Today’s deficits are far worse than those of the Great Depression.

Right now, the Treasury’s finances are collapsing … its bond prices plunging … its interest rates surging.

Indeed, the Treasury’s financial crisis looms so large, it could wreck more havoc on the economy and deliver more pain to average Americans than the subprime mortgage disaster, the housing bust, the banking crisis, and the collapse of General Motors put together …

It could create a rising tide of interest rates that wipes out the effects of any stimulus, undermines any recovery, and sabotages any new bailouts …

But unlike GM, Fannie Mae, Citigroup, AIG, and the many others that the U.S. Treasury has bailed out in recent months, there is no institution on the planet big or rich enough to bail out the U.S. Treasury itself.

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Why This Is Just the Beginning of the Treasury’s Crisis.
Why It’s Going to Get a Heck of a Lot Worse This Year.
And Why It Could Continue for Years Beyond 2009.

It’s widely known that America’s federal deficit is out of control.

But so many dire deficit warnings have been issued so often, they now fall mostly on deaf ears. Wall Street pundits roll their eyes. Washington politicians laugh at those who would cry “wolf.”

What they don’t realize is that this time, due to a series of devastating facts they’ve chosen to ignore, the day of reckoning is here:

Fact #1. Sheer size. According to the government’s official estimate, the federal deficit for fiscal year 2009 will be $1.84 trillion, or 13.4 percent of GDP!*

It is the worst deficit in U.S. history.

It means the deficit has now exploded to a level which is so far beyond the range of anything we’ve experienced before, it’s impossible to imagine any scenario in which it does not have a devastating impact.

Fact #2. The actual deficit could be much larger. The administration’s $1.84 trillion deficit forecast presupposes a dramatic turnaround in the economy, which, by definition, is virtually impossible with the government running trillion-dollar deficits!

How can the administration possibly predict an economic turnaround when its own Treasury Department is sucking nearly $2 trillion in funds out of credit markets — the same credit markets that derailed the economy late last year?

Similarly, how can the government predict a turnaround when its own borrowing frenzy is already driving up mortgage rates and undermining real estate, the one sector that’s most responsible for the economy’s decline in the first place?

Fact #3. No end in sight. Since the United States declared its independence nearly 233 years ago, the only time the federal deficit approached or exceeded 10 percent of GDP was during major wars — the Civil War, World War I, and World War II. But in each case, the deficit financing began promptly — and ended promptly — with the war.

Unfortunately, that’s not the case this time. Although the U.S. is fighting wars in Iraq and Afghanistan, their cost represents only a small fraction of the budget shortfall. Even if the Iraqi and Afghan wars could be ended tomorrow, America’s great budget crisis would still be just beginning.


Fact #4. Today’s deficits are far worse than those of the Great Depression. America’s first big, multi-year peacetime deficits came in the 1930s. Tax revenues plunged with the sinking economy. And in the years that ensued, government expenditures — mostly for a series of programs to bail out the economy — went through the roof.

But even with a 90 percent collapse in the stock market in 1929-32 and even after three years of double-digit GDP declines that make today’s look mild by comparison, the federal deficit in 1933 was just 3.27 percent of GDP, less than one-fourth of what’s projected for this year.

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