Hate To Say This, But Pitchfork Pat’s Proclamation Of Peril Looks Genuinely Perilous

Although I’m not the biggest Pat Buchanan fan, when you’re right, you’re right. Pat’s right about the potential danger we face

But if Democrats are not going to do even minor surgery on Medicare and Medicaid and Republicans are not going to raise taxes, there is no hope of big budget deal to cut a deficit now running at 11 percent of gross domestic product.

And that raises another question.

How long can the Federal Reserve continue financing these deficits?

China, choking on U.S. debt, is reportedly beginning to divest itself of U.S. bonds. Japan will need to sell U.S. bonds to get hard currency to repair the damage from the earthquake and tsunami. And the Fed is about to end its QE2 monthly purchases of $100 billion in U.S. bonds.

Where is the Fed going to borrow the $125 billion a month to finance this year’s deficit of $1.65 trillion, and another of comparable size in 2012?

Bill Gross’ Pimco, the world’s largest bond fund, has sold all his U.S. bonds and begun to short U.S. debt. Pimco is betting that the value of U.S. Treasury bonds will begin to fall.

We may be about to enter a maelstrom.

No big budget deal is brokered. The deficit endures, and another looms in 2012. To finance them, the Fed borrows at the rate of $30 billion a week wherever it can.

But as countries begin to choke on U.S. debt, the market starts to dry up. To attract investors, the Fed must raise interest rates, which sends bond prices sinking and forces interest rates up across the economy.

With interest rates rising, gas prices rising and inflation rising, the squeeze is on, and there is talk of a double-dip recession.

And if that happens, Obama is toast. But, then, so are we.

Could our inability to continue to finance our debt at ridiculously low rates help drive us into a double dip recession that in turn, exacerbates our deficit problems, and locks us into a downward spiral? Here’s the scary thing, folks; that’s a completely plausible scenario.

That doesn’t mean it will happen. In fact, it very well may not. But folks, we’re in a much more perilous spot than people realize. People think because we have a powerful economy and have no trouble borrowing money that we’re rich. In a sense, it’s true; we are a wealthy nation. The problem is that we’re like someone who makes a million a year, spends two million a year, and can’t find a way to increase his revenues or cut his expenses. Is he rich? Well, yes, but he’s also in deep financial trouble.

That’s where we’re at as a nation, folks. And it is scary, it is dangerous, and unless we do something serious, we’re just dodging bullets until one of them inevitably catches us right in the forehead.

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