U.S. in danger of defaulting on national debt in 2009?

Richard C. Cook, a former U.S. federal government analyst warns:

To try to fix the crisis through bailing out the system, we are now seeing in the U.S. and Europe levels of government borrowing that have not been experienced since World War II. The purpose is to recapitalize a financial system that has destroyed itself through its own greed and folly.

But all this does is defer the bill to future generations who have to pay the enormous compounded interest charges this borrowing entails.

Interest on the national debt in the 2009 federal budget is over $500 billion. (Last year's was $430 billion)

The situation is so bad that many people believe the U.S. may even be in danger of defaulting on its gigantic national debt sometime in 2009.

Former Goldman Sachs chairman prediction: “Worse than the Great Depression”

According to former Goldman Sachs chairman John Whitehead, the current downturn will be worse than the Great Depression. As reported by Reuters:

The economy faces a slump deeper than the Great Depression and a growing deficit threatens the credit of the United States itself, says former Goldman Sachs chairman John Whitehead.

"I think it would be worse than the Depression," Whitehead said. "We're talking about reducing the credit of the United States of America, which is the backbone of the economic system. ... I see nothing but large increases in the deficit, all of which are serving to decrease the credit standing of America. ... I just want to get people thinking about this, and to realize this is a road to disaster. I've always been a positive person and optimistic, but I don't see a solution here."

Economist: “U.S. will soon face a second Great Depression”

By most accounts the US economy is in serious trouble. Robert Reich, an adviser to President-elect Obama, calls it a “mini-depression,” and that designation might be optimistic. The Russian economist, Mikhail Khazin predicts that the “U.S. will soon face a second ‘Great Depression.’”

Khazin points out, as have others such as University of Maryland economist Herman Daly, that consumer debt expansion is the fuel that kept the U.S. economy alive. The growth of debt has outstripped the growth of income to such an extent that an increase in consumer credit and bank lending is not possible.

Consumers are overburdened with debt. This fact takes monetary policy out of the picture. Americans can no longer afford to borrow more in order to consume more.

[Excerpt of an article by Paul Craig Roberts, former Secretary of the U.S. Treasury]

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The financial outlook as we enter 2009

US retail sales are ominously the worst in 35 years.

1.2 million U.S. jobs were lost in 2008, and unemployment has soared to 6.5%. And with most economic indicators signaling even more difficult times ahead, job losses will likely deepen and continue through 2009.

Top auto industry executives and the president of the United Auto Workers are asking for additional federal aid for the struggling U.S. carmakers.

General Motors warned Friday that it has only a minimum amount of cash to operate its business through the end of the year, and even with planned restructuring will fall short of cash in the first two quarters of 2009.

Despite receiving a portion of a $25 billion industry bailout from the federal government, Ford said it would cut its R&D budget and eliminate about 10 percent of its white-collar work force.

Collapse of US auto sales points to deep recession

Sales fell by a staggering 31.9 percent last month over the previous year in a further sign the U.S. economy has entered a deep and protracted downturn, threatening the jobs of millions of working people.

At the current rate, automakers expect to sell their lowest number of cars and trucks since 1983. General Motors—which is seeking a government bailout to avert bankruptcy and expedite a merger with number-three US automaker Chrysler—suffered a 45 percent decline in sales.

Adjusted for increases in the US population, last month was the worst since World War II, GM sales analyst Michael DiGiovanni told reporters. “This is clearly a severe recession,” he said.

One or more of Detroit’s Big Three automakers are not expected to survive the crisis. In the 1970s, US carmakers controlled more than 80 percent of the US market, with GM selling more than half the cars. GM, which employed 350,000 unionized workers in 1970, now has fewer than 70,000 blue-collar workers.

As a result of falling demand from steelmakers—a key supplier for all manufacturers—production at 17 of the nation’s 29 blast furnaces is being shut down. “We’re dealing with a situation that could develop into another Great Depression, if not handled properly,” Daniel DiMicco, chief executive of Charlotte, North Carolina-based steelmaker Nucor Corp., told the Wall Street Journal.

U.S. Federal Government Debt vs. Rest of World

Above is a dramatic look at the U.S. federal government debt.

This chart takes the present value of all US Federal Government debt obligations, including unfunded Social Security and Medicare obligations, which at end of 2007 totaled $62.6 Trillion (upper red bar on chart)
[Data source -http://fms.treas.gov/fr/07frusg/07frusg.pdf]

- - And compares that $62.6 Trillion in debt to U.S. GDP, plus to the rest of World's government debt of about $18 trillion (and rest of world's GDP).

Restated: U.S. government debt of $62.6 trillion is 3 1/2 times larger than the sum of the debts of all governments in the world ($18 trillion).

--Yet, the U.S. economy (GDP) is 68% smaller than the rest of the world. (Compare the black bars on this chart)

Resource

Call this a Crisis? We haven't seen nothing yet!

David M. Walker, former U.S. Comptroller General, one man who knows the inside economic picture far better than most, wrote the following in Fortune magazine:

Let's take a look at the potential catastrophe that awaits us once we survive our current crisis.

The entitlements due from Social Security and Medicare present us with a frightening abyss as 78 million Americans come of age. The costs of these current programs, along with other health-care costs, could bankrupt our country. Even if the economy were to grow at the level of 3.2% a year, as it did in the 1990s, they wouldn't come close to addressing our federal financial problem.

The U.S. Government Accountability Office (GAO), noting that the federal balance sheet does not reflect the government's huge unfunded promises in our nation's social-insurance programs, estimated last year that the unfunded obligations for Medicare and Social Security alone totaled almost $41 trillion. That sum, equivalent to $352,000 per U.S. household, is the present-value shortfall between the growing cost of entitlements and the dedicated revenues intended to pay for them over the next 75 years.