California is on the brink of bankruptcy. The highest taxed state cannot pay its bills due to its overwhelming entitlement programs and government expenditures. Sound familiar? California can’t get its funding on the private market by issuing bonds since no one wants to buy them anymore.

The United States federal government may very well be in a similar position within a few years. We’re engaging in jaw-breaking deficit spending on entitlements and other government waste. The government says it will raise taxes to cover the deficit, but unless it raises taxes for everyone to 50% or so, it may not work, and taxes that high will never pass politically. If you think California’s entitlement programs are bad, think about the massive Medicare/Social Security liabilities down the road, not to mention the government will likely waste another $500 billion or so on another stimulus package before the year is out.

The US has had the luxury of financing its deficits because the world community thinks the dollar is a reserve currency. China was our primary sucker as of late, but they are hemming and hawing at buying up more of our debt. Scared investors may pay for some, but can they soak up $2 trillion worth of notes yearly? Doubtful.

With the US federal government soaking up all of the credit, it’s pretty clear your average small business will soon be out of luck. In my opinion, the best we can hope for is an inflationary depression, that way the debt gets eaten away by inflation and we can have a fresh start in 2013 or so.