NEWS FLASH: Treasury says Fed deficit is EXPLODING!

At 2:00 PM Eastern Time today, the U.S. Treasury announced that our government added another $80 billion to the cumulative budget deficit in December.

And believe it or not, that’s the GOOD news: Washington is bracing for even higher deficits down the road because of the tax relief package the White House and Congress passed in December.

Before that tax package passed, the Obama administration forecast that the deficit for this year would hit $1.42 trillion. Thanks to this newest round of tax cuts, that estimate may now prove to be wildly optimistic.

But even in the unlikely event that the White House’s earlier estimates hold, 2011 is certain to be the third consecutive year of $1 trillion-plus deficits for Washington. More than $4.1 trillion in deficits will have been run up in just 36 months!

The Conundrum of the Federal Debt Ceiling

Here’s the kicker: The national debt now stands at nearly $13.9 trillion. That’s only $400 billion below the $14.3 trillion federal debt ceiling set by Congress.

In fact, in a letter to congressional leaders, Treasury Secretary Timothy Geithner recently warned that U.S. borrowing could push the amount of debt past the legal borrowing limit sometime between March 31 and May 16.

That means Congress now faces a vote — and possibly a big BATTLE — on raising the debt ceiling, posing a huge challenge for the fiscal conservatives who have swept into Congress promising to cut federal deficits. Here’s the conundrum …

• If they vote so soon to RAISE the debt ceiling, it could be the kiss of death to scores of new political careers.
• But if they vote NOT to raise the federal debt ceiling, it would cause a fatal paralysis in Washington.

Meanwhile, Washington is approaching a second fork in the road: The likelihood that up to 100 major states and local governments could go broke this year. So our leaders will also have to decide

• Either to let the cities and states fail …
• Or bail them out with taxpayer money.

Once again …

Washington Is Damned If It
Does and Damned If It Doesn’t!

If lawmakers rush to the aid of even one state, county or city, it will face a barrage of demands to bail out hundreds more — a move that could add trillions more dollars to the 2011 federal deficit.

But if Congress chooses to allow these state and local governments to default, the results could be equally catastrophic: A collapse of the muni bond market, soaring interest rates, plunging stock prices and a return to the darkest days of this recession.

For the past couple of days, I’ve been hosting a lively discussion on this great debt crisis on my personal blog, and so far, thousands of our readers have given us their thoughts on what this crisis means for their investments.

In just a few days, my team and I will give you our analysis, forecasts and recommendations for protecting and even growing your wealth as this debt crisis inevitably implodes. But before we do, I want to give YOU the opportunity to share your ideas with us.

Just click this link to jump over to my personal blog and join the discussion!

Good luck and God bless!

Martin