The End of the World As We Know It: National Bankruptcy!

by Joseph · 8 comments

in Debt, Miscellaneous

If you had to take a close look at the U.S. markets and the financial system and give an estimate on the absolute worst-case scenario for our economy, what would you predict?

Martin Hennecke, senior manager of private clients at Tyche, has done just that and he has publicly declared that he believes that the U.S. government will be forced to declare bankcruptcy due to all of the private-sector bailouts that they have been sponsoring.  I saw this article over at CNBC and thought that it was interesting and something that I would like to cover.

I’ll quote the highlights of the article here, but you should definitely read it and see what Mr. Hennecke has to say on the matter.  There is also a video attached where they interview him, which is a pretty decent way to blow eight minutes.  I’d like to point out that although Mr. Hennecke doesn’t say so (he may not even believe so) what he’s proposing is more or less a worst-case-scenario.  More on that later.  I’ll begin with his first major (and the biggest) point.

“We expect a depression in the United States. We expect a depression, very possibly, also in Europe,” Hennecke said on “Worldwide Exchange.”

We may not even be officially in a recession (at least by the dictionary definition) but Mr. Hennecke believes that the U.S. and Europe are going to face an actual depression.  He believes that the United States Government will have to accounce a National Bankruptcy as they will not be able to afford the bailouts that they have promised.  For those unaware the government is planning a new bailout, this time to bailout literally every institution having issues with solvency due to mortgage-backed securities.  They plan to purchase these securities for pennies on the dollar, thereby ending any crises related to solvency.  It’s important to note, however, that this article was posted on the 11th of September.  Which means that the last bailout that had been made at the time of publishing was the Fannie and the Freddie bailout.  Since then we’ve invested $85 billion in AIG to bail them out as well.

When the government can no longer pass the United States’ “immense debt” on to taxpayers, it will turn to the holders of U.S. dollars, leading to the eventual downfall of the currency, Hennecke said.

It’d be stupid to pretend that the U.S. is not facing huge debt levels.  In fact we’re close to $10 trillion at this point.  You can see for yourself at the U.S. National Debt Clock.  Things aren’t looking well at all when it comes to the health of our U.S. government.  The problem with this extreme level of debt, and the reasoning behind Hennecke’s predicted depression, is that the U.S. will be forced to print billions of dollars of cash in order to cover the debt and the interest.  He believes that this will lead to HUGE inflation levels which of course will have devastating effects on the American people.

I don’t necessarily think that we’ll ever get to this extreme of a crisis here in the U.S., but it’s worth thinking about.  Just in case something like this ever did happen it wouldn’t be a bad idea to have some money invested in something that wouldn’t be devastated by hyperinflation and depression in the U.S.  If you follow what Mr. Hennecke is doing then you would want to invest in Asian countries, especially China.  He also recommends investing in Gold, as it is a natural hedge against inflation.

{ 7 comments… read them below or add one }

Blake September 19, 2008 at 7:22 am

I feel a bit doom and gloomy when I read stuff like this, but I think it’s too important to ignore. We do seem like we’re heading into a massive financial disaster. I don’t know if I’ve asked you already, but have you seen I.O.U.S.A? It’s a documentary covering our financial situation in depth. I really want to see it.

I been purchasing a little bit of physical gold and silver as a worst case scenario. Paper assets scare me in the event of complete chaos…

Blakes last blog post..New Financial Goal: No Private Student Loan Next Year!

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Mark September 20, 2008 at 5:54 am

remember when Clinton was president, and the government actually posted a surplus for the first time in decades. those were the days.

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Jeremy Jacobs September 20, 2008 at 4:25 pm

All this doom & gloom. I thought you guys were always glass half full.

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Joseph September 20, 2008 at 4:41 pm

By you guys, who exactly are you referring to?

Anyway I don’t necessarily think any of this will happen. It’s more or less a worst-case-scenario that I thought people should at the very least be aware of. Education never hurt anyone.

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Greener Pastures September 23, 2008 at 3:59 am

I think we very possibly could go to the extreme depression. People would be jumping out of windows right now if the Feds weren’t stepping in. The republicans have buried us deep with their deregulation thoughts. They just wanted to give their rich buddies and themselves free license to suck middle class America dry. The X&^% hit the fan, though. I don’t think they ever expected that it could go this far.

Nice post. Stumbling

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Uncle B August 22, 2009 at 5:43 pm

The average American in the street has no idea how goddamned bad it is right now! And neither does he care! He has his own worries, downsizing, cut-throating, mortgage payments cars gone bad with planned obsolescence, pushed further into debt by “Clunker By-outs” and stripped of all dignity by higher interest rates on plastic money, the only real currency, he has anymore, and it is taxed by the banks, filled with service charges and gimmicks to rip him off! Poor dumb bastard! He can’t even be sure of the price of gas tomorrow, and faces work overloads and threats to work even harder or hit the road! The current “American Dream” ia a goddamned nightmare! and the government presents two cheeks of the same asshole – congress!

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Adelina Mullick April 21, 2010 at 4:55 am

Extremely interesting post thanks for writing it I have added your blog to my bookmarks and will be back.

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