Are You Ready for the US Debt Spiral?

Phoenix Capital Research's picture


As the
mortgage foreclosure scandal spreads like wild-fire it is now clear that the
alleged housing boom which made us all rich was in fact backed by nothing but
loose monetary policy, systemic fraud, and rampant corruption.


Indeed, it
now appears that banks were not only signing foreclosure notices without
bothering to even verify the information ON the foreclosure (including WHO owns
the house), but that some institutions were actually COUNTERFEITING paperwork
if they couldn’t come up with legitimate documents.


While most
of the mainstream media is absolutely shocked that the housing bubble and bust
was/is rife with criminality (allegedly), I have to admit this is not a total
surprise for me. Consider this little tidbit from the Miami Herald from 2008:


Between 2000 and 2007, “regulators
allowed at least 10,529 people with
criminal records
to work in the mortgage profession. Of those, 4,065 cleared background checks after
committing crimes that state law specifically requires regulators to screen,
including fraud, bank robbery, racketeering and extortion.


The article
I’m quoting is from 2008. It starts with a story about an ex-convict who ADMITS he’d been convicted of cocaine
and was APPROVED.


Of course,
not ALL of the housing bubble involved coke dealers and ex-cons, but this
tidbit should have been a MAJOR red flag to everyone that the housing bust
(which was accelerating at that time) was going to involve a lot more than home
prices falling and money being lost.


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 done the following:


  • The Federal Reserve cuts interest
    rates from 5.25-0.25% (Sept ’07-today)
  • The Bear Stearns deal/ Fed buys $30
    billion in junk mortgages (March ’08)
  • The Fed opens various lending windows
    to investment banks (March ’08)
  • The SEC proposes banning short-selling
    on financial stocks (July ’08)
  • The Treasury buys Fannie/Freddie for
    $400 billion (Sept ’08)
  • The Fed takes over AIG for $85 billion
    (Sept ’08)
  • The Fed doles out $25 billion for the
    auto makers (Sept ’08)
  • The Feds’ $700 billion Troubled Assets
    Relief Program (TARP) (Oct ’08)
  • The Fed buys commercial paper
    (non-bank debt) from non-financials (Oct ’08)
  • The Fed offers $540 billion to
    backstop money market funds (Oct ’08)
  • The Fed backstops up to $280 billion
    of Citigroup’s liabilities (Oct ’08).
  • Another $40 billion to AIG (Nov ’08)
  • The Fed backstops up to $140 billion
    of Bank of America’s liabilities (Jan ’09)
  • Obama’s $787 Billion Stimulus (Jan
  • The Fed’s $300 billion Quantitative
    Easing Program (Mar ’09)
  • The Fed buying $1.25 trillion in
    agency mortgage backed securities (Mar ’09-’10)
  • The Fed buying $200 billion in agency
    debt (Mar ’09-’10)
  • Cash for Clunkers I & II
    (July-August ’09)
  • The Fed opening up currency swap lines
    to European Central Banks (April-May ’10)


All of these
sound pretty clever and complicated, but in reality they consist of nothing but
throwing VAST amounts of money at every issue that arises rather than allowing
the junk debt in the system to be cleaned out. Consequently, NOT ONE move
that’s been implemented has been positive for the US Dollar OR the US balance


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.


Good Investing!

Graham Summers

PS. If
you’re worried about the future of the stock market and have yet to take steps
to prepare for the Second Round of the Financial Crisis… I highly suggest you
download my FREE Special Report specifying exactly how to prepare for what’s to


I call it The Financial Crisis “Round Two” Survival
. 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).


Again, this
is all 100% FREE. To pick up your copy today, got to
and click on FREE REPORTS.




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yipcarl's picture

Rook...LOL that's what they are taught to say and have been saying for 70 years, it's how they get paid.  Isn't that what it's always about?


Come on.

the rookie cynic's picture

I was speaking with a Baby-Boomer financial planner a few days back. I shared some of my concerns about: the devaluation of the dollar, trade imbalances, sky-rocketing U.S. government debt, and corruption in Washington and Wall Street.

She took it all in stride. "Oh, our country has been in worse shape before: WWI, the depression, WII, the energy crisis in the 70s...don't worry, stay the course, fund your investment accounts. The market hasn't been based on fundamentals for years.  We've had doom and gloomers all along. (She mentioned Howard Ruff being the chief doom and gloomer of her generation.) It's going to be okay."

I'm sorry but it doesn't feel okay. It feels different: more corrupt, less resilient, desperate, uncertain, scary...


ebworthen's picture

I feel the same way.

They MUST tell you that everything is going to be o.k. if they want to have a job.

My impression of America 50, 75, 100 years ago is not of parasitic healthcare industry, welfare society, declining manufacturing, outrageous debt spending, and bailing out corporations with taxpayer dollars.

I'm pretty sure we used to allow companies to go bankrupt, and that you could spend a week in the hospital without having to mortgage your house.

I'm certain we had the greatest innovation, quality, and production rates and efficiencies in the world.

That has all been sold out for the sake of a quick buck versus prudence, humility, and restraint.

What we have lost is the American Family, the Character Building of individuals, and a personal and national dedication to improvement versus sloth and greed.

Certainly there are still good families and people with good intentions, but we have passed a tipping point where a majority in society are living for the moment.

I don't want to invest in that.

yipcarl's picture

Let me get something straight.


We have a mortgage problem, I think?


Loans are at the lowest level in decades, I think?


We have never had a foreclosure problem this bad in America’s history, I think?


A moratorium has been called to stop all foreclosures in this country, I think?



Now  JP Morgan, the biggest ‘BANK’ in the United States came out this morning with blowout earnings.  


Now the market is going nuts.  


This all makes perfect sense and I'm sure you will get at least 100 posters on CNBC to tell you why this is perfectly normal and how stupid I am for not 'getting it'.

ebworthen's picture

For what Wall Street has done, they would have to hire some gutless immoral swindlers and drug dealers who left their conscience in Kindergarten.

Hell, I remember in 1987 my young Wife and I being hustled into a 10% home loan that was 55% of our income "Don't worry, in a year or two you'll be making more money and if the rates are lower you can re-finance."

Nearly killed us making those payments, jerks!

sbenard's picture

But Wall Street is happy!

If these people aren't delusional, there IS no such thing!

Captain Kink's picture

"The inflationism of the currency systems of Europe has proceeded to extraordinary lengths. The various belligerent Governments, unable, or too timid or too short-sighted to secure from loans or taxes the resources they required, have printed notes for the balance."  J.M. Keynes on Weimar Inflation


Even Keynes understood that this is no way out. Not to mention the dis-incenting message that it sends to anyone capable of working and/or investing in the US going forward. 

alexwest's picture

#US is expected to run a $1.7 trillion deficit in 2010

well well well .. finally someone got federal deficit right.. my congratulations  SIR... no more assholes ..


Dadoomsayer's picture

Yet we march on and on.  Rome didn't fall in a day or a year, it took decades.  Same will happen to the US.  It will take decades.  Enjoy waiting for your fall, won't happen in our lifetime.

Calmyourself's picture

I agree with reservations, those being black swans, they do happen.  The larger system is incredibly resilient but could go down quickly with the right shove on a load bearing portion.  It is always smart to be moderately prepared; a little food, a little defense a little fuel, a little PM's. 

This is not mako's world, the JIT system will not shut down for lack of credit overnight.  It will get slower and cracks will show well in advance if it happens at all..  The Black swan will not be on a local level it will be national systems, local systems are even more resilient.

Vendetta's picture

the difference between then and now Rome used silver for money which was diluted over time, we're using total fiat with no record in history of fiat lasting more than 41 years.

Spastica Rex's picture

Got it. So, please tell me, what do we use for the start-date of U.S. decline? Knowing that date will help a lot. Was it yesterday, or the day before? Or?

snowball777's picture

August 15, 1971?

December 23, 1913?

May 10, 1886?

Sep 17, 1787?

Shell Game's picture

D.  I choose D, since there was no 'all of the above'.

web bot's picture


I largely agree with your decline of an empire assessment and I enjoy your posts. In my sock puppet assessment, the only "out" for the US Gov't is hyperinflation... along with all of the other niceties that it brings... such as social unrest.

With hyperinflation, the US can literally dissolve its debt and emerge on an equal footing with the others major powers who will also experience the medicine. This in my view, still ensures a level playing field once this event is over.

Many talk about hyperinflation as the end... but in fact, it is the only real alternative since the debt level is unsustainable.

Sounds draconian, but may work.



MrSteve's picture

So the real end game is a new currency at some revalued standard. In the past, a gold standard was opposed because the USA didn't want mineral-rich states like South Africa and Australia determining our money supply. That's Congress' job!


Maybe now there will be a reconsideration of the gold standard, though that didn't stop of Bank of England or Spanish Empire from going broke.


If the dollar goes away via hyperinflation, what will happen to the US Constitution, the dollar's enabling legislation? Tea Party and cable news quippers are fighting over it right now, though only with words for now. If bailouts and contract abbrogation / strategic default and struggles over legitmacy / vote counts keep growing, then maybe the Constitution will join the formerly almighty dollar in the discard pile of American history, next to the continental dollar.


Maybe one hedge is better than none against that day, whenever it comes. Gold has been that hedge for thousands of years, so time is always on its side.

Shell Game's picture

We must return to a gold standard. But... more importantly, we cannot have central bankers in charge of said new, gold-backed currency. That is the most important caveat.  Ergo, revolution is the only way forward.

web bot's picture

My understanding of constitutional law is that while most people hold it as a fixed document, history shows that this is not the case. The Constitution "in total" is the sum of the constitutional document along with important precedents and case law that has emerged over time. The Amendments are but one of many examples.

If default happens, you will simply see some aspects of the constitution morph to accommodate. Not something that many want to hear, but it is a fact.


On another note, I am amazed that people are thinking that gold and silver are in a bubble. In the old normal, when bubbles are popped, they collapse... but in those cases, this liquidity moves to other holdings. Don't they realize that when default of the USD happens, gold and silver will simply be the recipients of this flood of liquidity until a new standard emerges.. which could take several years.

snowball777's picture

Do we really think that America and Greece are comparable in the "digging out of the hole" department?

Is America tied to a currency it can't debase?

Can Greece, at 1/3 the population of CA, really milk their new Chinese sugar daddy sufficiently to grow?

Apple vs Orange?

Nectarine vs Plum?

Bitch Tits's picture

Where does this author get his "facts"? Please, do show us how you compiled these figures. Or, did you make them up?

RockyRacoon's picture

What?  And give you more data to quibble with?  No way.

We like our news stripped to the bone without all that annoying "fact" stuff.

Temporalist's picture

I have to disagree with "endless foreign military excursions that bring nothing to the country;" as foreigners flying planes into buildings in city centers and military headquarters is not nothing.  Don't forget all the enemies that have been created too.  Also the military industrial complex has grown so large surely all the overstuffed pockets and bank accounts of insiders are not "nothing."



fallst's picture

Yes, We can chase the BoogyMen, but not spend Trillions.

No need to take over 2 countries. Too Expensive.

Need to be cost effective here.

So, Homeland Security has 250,000 employees?

All chasing OBL?

Jim B's picture

"All of these sound pretty clever and complicated, but in reality they consist of nothing but throwing VAST amounts of money at every issue that arises rather than allowing the junk debt in the system to be cleaned out. Consequently, NOT ONE move that’s been implemented has been positive for the US Dollar OR the US balance sheet."


Agree completely!  The FED is trying to mitigate the problems, but they are actually prolonging and making the eventual pain worse!

Kina's picture

The US economy is like Mr Creosote. One tiny bit more of QE, Market pumping or deficit can't hurt.



fallst's picture

Dear World:

              Somebody's Kid Stole Dad's Country in 2000, and went on a Joyride. Dismantled all institutions, now buying land in Paraguay.

               So, after 7 years with his regulatory capture and strategic global initiatives(PNAC), there was some mischief, and wall st got drunk.

              Oh, and the national debt doubled from 6.3 to 13 Trillion. Which was Obama's fault. Right.

              So now we are inflating our way out of this. We were hoping you wouldn't notice.

sushi's picture

Debt spiral? Like Greece? What have you been snorting? You forget we have Benny and the Fed!! We is mashers of de univers.


Hey Yip:

How come we share the same email address?

Calmyourself's picture

We also possess 10,000 nuclear warheads (not all assembled), the worlds most powerful Armed Forces and the best resource mix inthe world.  This will take much, much longer to truly fall than mako or any other doomer predicts.  I count myself among the eventual doom and gloom guys..

Everyone has bought into this sytem and will do anything to keep preserving it as it currently pays the bills and feeds the kids..

ebworthen's picture

"Be-Be-Be-Benny and the Feds"

(Benny and the Jets)

If I had the time this morning, I'd write a re-do.

Picture Ben Bernanke in Elton John's Yellow Brick Road getup, dancing along throwing out Fiat Dollars, with the Treasury, Congressional (must have Barney Frank in there), and Wall Street clowns joining in.

yipcarl's picture

sushi...i wish i knew.

yipcarl's picture

Yea if you can tell me when the market finds out we have problems that would be great.  You can email me at


Sudden Debt's picture

aren't you the same guy that hosts and ?

How do you come up with all these names for those sites?

You must be very creative and have a lot of fantasy!


Commander Cody's picture

The market (FED, big banks, hedge funds, liquidity providers) does not have a problem they can't fix (used in more than one context).  Until debts can no longer be paid or kicked down the road, the farce will continue.