A lot’s changed since then.

Today, debt is everywhere on a personal, state, and federal (country) level. Consumers are broke, state and municipal governments are collapsing, and even the Federal Government is running deficits and Debt to GDP ratios that are comparable to Greece.

In fact, owing money has gotten so ingrained in our collective psyche that we’ve begun dressing it up verbally to mask how broke we are. On a personal level we use the word “credit,” a word typically associated with a quality that is earned, to discuss how much money we owe. On Wall Street, garbage debt that would never be repaid was marketed as “securities,” a word associated with protection and stability.

Heck, US debt is even seen as a “SAFE haven.” Think about that for a moment… lending money to someone is now seen as a SAFE thing to do (as opposed to simply sitting on your cash).

This is how warped the world gets when you let currency-devaluing lunatics like Alan Greenspan and Ben Bernanke run the monetary policy. I don’t give a hoot for clever economic models or language. When a world becomes so messed up that it is deemed more prudent to LEND money to someone (a broke country no less) than to simply have your cash in hand, then we have SERIOUS problem.

I implicate Greenspan and Bernanke for this because they both crafted monetary policies in which savers (those who sat on their cash) were punished for doing this. Humans are animals and can be conditioned to think anything, including the idea that it is unwise to actually keep one’s money in one’s own hands.

So here we are, the world is awash in debt. Entire currencies are collapsing, and the US currency (and debt) has become the winner by default (both metaphorically and literally).

Indeed, thus far in the Financial Crisis, US Treasuries have acted as a kind of “Implode-O-Meter,” jumping and sliding based on how “safe” the financial markets appear to be at any given time (see the below chart).

As you can see, US Treasuries exploded higher in 2008 as the S&P 500 took a nosedive. This relationship has continued to this day, though Treasuries have refused to break below their elevated levels beginning at the end of 2007: an obvious sign that the slow-motion implosion continued through 2009, despite stocks bouncing some 60+% from their March 2009 lows.

However, this will not last forever.

Indeed, Greece is now getting headlines for being totally broke. But Greece’s fiscal situation isn’t all that worse than several other European countries. Ireland, Spain, and the UK all are running comparable deficits. Italy actually has a higher Debt-to-GDP ratio. And Germany and the UK are only a couple of years off from having Greek-type Debt-to-GDP ratios themselves. (see the chart below).

However, the oddest thing about this whole development is 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 this year. 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).

Everyone knows this. Heck, even USA TODAY (not exactly the cutting edge in financial research) notes that in order to pay off our current liabilities, every US family would have to pay $31,000 a year… for 75 YEARS!!!

In plain terms, for the US to be criticizing Greece’s debt levels is beyond the “pot calling the kettle black.” It’s like a Black-hole calling a kettle black. At this point, we’re beyond broke. Even if the US taxed 100% of all personal income, we couldn’t pay our debt off for years (at least five)

As I explained in yesterday’s piece, the US is as bad if not worse than Greece from a fiscal standpoint. At some point, and I cannot tell you when, what is happening in Greece will happen in the US. It may take one year, two years, five years. But when it does, we will see the same currency implosion, the same soaring interest rates, and the same civil unrest. Those who are banking on an incredible US recovery will end up looking just like their bullish counterparts did in 1930: unbelievably wrong and misguided.

Until then we are entering a Debt Spiral: a time when investors are more and more unwilling to lend for long amounts of time at the exact time that the US must roll over Trillions in old debt while issuing $150-200 billion in new debt per month. I do not know when the spiral will finally end and the US Dollar go in the toilet, but it WILL happen.

When it does, the world, as a whole will remember what it’s known for centuries but seems to have recently forgotten…

Debt is a four-letter word.

When this happens, we’ll have a new gold rush as investors pile into the one currency that cannot be devalued or printed.

And that currency is Gold.

Good Investing!

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