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The Federal government has a debt that just went over $15 trillion.  UNBELIEVABLE!  But, the scarier than $15 trillion in debt is coupling that with the interest rate cycle.  Currently, just the INTEREST ONLY repayment of our $15 trillion debt is $185 billion per year.  The Obama administration two weeks ago came out with their horrible projections that this debt service will increase to $554 billion per year of INTEREST ONLY payments on our debt because they have added so much debt into the system.  This projection has one FATAL assumption.  That assumption is that interest rates will remain flat.  Interest rate cycles are on average 28 year cycles.  So from 1948 to early 1980s (LOW TO HIGH), from 1980s to CURRENT (HIGH TO LOW), then going forward we can look forward to a couple decades or more of rising rates.

The White House’s projection of $554 billion is assuming low 2% rates on long term debt (possibly why the Fed initiated their twisting mechanism)…..ahhhhhhh, the dots are starting to connect.  However, if interest rates go from 2% to 4%, the INTEREST ONLY portion on our debt in 5 years becomes $1 trillion +++.  Remember, our tax revenues (or national income) as a nation are only $2.5 trillion annually.  Long term rates got to 14% in  1983.  We will surpass that, but lets say we don’t.  Let’s assume we only get to 10% on long term interest rates.  In 5 years, the INTEREST ONLY portion of our debt will not be $554 billion, but $2.7 TRILLION OF INTEREST ONLY PAYMENTS.  This surpasses our national income, and is just the cost of servicing our debt WITHOUT paying back principal.  What about the $2.05 trillion (currently) of social spending? What about defense?  What about the cost of running our country?  In 2011 the budget is $3.8 trillion.  Add to that $2.5 trillion of INTEREST PAYMENTS when rates are at 10%, and you have an annual shortfall of $3.8 TRILLION assuming spending and revenues stays the same.  THIS IS UNSUSTAINABLE and will implode before then.

Speaking of implosions…..I have talked for years about investing in precious metals in their physical form only (not paper, not ETFs, not mining shares, not derivatives of any sort).  The investors at MF Global had their investment accounts FROZEN, while bankruptcy trustees are liquidating assets.  This is a complete violation of the rule of law, but its what can be expected going forward with a lawless government.  The people THOUGHT they were invested properly, and MF Global did have exposure to gold and silver through the futures markets (highly leveraged), but they lost everything.  The people that survived–those who did not own paper gold/silver through MF Global.  PHYSICALS–the metals that you take delivery of, or at least have stored in your name are the only way to protect from legislative risk, greed, corruption, and political risk.  I urge you to protect yourself NOW, before it is too late with a proper allocation between tangible and paper assets.  MF Global I am afraid is just the tip of the iceberg.  If it wasn’t, then the exchanges would have bailed them out.  This is the same story for Greece.  If there wasn’t a bunch of other entities (Spain, Portugal, Italy, France) that are about to go bankrupt, then Greece would have been bailed out already, and it would be a non-issue.  However, if we are to ever be successful in our investing, we must learn to read between the lines.

God bless you.  Act with wisdom.