The Federal Deposit Insurance Corporation (FDIC) was created in 1933 during the Great Depression.  It is not really a corporation as the name says.  It is a government agency which guarantees people’s deposits in banks.  The amount of insurance has increased over time.  Just a few years ago, it insured up to $100,000 per depositor per bank.  That amount was increased to $250,000 during the fall of 2008.

The agency was created due to the large number of bank runs taking place in the 1930’s.  This caused the equivalent of monetary deflation, as bank runs reversed the fractional reserve process.  This was one of the reasons that prices fell during the Great Depression, even though the central bank was engaging in monetary inflation (although not nearly enough according to Helicopter Ben Bernanke).

As a libertarian, I am completely opposed to the FDIC.  Only the government could run such an agency.  No private firm would find it profitable to insure banks in the current system of huge risk taking and massive fractional reserve lending.  I don’t think it is inconceivable that there could be insurance companies for depositors in a free market environment, but it would look a lot different than it looks today.  There would be no central bank, far less (if any) fractional lending, and we can also assume that most banks would be far more careful with their lending standards.

With the current system we have now with fiat money, central banking, and government granted privileges, only the government can really run a deposit insurance agency.  That is because only the government and the Fed have a legal monopoly over the money supply and can always create new money out of thin air if necessary.  No private insurance company could do this.

I am a hard-core libertarian and I am in favor of abolishing most government programs and departments immediately.  However, the FDIC might be one exception where I can envision major problems if the FDIC were abolished overnight.  There would be massive bank runs immediately, and the last ones to arrive would be stiffed out of all of their money that was in a bank.

I hated the bank bailouts that happened in 2008.  The politicians in DC really demagogued the issue.  With that said, there may have been one relevant point when they were saying that we would see Armageddon if we didn’t pass the bailouts.  For some reason, most politicians were afraid to come out and say the obvious, which was that they feared massive bank runs.  They threw all of these threats at the American people (including martial law), but I didn’t hear many say that we needed to pass the bailouts so that you could still access your checking account and withdraw money out of the ATM on Monday morning.

The American people would have actually supported the bailouts if they were told this and thought it was their only choice.

However, it really wasn’t the only choice.  The government could have actually let the banks go into bankruptcy and just refunded depositors their money.  The bank executives would have lost their jobs and their pensions.  The government/ central bank would have had to use the printing press to do this, but it probably would have been less than what was handed out with TARP.  Then the banks and all of their assets (for the ones that had to go into bankruptcy) could have been sold to the highest bidders.  Any money collected by the government could have been immediately used to pay off the new bonds held by the Fed, thus reversing the previous monetary inflation.

This whole FDIC thing is a major problem that we need to get rid of.  It is the ultimate moral hazard.  Depositors do not really care what bank they use in terms of safety.  Banks use excessive risk with this backstop.  The only regulation on the banks is occurring by government.  It should be done by the marketplace.  Private insurance companies could play a big role in keeping banks sound.

I am not sure about how to end the FDIC in an orderly fashion.  But as long as there is an FDIC, there will continue to be bailouts.

I like to make some comments after each Republican debate, especially with Ron Paul being involved.  After tonight’s debate on CBS, it is hard to call it a debate and it is hard to say that Ron Paul was actually involved.  If he had actually been asked more than two questions, maybe I would be able to comment on his performance better.

This “debate” was only nationally televised for the first hour.  After that, it was only aired in certain regions, unless you wanted to watch it via the internet.

CBS did a hideous job of hosting the debate and the candidates (with the exception of Ron Paul) did a hideous job.  Perhaps Jon Huntsman was a little less hideous and Rick Santorum is the worst of the worst, but overall, they are all bad.  Ron Paul is the only candidate on that stage who has anything near a rational foreign policy.

All of the others think the world revolves around the United States government and that the U.S. government should be calling all of the shots.

I found it interesting that some of the candidates think we need to be careful with Pakistan because Pakistan has nuclear weapons.  In other words, they don’t want to go to war with them.  Meanwhile, they want to go to war with Iran (some more than others) because Iran might possibly be developing nuclear technology.  So basically, that says to every country out there that if you don’t want to be invaded and blown to smithereens by the U.S. government, then you should acquire a nuclear weapon.  Now that is incentive.  It is also the law of unintended consequences.

Now I’m not saying the U.S. should go to war with Pakistan.  It is quite the opposite.  The U.S. should not worry about Iran and the U.S. should stop getting involved everywhere.  There should be no intervention in the world.  Perhaps there could be exceptions if two parties both agree to a mediator, but even this could be done privately without the involvement of the U.S. government.  The only thing that the U.S. government should do is to keep trade open so that Americans are free to do business with anyone in the world, so long as they are not directly inflicting violence on us.  If someone does inflict violence, then that person alone should be held liable and not a whole country or group of people.

These Republican hacks may sound decent on some economic issues, but they are awful on foreign policy.  Herman Cain is even dumber when it comes to foreign policy as he is on economic and social issues.  Bachmann is horrible with just about everything she says regarding foreign policy.  It seems that Santorum, the so-called Christian, is in competition to kill as many Muslims as possible.  Newt  is also pro-war and could potentially be worse than both Bush and Obama.

Mitt Romney and Rick Perry are both bad too, although maybe there would be a slight glimmer of hope that they would not be quite as bad as the others on the issue of war.  Meanwhile, as I wrote earlier, Huntsman is probably the least bad out of the seven of them.  Ron Paul, of course, is by far the best, even though he barely spoke for two minutes in the first hour of the debate, which was the only hour that was nationally broadcast.

Not much changed after tonight’s debate, except that it solidified my opinion that I have no use for CBS other than for watching football, Survivor, and Amazing Race.  It certainly does not qualify as a news organization.

The volatility in the stock market has continued this week.  The market was down big on Wednesday as there was increased concern about Italian debt, as rates on Italian bonds rose.  The stock market gained back some today (Thursday).

Gold, after showing a lot of strength and getting back near the $1,800 level, pulled back significantly today.

There is a continuing tug-of-war between the bears and the bulls.  I expect this to continue.  There is a tug-of-war between another artificial boom and a recession.  For a while, it looked as though the recession was going to win out in the short term.  But the stock market has done well in the last month and it points to the possibility of a short-term boom.  A short-term boom would not necessarily drive down unemployment significantly, but it might give people some false hope with rising asset prices, particularly in the stock market.

I thought that Wednesday sent an interesting signal with the concerns about Italian debt.  We have been hearing about Greece a lot, but I think the big fear all along has been that other countries would follow right behind Greece.  We have heard about the PIIGS (Portugal, Italy, Ireland, Greece, Spain), but now we are actually seeing the markets react negatively to all of the big government debt.  Before it was just Greece, which is a small and relatively poor country.  Italy is another story.

Wednesday was interesting because the U.S. stock market tanked.  It shows that major trouble in Europe will affect U.S. markets to a large degree.  While I still see a mini-boom cycle as possible in the near term, the situation in Europe makes it a little less likely.  A partial or full default by a country the size of Italy will send shock waves around the world.  It will be bearish for U.S. markets.  It will be bullish for the U.S. dollar, at least in the short term.  It is harder to say how gold will react.

The Republican candidates in the debate last night were saying that what happens in Italy is their business and that the Fed should not bail out anyone.  The candidates say that, but they are simply pandering to their audience (with the exception of Ron Paul of course).  If a default on Italian debt or any other debt jeopardizes banks in the U.S., you can count on a bailout.  Several of the Republican candidates, including Mitt Romney and Herman Cain, were big supporters of TARP (the bank bailouts) in 2008.  Of course, it may not matter because this may all blow up in the next year while Obama is still in office and we know that he will not stop a Fed bailout.

I expect continued market volatility.  I continue to recommend the permanent portfolio, as described by Harry Browne.  The name of the game right now is asset protection.  You have to keep what you have.  Any investment growth should be icing on the cake.

There was a Republican presidential debate on CNBC featuring the 8 major candidates (no Gary Johnson).  The debate focused specifically on economic issues.  I am biased on who did the best, based on my libertarian beliefs.  With that said, I will first try to give a quick rundown of who I thought performed well, even if I didn’t agree with them.

Aside from Ron Paul, I though Romney and Gingrich had the best performance.  I disagree with Romney on many issues and I believe he is a phony when it comes to the things that he says in which I agree.  However, he did hold his own tonight.  Libertarians don’t like him and most Tea Party people don’t like him.  He is a mercantilist as he showed when he advocated slapping tariffs (those are taxes) on Chinese products.  But I don’t think he hurt himself as far as his supporters go, who tend to be less fiscally conservative.

Newt Gingrich has had a brilliant strategy and it has worked in getting his poll numbers up.  He is very careful not to criticize the other candidates.  The few times he has done so in past debates, he has done it respectfully.  But he doesn’t just make Obama the target.  He goes after the media, including the moderators of the debate.  He basically tells them that they are asking dumb questions, without being quite that blunt.  He is calling out the so-called liberal media, even if he doesn’t use that term.  Maria Bartiromo was about to blow a gasket at one point in the debate and I think that is what Gingrich wanted.  Conservatives like it and that is why he is doing it.

I think Gingrich is a fraud, but he is a smart man.  I don’t think he will get the nomination.  He is the Howard Dean of 2004.  The Republicans would like to nominate Gingrich (just as the Democrats wanted to nominate Dean in 2004), but they sense that he could not win the general election.  I think the Democrats were wrong in 2004 and made a blunder in putting up John Kerry.  I think the Republicans are right though, in that Gingrich probably cannot beat Obama.  The Republicans are not going to nominate someone who most likely cannot beat Obama.

I thought Michele Bachmann was a little stronger as compared to previous debates.  She is much better on economic issues than foreign policy.  She also didn’t use any stupid lines tonight about making Obama “a one-term president”.  Maybe her advisors finally told her how dumb she sounded whenever she said that line.  Bachmann has the same problem as Gingrich in that people question whether she could beat Obama.

Some people will say that Herman Cain did well tonight.  He deflected the questions about his personal past.  When it comes to the issues, I will continue to say that the man is just not that bright.  He has absolutely no grasp of foreign policy, little grasp of economic issues, and has no plan to cut one dime in spending.  The Republican voters need to wake up and start seeing through this man.  He is absolutely horrible on all of the issues and he might even be worse than Obama, if that is possible.

Rick Perry had another poor performance.  He actually listed some specific departments that he would get rid of, even though he couldn’t think of one of them at the time.  He isn’t a good debater, but I’m not sure who people will turn to when Cain falls.  Perry has a lot of money and backing and I would not count him out yet.

I thought Ron Paul did a good job overall in the debate.  I wish he would have been more bold when he was talking about healthcare.  Michele Bachmann may have actually done a better job on that topic.  But Ron Paul is forcing the other candidates to take positions that I don’t think they would have taken otherwise.  He is talking about his plan to cut one trillion dollars in his first year and he hit the nail right on the head when he said that taxation is just a symptom of the spending.  Everything revolves around spending.  It is pointless to talk about tax reform if you don’t address the out-of-control spending.  The only other thing I wish he would have done is to challenge Herman Cain specifically.  He should have pointed out that Cain has not identified one specific spending cut of any significance.

In conclusion, it looks like things still have a way to go before they play out.  I believe that Cain will slip, as people realize that he is full of slogans, but short on specifics.  It will become a race between Romney, Paul, and probably one other person.  I’m not sure if that other person will be Perry, Gingrich, or Bachmann.  Right now, I am still betting on Perry, despite his poor debate performances.  He has a lot of money.

We will see if Ron Paul can get any pro-war Republicans to defect to his camp.  He will not really lose supporters as other candidates do.  His current supporters are strongly on his side and not going anywhere.  If he gains some more momentum, he could actually make things very interesting.

I have to return to this topic every now and then, just to say how crazy it is.  In bipartisan fashion, you will hear both Republicans and Democrats talking about how we need energy independence in our country.

This is an absurd idea to push.  Why is there this great focus on oil?  If we want energy independence, do we also want car independence?  How about computer independence?  What about independence for gold and diamonds?  What about food independence?  Surely that has to be important enough that we not depend on other countries.

The only difference I can see with oil/ energy is that there seems to be a finite amount of it, whereas with food, you can continue to grow more.  But even here, there is a massive amount of oil contained in this planet.  It just so happens that the stuff that is the easiest to get to and use is mostly in the Middle East.  If there begins to be a shortage in oil, then the price will go up.  If the price goes up, then it becomes profitable to start extracting oil from the tar sands and other places that are more costly.  In addition, if the market is left free, then there will be replacements so that we don’t have to use as much oil.  Perhaps we will see electric cars become profitable and cost effective.  Of course, if we had a true free market, we might already have something better and safer to use than gas guzzling cars.

Sometimes I think that the people living in the Middle East would be much better off if there was no oil there.  The dictators running Saudi Arabia wouldn’t be better off, but most of the people would be.  It would keep the American empire away from them and allow them to prosper more naturally.

This whole idea of energy independence though is just ridiculous.  All we need is free trade.  Even if the pro-war Republicans were correct that Iran is run by a madman, there is still no reason not to buy oil there.  The dictators in the Middle East can’t drink the stuff.  It does them no good unless they use it themselves or sell it.  And with free trade, there is far less of a chance for conflict or war.

If Americans could produce enough oil and gas so that there is no need to buy from people in other countries, that is fine.  But that should be left to the market to decide.

I am all for opening up ANWR for oil drilling.  In fact, I think the U.S. government should sell it to the highest bidder (maybe a company like Exxon Mobil would bid on it) and the proceeds can be used to pay off Social Security recipients so that the program can be ended.  Meanwhile, we will also get cheaper gas.

In conclusion, there is nothing wrong with buying oil from other countries.  Just as Americans buy lots of different food items and electronic gadgets from other countries, it is also beneficial to buy energy from other countries.  It is called free trade and it allows us to have a higher standard of living.  Americans should tell these politicians in DC to get a new job and to stop telling us what to buy and who to buy it from.

It seems that the top political story in the U.S. for the last week has been Herman Cain and accusations by several women that he made unwanted sexual advances on them back in the late 1990’s.

I have mixed opinions on this story.  It does seem kind of ridiculous that the media would spend so much time on this story when America has troops fighting all around the world, the national debt is $15 trillion, and the official unemployment rate is at 9% and showing little signs of improvement.

On the other hand, Herman Cain is now one of the supposed front-runners for the Republican nomination to become president.  If these allegations are true (and my guess is that they are), then it does speak to his character.  Of course, I already thought Cain was a jerk before these allegations came out.  A lot of people seem to be suckered into his seemingly pleasant personality, but I can see right through him and I do not see much good about him.

Some polls are showing that Cain and Romney are each at about 25%.  That means that half of Republicans are supporting a candidate who founded Obamacare (Romney) or a candidate who supported the bank bailouts (Cain and Romney both).

Herman Cain is a statist.  He headed up the Federal Reserve of Kansas City.  He is not an outsider.  He is an outsider only in the fact that his campaign team is unorganized.

I think when it comes down to it, Cain will not get the nomination.  The man is a moron, and I mean that sincerely.  His views on foreign policy are horrendous.  Read this article that was linked via LewRockwell.com today.

If you haven’t seen this video of Cain talking to John Stossel about abortion, watch it.  Like I said, the man is a complete moron.  It is possible to be against abortion, but not think it should be illegal.  The first time I saw the beginning of this clip, I thought maybe that was what he was saying.  But no.  The man is a moron.  How could he possibly get the nomination?  He actually makes George W. Bush sound somewhat coherent.

Cain is fooling a lot of people right now who are fed up with the status quo.  He is offering them garbage.  His 9-9-9 plan is terrible, as I have written about before.  He offers no specific spending cuts.  He is a demagogue.  He is a liar.  He is also a moron and he will be exposed sooner or later.

I would rather have Obama as president.  At least there is a chance we won’t have war with Iran with Obama in office.  Obama’s foreign policy has been horrible, but it could actually get worse with Cain.

I run this blog on libertarian investments.  I talk politics, economics, money, and investment strategies.  Occasionally I get challenged on my commentary and I even get challenged on the investment strategies.  One particular challenge is that if I am giving suggestions from a libertarian point of view, that the number one goal should be survivalism.

The interest in survivalism is immense.  With the economic troubles starting in 2008 and the election of Obama, combined with the internet, the interest in this topic is enormous.  There are literally tens of thousands of people who believe that there is going to be a complete breakdown in our civilization.

I do believe there is major economic trouble ahead.  There could be massive rioting, particularly in big cities.  There could be a significant increase in crime.  There could be higher unemployment, more poverty, and an increase in homelessness.  However, I think the chances of seeing a complete breakdown in civilization are very low.

One investment strategy I have recommended that the survivalists out there should like is one of my hedges against inflation.  I recommend storing up on extra food and other necessities when they are on sale.  You can’t buy extra milk and other things with near-term expiration dates, but there are a lot of things you can store up on.  You can buy extra soda, bottled water, canned foods, frozen foods (although they wouldn’t last without power), cereals, rice, etc.  You can also buy extra toilet paper, paper towels, deodorant, shaving cream, shampoo, soap, etc.  As long as they are things that you will eventually use, then I figure you can’t really lose anything with this strategy.  The prices of these things will most likely not be any lower one year from now.

I give this strategy as primarily an inflation hedge.  But it is also a good idea in a survivalist sense.  If there is a hurricane, snowstorm, or some other natural disaster, then having extra food will be important.  You should always have enough extra food to last you at least one week, at a minimum.

The survivalists will not like this.  They will tell me I have to get a second house in the country and raise my own food and prepare for the worst.  While I can’t be one hundred percent sure that something won’t happen, I am not going to turn my life upside down to prepare for something that will most likely never happen.

I only see two things that could realistically happen to cause a breakdown in civilization.  One is hyperinflation and the other is some kind of a terror attack.

I have said before that I think hyperinflation is unlikely.  While I can definitely see high price inflation happening, I don’t see the Fed and the rest of the bankers promoting a policy that would destroy themselves.

As to a terror attack, this is a little more likely, although it would have to be really bad to disrupt society that much.  It would have to be something major, like an airborne illness.  Unless, there was a major pandemic, society would find a way to continue on.

I don’t think many of the survivalists understand what they are saying.  If there was a complete breakdown in the division of labor in our society, then most of the survivalists would perish too.  Maybe they could hold on for a little while longer, but not by much.  How would they protect their gardens or farms?  How will they get any medical care?  What happens when their shoes are worn out?  Can they survive the heat and cold of the seasons?  How will they protect their property?

These questions could go on and on.  We take so many things for granted, we don’t even think about them.  We are talking about a society where you can’t go anywhere (there would be no gas and it wouldn’t be safe).  We are talking about all stores being shut down.  We are talking about staying in your house for the rest of your life or until most of the population dies off.  We are talking about the need to have several people bonded together.  They would have to take shifts in order to guard their property 24 hours a day.

If you believe there is going to be a breakdown in civilization like this, then you must turn your life upside down to prepare for it.  Tinkering around the edges will not get you far.  Tinkering around the edges will allow you to survive a hurricane or a short-term breakdown.  This is why I will not go to full-fledged survivalist mode.  It is not worth the costs.  It won’t be much of a life to live anyway if it ever did happen.

I have seen and heard this so many times, it is something I feel like I need to write about every so often, just so that others don’t make this mistake.

So what is this mistake?  It is an all-or-nothing attitude when it comes to money and investing.  It actually amazes me how often I see it.

Let’s say someone has $10,000 and they don’t know what to do with it.  They inevitably say something like, “maybe I should put it all in stocks or maybe I should put it towards my mortgage or maybe I should buy some gold.”  My response is, “why not do all three?”

It is even worse when it gets to larger sums of money.  If someone stumbles into, say, $200,000, then all of a sudden they have to do something with it.  They say, “I could buy a restaurant or I could use it as a down payment for 5 investment properties or I could put it all in a Swiss bank account or buy an annuity.”  My response is, “slow down.”

If you have some money burning a hole in your pocket, you don’t have to put it all in one place.  It is called diversification.  For the above example of coming into $200,000, why not take a quarter of it and buy one investment property, take another quarter and open a Swiss bank account, take another quarter and invest it, and take the last quarter and keep it as an emergency fund?  Again, it is called diversification.

If you come into some money (a situation everyone would like to have) and you already have an emergency fund, one suggestion I have is to put half of it into a mortgage and the other half into gold.  Paying down your mortgage on a primary residence is a hedge against deflation.  You are locking in a return of whatever your interest rate is.  Buying gold is a hedge against inflation.  Why not balance the two out and split your money down the middle?

In conclusion, if you have money, spread it around.  Don’t put all of your eggs in one basket.  I like the permanent portfolio for investing.  I also like the idea of buying residential real estate and renting it out, especially with the current housing market.  But do it slowly and don’t dump all of your money into one area at one time.

These are crazy times right now.  The stock market is a roller coaster.  The gold market is trending up, but then we have to put up with steep drops of 10 to 20 percent every few months.  And who knows what is going to happen with interest rates and the price of bonds?

There are major troubles in Europe.  There are major troubles in the U.S.  The banks still have a lot of bad debt on their books, whether they admit it or not.  The Fed has tripled the monetary base in the last 3 years, while most of this money has been stashed away as excess reserves by the commercial banks.

Will we see huge price inflation in the near future?  Or will we see massive deleveraging and a bigger slowdown in velocity, leading to something resembling a depression?

These are hard questions to answer, even for someone well versed in Austrian economics.  It is impossible to know exactly how the politicians and central bankers will act in the future.  It is also impossible to know how other people will react.  Economics is all about human action.

The number one goal of investors right now should be the preservation of capital.  Safety should be your top priority.  That is why I recommend setting up a permanent portfolio as described in Harry Browne’s book, Fail Safe Investing.

For those looking for a little more risk without having to manage your investments too much and without having to play too many guessing games, I will offer a suggestion to you.  Try setting up the permanent portfolio with a twist.

The regular permanent portfolio goes like this:

25% stocks
25% gold
25% long-term government bonds
25% cash or cash equivalents

If you want to increase your risk/reward while staying relatively safe, change your cash portion.  Keep the stocks, gold, and government bonds all equal, but put less in cash for a little more risk.  For example, you could put 30% in stocks, 30% in gold, 30% in bonds, and 10% in cash.

With this setup, there will be greater swings, particularly in a recessionary environment.  I would not try this strategy if you will need to tap into your investments in 5 years or less.  Also, I would not go lower than 10% in cash.  If we do go into a deep recession, you need some cash on the sidelines to buy the things that are “cheap”.

If you are looking for something even safer than the permanent portfolio, it is going to be hard to do.  If you need to tap into your investments in one year or less, then you should have most of it in cash.  If you will need to tap into your investments in, say, 3 or 4 years, you could use the permanent portfolio and lighten up in stocks.

If you are a really conservative investor, you will have a hard time in this market.  Unfortunately, because the government and the Fed create inflation, even having your investments in cash is not safe in the long term, as it is vulnerable to losing its purchasing power.

If you are a really conservative investor, here is the best allocation I can think of for you:

15% stocks
20% bonds
30% gold
35% cash

You will not get as high of a return, particularly during prosperous times.  But you will be less likely to see huge swings, particularly in a recession.

Bottom line though, if you are investing for the long run and you want to keep your money relatively safe, I would just go with the regular permanent portfolio.  To paraphrase what Richard Maybury says, the permanent portfolio is not perfect, but it is the best thing I know of right now to keep your investments safe.

Today was another day that was not exactly dull for the world financial markets.  Stocks tumbled again today after news that there may be a public vote held in Greece on the “deal” that was recently reached.  It looks like the market has its doubts that the welfare statists of Greece will accept it.  These people have had a near free lunch for too long and they don’t intend to go down without a fight for one last free lunch.

Meanwhile, I am having second thoughts on my second thoughts.  On Saturday, I stated that I began to change my mind about an imminent recession and was wondering if we weren’t in for some major price inflation instead.  That was after a big week for the American stock market.  Since then, the market has plummeted for two days straight.

This continues to be a fight between the market trying to liquidate all of the malinvestment and the Fed trying to prevent it through inflation.  I believe this is why we are seeing these roller coaster swings.  We can expect more of this.

I thought it was kind of a joke that the market reacted so positively last week on the news of a deal reached to cut the Greek bonds by 50%.  That is why I am wondering if stock market investors are just looking for any old excuse to buy stocks.  There is a lot of excess money out there somewhere and it is not with the average Joe who, not only doesn’t trade stocks, but barely has two nickels to rub together.

As for Greece, it doesn’t really matter whether there is a public vote.  The only thing it affects is timing.  It is a matter of when investors realize that the Greek government is going to default on a full scale.  They can give bondholders a 50% haircut now, but the other 50% will not be far behind.

As I explained the other day, cutting the Greek government’s interest payments in half does little to solve its problem.  You could relieve the Greek government of all of its interest payments, but it will still be in the hole.

Think of the United States as an example.  The government is running a deficit close to $1.5 trillion per year right now.  The actual interest payments on the debt are “only” a couple of hundred billion dollars.  Even if you relieved the U.S. government of all of its interest payments on bonds, it would still be running a deficit of $1 trillion or more due to the vast spending and all of the previous promises that were made (think Medicare and Social Security).

The Greek government is in the same position with all of its government employees and all of its pensions that have been promised.  The “problem” for the Greek government is that it does not control its own currency.  In the U.S., there is the Federal Reserve, which can always buy government debt.  In Greece, they have to depend on the European Central Bank to create money (which it isn’t supposed to do) or they have to rely on investors to buy their debt.

If and when Greece fully defaults, who is going to buy their bonds?  Nobody is.  Then they will be forced to balance their budget, which will mean a massive lifestyle change for many of the Greek people.  This may mean a major revolution (and not in a good way).

I think the only solution they will find in Greece is to withdraw from the European Union and to stop using the euro.  Greece can go back to having its own central bank, which can be used to buy the Greek government debt.

The big question after that is, will Italy, Portugal, and others follow?  It would not surprise me to see a total breakdown of the European Union in the next couple of years.