisis as its accounting measures began to run out.”(3)

I believe this means that the U.S. government has no way out. Our government has made forward commitments without a plan to pay for them, and now does not have the political will to do what is necessary to stop the runaway train from going over the financial cliff.

The U.S. is not alone. Other countries like Japan, Greece, Italy, Portugal, Ireland, Belgium, Spain and France also have extremely high levels of debt in relation to their Gross Domestic Product (4).  However, none seems willing to do what is necessary to stop uncontrolled spending. Jean Claude Juncker, former President of the European Economic Council and former Luxembourg Prime Minister said, “We all know what to do, we just don’t know how to get re-elected after we’ve done it.”(5) At least he is honest.

So, what is the average person to do?

We feel helpless to stop those bent on feathering their own nest while ignoring the signs that their actions are leading to our own destruction.

There are four kinds of risks that lie ahead for the average investor: Stock market risk, Interest rate risk, Inflation risk, and Infrastructure risk.

However, there are strategies you can implement to help protect against these risks – as much as possible. And through my work as a Seattle conservative investment manager, I’ve compiled free resources and seminars for people to help protect themselves and their money.

1. http://www.usatoday.com/story/news/politics/2015/11/04/national-debt-sets-one-day-record-after-debt-limit-suspension-becomes-law/75173708/
2. http://jimroger.blogspot.com/2014/01/economic-collapse-is-coming.html
3. http://www.usatoday.com/story/news/politics/2015/11/04/national-debt-sets-one-day-record-after-debt-limit-suspension-becomes-law/75173708/
4. http://www.economicshelp.org/blog/774/economics/list-of-national-debt-by-country/
5. http://www.bbc.com/news/world-europe-27679170

What are the experts saying about the current market collapse?

According to Wikipedia, there have been 21 stock market crashes in the last 210 years – about one every 10 years – although they don’t occur in exactly 10 year cycles.  We have seen two in the last 15 years, and recently the market has definitely had a rough ride.

Traditional thinking surrounding stock market crashes encourages people to just keep their money invested in the stock market. This advice offers no comfort when YOU are the one who has lost a lot of money following it. Thankfully, I did not take this advice in October 2007. After I saw the devastation from the 2008 market collapse, I began to wonder – “Is there was a way to protect myself from the downside of the stock market and still participate in the upside?”

This question led me on a journey of more than 10,000 research hours where I learned that there are some in the financial industry who did not give that kind of advice. Many experts said they did not see the 2008 market crash coming. Others in the industry who are independent thinkers not tied to Wall Street did see the 2008 crash on the horizon.

The Death of Money avalanche…

Jim Rickards is one of those independent experts, who is on guard for the next market crash. In his book, The Death of Money, Rickards provides a great analogy, comparing a market crash to an avalanche.

An avalanche starts out small, with a single snowflake breaking loose and tumbling into another and then another. Soon, its momentum becomes a massive snowball barreling down the side of the mountain, making an ever-growing snowball, wiping out everything in its path, and ending in destruction. Just as everything in the path of an avalanche is crushed and carried away, banks get wiped out during a financial collapse – as are stock market investors.

The debt “tsunami”…

Jim Rogers has become one of the best minds in the world over the past 50 years as to how to diminish investors’ risk and help them capitalize on “down market” cycles. Rogers’ credibility is impeccable – he has predicted economic cycles – especially outright market collapses.  Rogers says that the nest crash will be caused by the debt all major countries are carrying and their printing of more and more paper money, which is out of control. He believes multitudes will be crushed by the tsunami and economic chaos that will be caused by such a crash:

“The debt is going higher and higher. The money printing is going higher and higher.  We’ve had 50 or 60 years of success in America.  You’ve got to pay the price someday whether you like it or not. The longer you delay the day of reckoning, the worse the day of reckoning is going to be. This is not going to be fun. 

You saw what happened in 2008, which was worse than the previous economic setback because the debt was so much higher. Well now the debt is staggeringly much higher, and so the next economic problem, whenever it happens and whatever causes it, is going to be worse than in the past, because we have these unbelievable levels of debt and unbelievable levels of money printing all over the world. Be worried and get prepared.”

What can the average investor do?

As most of you know, it has been a rough ride for the average investor in the market this past week. Unlike the wealthy, the average investor stands to lose more than just money. For many, their future security rides on the funds they have invested. Most can’t afford to hire the smartest and most successful financial minds in the world to help protect their assets.

Bill Fleckenstein, President of Fleckenstein Capital, commented:

 “They are trying to make the stock market go up and drag the economy along with it. It’s not going to work. There’s going to be a big accident. When people realize that it’s all a charade, the dollar will tank, the stock market will tank, and hopefully bond markets will tank. Gold will rally in that period of time because it’s done what it’s done because people have assumed complete infallibility on the part of the central bankers.”

  1. Be careful who you listen to.

Are you listening to those who encourage you to “stay put” in the market – or are you listening to those warning of immediate dangers being faced by keeping your money invested?  Maybe your age and desire to take less risk have something to do with your answer.  Instead of focusing on only the rate of return, perhaps you should be thinking about risk and return.

  1. Analyze your portfolio from a defensive approach.

Defensive investing focuses on protecting your wealth by putting asset protection at the center of an effective investment strategy. You can see the benefits of this approach in my Conservative, Conservative Blend and Sector styles of investing. Also, I encourage you to start educating yourself on defensive investing with these risk-averse resources and or at one of my upcoming complimentary seminars.

  • Are you worried about your portfolio?
  • Does it feel like to you that we are going down the same road as 2000 or 2008?

Feel free to leave a comment below!