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<\/a>At the very core, this U.S. government shutdown<\/a> means that about one million federal employees will be told to go home without pay. Non-essential services will be stopped until further notice. This will be mainly due to a lack of funds. (Source: Committee for a Responsible Federal Budget, September 24, 2013.) National parks will be closed; museums will be shut along with many other services.<\/p>\nWhat government services will be available? Social security and the Medicare payments will be sent out to those who already rely on it. For those who are applying for it during the U.S. government shutdown, they will not have their applications processed for the time being.<\/p>\n
As bad as all of this may sound, this U.S. government shutdown isn\u2019t the first one we\u2019ve seen. Since 1976, there have been 17 instances when the U.S. government wasn\u2019t able to come to a decision on funding. Mind you, many U.S. government shutdowns only lasted over the weekend, so their effects were minimal. The last two long U.S. government shutdowns were 17 years ago and they lasted a total of 27 days. (Source: Ibid.)<\/p>\n
With all this, there are many different opinions. With so many people sent home, the U.S. government shutdown is an immediate money-saver. But on the other hand, those who aren\u2019t getting paid are likely pulling back on spending and that will affect gross domestic product (GDP) growth for the U.S. economy.<\/p>\n
As all this happens, I stay far away from making political predictions, as after all, that\u2019s all we are dealing with here\u2014two political parties pitted against each other resulting in a U.S. government shutdown.<\/p>\n
But in the midst of all this \u201cnoise,\u201d dear reader, we must not forget the big picture: the U.S. national debt has sky rocketed, the government continues to post a budget deficit<\/a> year after year, and the national debt continues to rise.<\/p>\n The U.S. has been incurring a budget deficit for a number of years now. This year, the fiscal year of 2013, will be the same. Sure, the budget deficit isn\u2019t going to be one trillion dollars like it was in the last four years, but it\u2019s still close to a trillion dollars.<\/p>\n Over the year, I\u2019ve made various economic forecasts in these pages that have generated strong responses from my readers. One such prediction (that I started making just a few months ago) has garnered more reader feedback than ever. That prediction: the U.S. national debt will double from its current $17.0 trillion to $34.0 trillion, or about 210% of GDP, where Japan\u2019s debt-to-GDP multiple stands today.<\/p>\n How can this happen and what does it mean for the small investor? Follow on to today\u2019s \u201cMichael\u2019s Personal Notes\u201d (below) for the answer.<\/p>\n Michael\u2019s Personal Notes<\/a>:<\/b><\/p>\n I often write about the crisis faced by the municipalities, cities, and states across the U.S. as they continue to register budget deficits<\/a> year after year. Cities like Detroit and others in California have already filed for bankruptcy. When all of this was happening, I kept asking: when will the U.S. government bail out the troubled cities?<\/p>\n Well, it\u2019s started to happen\u2026<\/p>\n The U.S. government will be giving the city of Detroit $150 million for \u201cdemolition and redevelopment purposes.\u201d In addition, it will also provide the city with almost $140 million to better its transit system. Another $25.0 million will be granted to the city to assist in its streetcar project. (Source: Newsmax, September 27, 2013.)<\/p>\n The economic situation for \u201cMotor City\u201d has gone from bad to worse. But I ask one question: if the U.S. government \u201chelps out\u201d Detroit, won\u2019t other cities struggling with a budget deficit feel shortchanged? After all, they are in dire need of money too!<\/p>\n Take San Jose, for example. The city has been posting a budget deficit since the 2002-2003 fiscal year. The cumulative budget deficit since then to now has accumulated to a total $680 million. (Source: San Jose\u2019s Mayor Office web site, last accessed September 30, 2013.) And it just doesn\u2019t end at the city level. States have also been caught in the same budget deficit trap.<\/p>\n Credit rating firm Fitch Ratings, in assigning a revised credit rating to Connecticut, said, \u201cThe Negative Outlook reflects the state\u2019s reduced fiscal flexibility at a time of lingering economic and revenue uncertainty. The enacted budget for the new biennium delays repayment of deficit borrowing, adds to an already high debt load, and fails to rebuild the state\u2019s financial cushion.\u201d (Source: \u201cFitch Rates $900MM Connecticut GO Bonds \u2018AA\u2019; Outlook Negative,\u201d Fitch Ratings, September 30, 2013.)<\/p>\n But back to my original concern and the theme of today\u2019s issue of Profit Confidential<\/i>: how can the U.S. national debt ever get under control if the U.S. government now starts helping municipalities, cities, and states that have budget <\/b>deficits? The answer is it can\u2019t.<\/p>\n What does it matter to you?<\/p>\n In upcoming issues of Profit Confidential<\/i>, I will be writing about how the U.S. is following the exact path of the Japanese economy. Both countries experienced the biggest boom-bust cycle since the Great Depression. Both responded by aggressively lowering interest rates and printing more paper money.<\/p>\n Today, Japan\u2019s debt-to-GDP is 210%, while that multiple stands at 105% to 110% for the U.S. (Japan\u2019s bust happened 20 years before the U.S. bust.) I think by following what happened to Japan on the way to 210% debt-to-GDP, and seeing which investments did well during that period and which didn\u2019t, will be of utmost importance to my readers\u2014and that\u2019s what my research team is working on right now. In upcoming issues, you\u2019ll read about what individual investors can learn from Japan\u2019s \u201cexample\u201d to better profit and protect themselves from today\u2019s debt-crazed U.S. government.<\/p>\n What He Said:<\/b><\/p>\n \u201cPartying Like a Drunken Sailor: The party continues. Stocks are making new highs and people are spending like there is no tomorrow. Why? I really don\u2019t know. Big [cap] stocks, they just continue going up. Wall Street bonuses are at record levels. Popular consumer goods are flying off the shelves. Designer clothes, fast and expensive cars, restaurants with one hour waits\u2026people are spending in America today at an unbelievable clip. 1932, 1933\u2026who remembers those years? The depression of the 1930s was the biggest bust of modern history. 2005, 2006, 2007\u2026welcome to the biggest boom of the same period. When will it all end? Soon, my dear reader. Soon.\u201d Michael Lombardi in Profit Confidential<\/i>, February 7, 2007. Michael started talking about and predicting the financial catastrophe we started experiencing in 2008 long before anyone else.<\/p>\n