The U.S. Government reported a budget deficit of $220.9 billion for the month of February 2010.  The government took in $107.5 billion and outlaid $328.4 billion.  This is pretty staggering.  We are on track to another $1 trillion dollars in debt in the first seven months of fiscal year 2010.  To put $1 trillion dollars into perspective; if you stacked $1,000 bills tightly it would reach 67.9 miles high!  I have read that even if the government taxed every American at 100% of their income the budget would not be balanced.

The federal debt is currently over $12 trillion and growing.  With the currently low interest rate environment our interest payments on the debt are roughly 10% of tax revenue.  As our interest payments increase in size the more of our tax dollars are taken away from other areas of spending.  Consequently as rates will have to rise as inflation sets in, the interest payments on the debt could easily shoot up to the 25% range.  Which means more borrowing, it is a vicious circle.

The current debt figure does not include Social Security or Medicare.  Including these two items the debt is estimated by some experts to be somewhere between $55 and $80 trillion.  The government is spending money that it doesn’t have everyday.  It has become completely normal to do so.  The more money the government has to create, the more inflation the dollar will see.  Once all of these dollars hit the system inflation will tick higher and higher.

Inflation is when too many dollars are chasing too few goods.  To make it simple, when no one wants dollars because they view them to be weak, they will spend them on goods today rather than wait until tomorrow.  This speeds up the velocity of money (for an example of this look at Zimbabwe hyperinflation on youtube.com).  The Zimbabwe government began printing money at will to cover their debts and this snowballed until their currency finally collapsed in April of 2009.  Now their citizens are panning for gold just to buy food.

Foreign countries like China, Russia and Brazil have already begun taking measures to divulge themselves of their dollar reserves.  If the U.S. continues on the path of printing money excessively, ultimately countries around the world will speed up this process.  As these dollars come home to the U.S. inflation will pick up and possibly create hyperinflation.  Those who own gold and silver have protection.  If you look at the hyperinflation that took place in Weimar Germany from 1919 to 1923 you will find that an ounce of gold went form 170 Deutsche Marks to 87 trillion Deutsche Marks.  Those that owned gold were able to buy essential items.  Those that owned Deutsche Marks watched their wealth disappear very fast.