Why the Federal Government Bailouts Will Lead to a Total Financial Collapse

As citizens of the US, we've heard gigantic numbers in the media in recent years to pay for extraordinary events not initially considered when our government establishes its budget:

$32 billion immediately following the September 11, 2001 attacks

Up to $200 billion for Hurricane Katrina

$500 billion and more for the War in Iraq

Given the impact of extraordinary events like these most of us already expected that the federal government was going to face massive deficits this year - even before the financial crisis started.

As 2008 comes nears the end, however, we've been presented with an astronomical new set of numbers associated with the bailouts either already approved or still being considered by the federal government:

$200 billion to offset the future losses of Fannie Mae and Freddie Mac

$700 billion for the Troubled Asset Relief Program

Up to $1 trillion being considered in infrastructure projects to jump start the US economy

After many years of simply not paying attention, I decided to do some on-line research on the financial condition of the US federal government. Quite frankly, I was shocked by what I discovered:

The national debt just hit $10.6 trillion dollars and is going up every single day.

The federal government spent $451 billion just to pay interest on the national debt during the fiscal year ended September 30, 2008. Interest expense is now the 3rd largest item in the federal budget trailing only the Departments of Health/Human Services and Defense.

The Office of Budget and Management referred to the short term budget situation as sobering.

But here's something most Americans might not realize.

Our leaders in Congress continue to push more regulation and oversight and seem to feel that this could have prevented the collapses at Enron, Fannie Mae, and Freddie Mac.

So I was shocked to learn that the Government Accounting Office (GAO) reported this month serious material weaknesses in the financial reporting processes of the federal government - preventing the GAO from expressing opinions on the financial statements of a significant number of federal agencies. The GAO concluded the federal government did not maintain an effective internal control over financial reporting - a system that could result in waste, excess payments, and inefficient use of government assets.

The GAO is referring to the same federal government that's been telling you that it is going to closely supervise the billions lent to bail out financial institutions and the auto industry.

All of the numbers point to a mathematical certainty - that we are heading towards the biggest financial crisis ever - the total financial collapse of the government of the United States - Armageddon.

To pay for some of the most recent bailouts announced, the treasury department has announced its intent to borrow $550 billion in the 4th quarter of 2008 and $ 368 billion in the 1st quarter of next year.

Future borrowing on this scale might not sound like anything new to you. You've heard these kinds of numbers thrown around before.

There's just one problem.

Governments do not have an endless ability to borrow. Major cracks are already showing on the surface. Some of the biggest states in the country are having trouble selling their bonds to investors including the states of Florida and California - that's something most of us have never seen in our lifetimes. California is already approaching the federal government asking for billions to help them out of their current crisis.

You see, we've reached a point in our history where only the Federal government seems to have a fully functioning line of credit. But now that you know the staggering amount of money that has to be spent on interest to service trillions in debt, how long can the federal government keep borrowing?

When will investors who buy debt from the Federal government finally decide they don't want to lend to Washington anymore? What do you think will happen when those investors get nervous about the Federal governments ability to pay the debt back? They are only going to do one of two things - either demand very high interest rates or simply invest their money elsewhere.

When that happens, it will only be a matter of months until the Federal government has to shut down - one agency at a time.

That's why no matter how ambitious President Elect Barack Obama's plans for the future are, his presidency is largely going to consist of supervising the bankruptcy of the federal government - not further expansion of government social programs.

Now I don't expect our new president elect to take this lying down. He is not going to sit by quietly and preside over a bankruptcy and miss his chance to create a legacy. To avoid a total financial collapse that will make his presidency irrelevant, you should anticipate that he will let the Bush tax cuts expire and that he will impose brand new taxes - up to and including taking control of your personal assets and property.

You have to take the following steps to protect yourself as we move closer towards this financial day of reckoning - a day when the federal government won't be able to borrow want it wants to in the debt markets:

If you have bond investments, don't assume that your principal is not at risk - find out what exactly what these bond funds are investing in. If there is any risk that you will lose your investment, get out of that fund.

Invest in precious metals including gold. They will be solid investments for many years to come. In post World War I Germany when it took a wheel barrel full of money to buy a loaf of bread, a person who could pay with gold had nothing to worry about.

Buy real estate holdings during these disturbing times. Those who own their homes will be in a much better position than those who rent during a financial collapse. If you want proof of that just take a look at those who owned homes in Brazil and Argentina during their years of 100% inflation - quite honestly, landlords and not renters were in control.

Pay down your mortgage. Owning a home outright will be far better for you then having a mortgage.

Last but not least, consider keeping at least an emergency stash of liquid cash in your house for the toughest of times.

I wish our new president the best of luck in taking the mess that he is going to inherit. However, our crushing national debt is going to severely limit his options. I intend to prepare for the financial collapse before it happens - you should too!