Most economists now believe the U.S. Federal deficit is at a tipping point. China & Japan agree. So too, do many Americans. Politicians agree. David Walker, former head of the Congressional Budget Office certainly agrees. The U.S. is not the only one attending this deficit-driven economic meltdown party. Just about every industrialized western country is facing unprecedented deficits. Economists, when referring to the mounting federal deficit, all tell us it is unsustainable. "Unsustainable" is an industry-speak euphemism for "will lead to economic collapse". Make no mistake about it, and lets be as clear as we can on this issue, the U.S. Federal deficit is an anchor dragging the U.S. down into the history books as the greatest nation in the world to fail. And we are precariously close to this unfolding. I don't pretend to know what the overall aggregate deficit tipping point number will be. Maybe it's $15 trillion, $17 trillion or $20 trillion. It doesn't matter. It is upon us. When we hit that magic number it will trigger a series of cataclysmic events that will threaten the very existence of the United States.

What will set off the decline? Initially, Stage One will see major players like China, Japan, Germany and the U.K. pulling away from buying U.S. Treasuries as the perceived investment risk grows too large for their stomachs to handle. To counter this, the U.S. will be forced to increase the interest rate to match the increased perceived risk. This will increase the deficit as more and more tax revenues go to paying the higher interest rates. This will eventually fail, as the perceived risk becomes so large it will not matter what interest rate the U.S. pays. Stage Two will be the fall of the U.S. dollar. Countries will begin pulling away from the U.S. dollar as a reserve currency. There will be a mad scramble to come up with some universally accepted currency. Maybe the Euro, or maybe a contrived world-wide currency will be fabricated. When this happens, you know the end is near. This action is tantamount to abandoning a U.S. destined to collapse. In Stage Three we will see panicked politicians introducing draconian legislation to increase taxes, the likes of which this country has never seen. These grossly incompetent politicians will ignorantly reach for this taxation tool in an effort to generate more tax revenues. Increased taxation will not stop at income tax. No, there will be across the board increases. Increased Social Security taxes, increased Medicare taxes, increased federal unemployment taxes. There will be increased tax penalties, limited only by the imagination of Congress. In Stage Four we will see a mandatory decrease in entitlement program benefits. Social Security benefits will be decreased first, then Medicare benefits, soon followed by an array of other entitlement benefits getting the ax. At Stage Four, the U.S. will be in survival mode. Political correctness will be abandoned, the hungry all but ignored, unemployment will sky rocket, U.S. millionaires, you know the ones who contribute the most to tax revenues, will flee the country. The entire tax foundation of the U.S. will crack as if hit by a magnitude 10 earthquake. When the dust settles, the U.S. will be left in tatters. A skeleton of its former self. Many countries, along the way, will fall as well. Revolution, civil wars, world war will cap off Stage Four.

What stage are we at right now? We are beginning to see the curtain pulled up for Stage One and Stage Two. China & Japan have already voiced concerns over our mounting deficit and have shown some resistance to buying Treasuries. China has also challenged the U.S. dollar as the world's reserve currency. That's Stage Two. We have seen China in the past twelve months sell much of their U.S. dollar reserves to the IMF in exchange for gold. And you may have wondered why the price of gold has seen dramatic increases lately.  We are also hearing our esteemed politicians advocate various tax raising measures. In 2011 the Bush tax cuts will go away, replaced by the pre-tax cut rates, which cap out at 39.6%. There is talk of eliminating the Social Security wage base, upon which Social Security taxes are imposed, and replacing it with an unlimited wage base. This is Stage Three talk.

Can the economic collapse of the U.S. be averted? The answer, of course, is yes. But this requires leadership we simply do not have in place right now. Unless our political leaders act now and act swiftly the noose around the neck of the U.S. will begin to tighten.
If we had this leadership what should they do? Across the board tax cuts. Big business, not small business, is the driver of the U.S. economy. We need to first reduce corporate income tax rates significantly in order to give big businesses the working capital necessary to get our economic train moving again. I believe the maximum rate reduction needed to make this happen is 20% or more, or a maximum corporate tax rate of 15%. This additional working capital will be put to good use. First we will see an increase in investment in plant and equipment. Next increases in research and development and then finally increases in investments in human resources (jobs). Small businesses will see increased demand for their products and services as the big business train starts gaining speed. Small businesses will begin to hire. Crisis averted. While the end is near, the solution is also near. I am optimistic.You see, two hundred plus years ago a few very smart visionaries incorporated into our constitution the ability to force revolutionary change in our country, not by guns, violence and civil war, but by a peaceful process we all take for granted. The right to vote.