The US federal government is finding itself in a catch twenty-two situation, and its getting worse by the day. For those unfamiliar with the situation, here's the basics.

Going back as far as the Civil War, the US debt owed to investors of foreign and domestic origin has been measured in at least the billions of dollars (imagine what a billion dollars in 1870 money would be like today). Things got really bad during the Great Depression, but our debt was interrupted by a little event called World War 2, and by the 1950s we were about as debt free as a super power could reasonably be.

However, ever since then our debt has been steadily rising since then. It rarely gets a lot of press, but when it gets to over $14 trillion dollars, it tends to get far more exposure than what the lawmakers would want (unless you're trying to get elected under a "I'm going to clean up this town" platform).

There's a lot of reasons as to why our debt has risen to such a massive level, but right now the issue at hand is how to control it. Naturally, the argument has been reduced to a partisan platform, so everything is at a standstill, even as the debt grows by billions each day.

The immediate issue at hand is that Congress is debating on whether or not to raise our debt ceiling. Think of it like this; if you have a credit card, and you spend VERY recklessly, would you raise your own credit limit in order to keep spending, or stop when you know there's a problem with your spending habits? That's precisely what's going on right now.

Congress has raised the US's debt ceiling many, many times in the past, and sometimes in dramatic fashion, like in the Reagan era, but never has the debate gotten as bitter as it is now.

In a Democratic Party-controlled Congress, the ceiling would probably have been raised without as much fuss, as it had been in years past. However, last year the Republicans, pushed by the Tea Party that was platforming mainly on fighting this very debt, took back majority control of the House, and gained back a large portion of the Senate. This has fueled the debate far more than it would normally, and the Republicans are using it as a weapon against Obama and the liberal Democrats. Ironically, US debt saw the biggest gain during the W years, so its a little like watching the pot call the kettle black. There's a racist undertone in there somewhere, I just know it!

Republicans are arguing that if we keep on raising the ceiling without doing anything to fight the debt, such as cutting back on costly social programs like Social Security or MediCare, we'll eventually default as a nation after our investors lose faith in our ability to repay debts, and end up dumping US assets en masse, or perhaps start demanding repayment. Democrats are countering that if the ceiling isn't raised, the sketchy recovery our economy has been undergoing will be in jeopardy, and the blow to American families will be staggering.

Furthermore, the lesser argument is about how much the ceiling should be raised. Republicans are hoping that if they're forced to raise it, it'll be a small one that will demand even more attention during next year's election to put Obama in the hot seat on the issue. Democrats are hoping for a much bigger raise that will push it further down the road, without having to make cuts to social programs.

So, what's the truth behind these political games?

The fact is, US financials are in very bad shape, and its worsened by an ever-weakening US dollar amidst an economic recession (some still argue its a full-on depression).

In a worst-case scenario, with the United States defaulting on its debt, that means that at current levels, the average US family would owe $125,000. That's not counting inflation, mind you, or if they raise the debt ceiling and keep spending, which is still the likeliest outcome of this debate.

The real problem is how to keep investors satisfied until we can figure out a way to manage this debt. Well, behind that, there's the bare bones truth; we've accumulated so much debt that there's absolutely no way we can actually pay it off, even if we raised taxes to match Canada's while cutting every single social program completely, as well as our defensive budget, while selling off all of the gold in Fort Knox. The numbers just won't work, and that's why investors like China and Japan are getting very cold feet about continuing to throw money into the US economy. The writing on the wall is just getting harder to ignore, and these countries aren't populated and run by complete idiots.

If the debt ceiling is raised, even a little bit, and even if the Republicans can win a very small victory by having a few social programs take a hit in the budget, it accomplishes absolutely nothing but buying a few more months until our debt completely catches up to us, but it will.

Now, history has shown us that debt isn't necessarily a bad thing. It actually adds value to your currency, so long as you can pay off who you owe in a timely fashion and maintain trust amongst your investors. Currency is a representation of debt. Debt, therefore, drives economies.

Right now, the only reason we've been able to pay back our debtors is because we've been raising our own credit limit whilst failing to produce any real results. You can only pull off that trick so many times before everyone sees what's going on, and suddenly your "good" debt becomes "bad" debt. Very, very bad, LARGE, debt. You can imagine how this would pan out if an individual did the same thing- it'd end up in default, bankruptcy, repossession, and probably jail time on felony credit fraud. This is exactly what's been going on in the federal government for half of a century. Bad guys get caught eventually.

Anybody who's ever read my thoughts and perhaps dismissed me as a kook or a doomer...Well, what do you have to say now? We're literally witnessing the US beginning its tailspin into default, and if we're lucky, and the people and countries we all owe money to go easy on us, we'll be very lucky if we end up as a third world country.

And if not, do you think that China is going to be very lenient on a nation of lazy fatasses living on food stamps? Cause they own the majority of our debt, so when we go into default, they have first dibs.

Do what the US government should have learned to do decades ago, when it had the chance- learn to get by on less, and enjoy what you have, rather than what you don't. It'll make things easier down the road.

Be safe out there.

Yeah, the US is in a pickle. I don't think there's any easy solution.

On the bright side, I also don't think it's as simple as China & co. simply wanting their money back. If it was puely about money they would have demanded it long ago.

You're right. It isn't as simple as wanting their money back. After all, what would we pay them with? Devalued US dollars, which is losing international value by the day? The comparatively little amount of silver and gold we have left?

No, the key word is "assets". Property, buildings, equipment, fertile farmland...or how about what we used them for half a decade ago- cheap labor? Just a few promises like keeping your house and car in return for the majority of what you produce may seem like a wonderful deal when they can legally throw you out of your house.

And if you produce nothing of real universal value...Well, I don't think those in the video game making business who don't have great Japanese connections are going to do very well.

Even if that doesn't happen, and something tells me it won't, I believe what we're inevitably looking at here is a massive US pullout from the global economy in order to focus more on local growth. That's the only way we'll get any jobs back, and since we don't produce very much that the international market is very interested in these days, it makes sense that in order to keep from becoming a degenerate hellhole, we'll have to look to Main Street.

But, there's always the example set by Detroit...

Ho boy.

The international investors probably aren't very interested in enslaving Americans, but they are very interested in getting their hands on stuff we take for granted, like some of the best farmland in the world. We often forget that the rest of the world can't afford to throw away Big Macs if it has too much special sauce on it. Assets like farmland and other natural resources we're sitting on are extremely appealing to them.

We're inevitably going to have to make a lot of deals in order to stay afloat. Just look at what's happening with Greece and the austerity measures the EU is demanding of them. They can't afford these high priced social programs, so the EU had to bail them out. Well, now the Greek citizenship is rioting and revolting in protest of these demands, and if the Greek government doesn't cut these programs, the EU will not give them any more money, and they will default on their debt. God only knows what'll happen then. I suspect whomever owned the most Greek debt will probably move in on these assets. It'll be a very interesting scenario to watch unfold, and worth taking note of, if only for a hint of what's to come.

Who says that cannot happen here? I say its not only likely, but pretty much guaranteed by this point, probably within THIS decade. The only question is, is whether or not we'll see rioting on such a massive scale, or if Americans will roll over as they have for years now.

Part of me would like to blame part of this crisis on "easy" credit and rampant consumerism. I don't have much time to elaborate on this point fully but I believe that people equated credit to "free money" (especially) from the 1990s on and the chickens are coming home to roost on that one. Barely anyone saves a cent anymore.

Me? I'm just a poor student who lives at home so I make it a point to save my money whenever I can for when I need it. Probably not the most sound strategy though.

Easy credit is a major factor behind this situation, and that same easy credit was pushed onto Americans by the banks. I can remember getting a credit card offer in the mail every single day just a few years ago...and I had almost zero credit history to speak of. It doesn't make much sense to offer loans of thousands of dollars to someone who has zero history of repaying back debts, but that's what was happening for many years.

There's a documentary called "Inside Job" that you can find on YouTube if you sift through the pay site fakes. Its about two hours long and really goes into detail about the 2008 financial meltdown. They go into the history of the credit industry in America and the shady dealings behind it. If you have the time one day, I definitely recommend it. I can't exactly explain it as well as the doc, but the rational is that there's a very complicated insurance scam behind the banks that allowed them to "give" out this easy credit without losing too much money. That is, until the insurance companies behind this scheme themselves collapsed.

Basically, if it seems too good to be true, it is. For many Americans, it should have seemed too good that you could buy a $200,000 house while working at McDonalds, but there was a lot of delusion going around that they were somehow owed these nice things, despite it just not making much financial sense with just a cursory glance.

Likewise, the federal government has been spending way more money than it has been taking in, and whenever they hit their self-imposed credit limit, they just raised it again, thinking they could somehow make up the shortfall later on. Its not so different from an individual spending far more than they actually have, with no way to pay it back. The only difference is that the feds have the ability to print more money, and the individual does not, so he gets foreclosed on.

I'd like to avoid credit as much as possible and focus on the money that I actually have.

In fact, I don't even have a debit card for my bank account because, quite frankly, my spending habits are very poor and I wouldn't trust myself with one.

In any case, I get the sense that this crisis is a lot more severe then anticipated. Whatever strategy is created to deal with this would have to be drastic and possibly long term.

Based on your article, though, this could turn out to be an issue of too little too late.

You're very smart to avoid getting into the credit scheme this late in the game. I currently have no debts and few bills to pay, so when the crunch hits I think it'll be okay. If I had bought a house or a new car, then I'd feel it.

I also suggest looking into diversifying your savings. If a cash crisis hits here in the US, no doubt Canada will also be affected in some way. Since we're looking at a hyper-inflationary scenario thanks to the actions of the Federal Reserve's quantitative easing program, we'll be seeing banks runs, followed by bank holidays. This means your money in the bank is trapped there as it very rapidly loses value, and by the time you're allowed to get it out, its pretty much worthless.

Try investing in commodities, like agricultural shares, or my favorite, precious metals. I've thus far made out pretty good with my silver, and I'm looking to get more, even at $36 an ounce. For the record, I started buying it at $25/oz, watched it almost double a few months after, then ease back to its current level. Keep in mind that five years ago, that same silver was $5/oz. If you bought some back then and sold at $50/oz, you did very, very well. Some of the silver hawks out there are expecting silver and gold to rise massively once again in just a short time frame.

Also keep in mind that the current US dollar isn't backed by anything but empty promises, but whatever replaces it will very likely be backed by gold, silver, or a combination of the two, further increasing its value.

You could actually profit from this, or at the very least, maintain your buying power through the coming crunch.

I will admit that I'm still young and still living at home, but I guess this means now would be the best time to invest when I have a decent amount of disposable income on hand?

In any case, thank you for the advice.

Absolutely. Mainly because you should be thinking about how to best maintain your current status and not take too hard of a hit when it does happen.

If you do buy gold/silver, the worst case scenario there is that prices dip, but you can always sell it off. You could also hang onto it for a long term and wait for prices to once again rise. Gold and silver will ALWAYS have a value attached to them, but as we're seeing right now that isn't the case with these un-backed fiat currencies. Once a currency goes defunct, that's it- it will have no real value from that point on aside form being a novelty.

But to be perfectly honest, I haven't really examined the strength of the Canadian dollar versus the USD, and I have no idea as to what will happen to the Canadian dollar once the USD is defunct. A quick read reveals that the CDN is generally more stable than the USD, but I'll always say that it cannot hurt to diversify your financial portfolio while you can. You never know what can happen.