America is going broke...in style. We say that not to alarm you. It's just one of those certainties in life that you should point out to your children, such as "the dollar will be worthless" and "we're all gonna die."

There's not even any great shame in it. Going bust is what every great empire does sooner or later. Besides, it may not happen for another quarter of a century - or maybe sooner.

Last month, ominously, the U.S. government registered a record deficit of $85.47 billion. That is, for every dollar the feds sucked in, they managed to burn through a $1.50. But, why run up such hefty losses now? After all, the nation revels in "full employment," does it not? The economy is going like gangbusters, is it not? And, housing and stocks have soared to near all-time highs. If the government can't break even now, when will it ever break even?

If you have to ask the question, you must be out of step with the times. Every policy wonk, number abuser, and budgetary contortionist in Washington knows the U.S. government will never run a genuine un-manipulated surplus. Every Beltway buffoon in a suit is counting on it. Every parasitic politician knows that the positive numbers touted during the Clinton years were a ripe fraud, achieved only by pretending that Social Security was not a government program. Now, even that larcenous legerdemain won't change the ink color; the numbers are red from top to bottom, and getting redder all the time.

Among the seven wonders of the modern world is that lenders and merchants world over are still not only willing to accept U.S. paper, but they are positively craving it. Last year, China alone racked up more than $200 billion in its trade surplus with the United States, and what did they do with all that money?

"China is on a buying spree in U.S.," says a headline in the Houston Chronicle.

"See," we can almost hear gorgeous George Gilder whisper in our ear, "the money comes back to us. What's the worry?"

No worry...just an observation. The money leaves home a servant; it comes back a master. The dollars are spent on consumer items. In other words, Americans use paper to buy junk while the Chinese hold on to it as capital and use it to pocket U.S. debt, U.S. factories, and U.S. assets. Americans used to be able to say what they wanted to the Chinese. Now they must say, "Yes sir." And it wouldn't hurt to learn to kowtow; the Chinese like that sort of thing.

Another observation: the dollar is losing ground against the things that aren't junk. The price of oil edged up to nearly $70, yesterday. A headline in the Financial Times tells us, "Gold could reach $850." That is the top price the metal reached in the last bull market, when Jimmy Carter was still president. Well, duh.

Bill Bonner, back in London with more views...

*** The office in London is as quiet as a Quaker's grave. Today is a holiday in England. Outside, the streets are almost empty...it is as if they had been abandoned to the rain.

We are still here...still keeping a close watch on housing, reading the news, chuckling to ourselves, and wondering how it will all turn out.

"American borrowers' rush into debt has been accelerating," writes colleague James Ferguson in this week's MoneyWeek. "It took more than 30 years to raise the debt-to-income ration 30 percentage points, from 40% to 70%. It then took only 15 years to raise it the next 30 percentage points to 100%. But is has taken just five years since the end of 2000 to jump the most recent 30 percentage points, to a new all-time high of 129%. This has surely been one of the most remarkable debt-financed spending sprees in the world, ever."

This debt, says Ferguson, is largely concentrated on a single sector - and a single consumer asset: housing. It is debt that has made house prices rise - not new families or higher incomes. But, debt cannot rise forever. Ferguson thinks he sees the end of it:

"Now there are signs of a concerted, possibly even coordinated, monetary tightening by the world's central banks..." whose consequences are already apparent.

"The data of new family houses in the U.S. in February was shocking. U.S. new homes sales fell 3.4%. In the economically vital Western U.S., new home sales in February plummeted 29% compared with the same period last year.

"According to David Rosenberg...in the last 309 years there have been eight such double-digit drops in new home sales. Six times, these drops signaled recession the next year and one drop led to GDP growth halving from 4% to 2%."

And here, from the Contra Costa Times, comes more bad news:

"The housing market in California has fallen into a visible slump, and the downturn could erode economic expansion in fast-growing regions such as the East Bay, economists warned Wednesday.

"Existing home sales have skidded, houses now languish on the market for longer periods, and the rate of home building has slowed, according to the report issued by Wells Fargo Bank."

Richard Benson offers further thoughts on why housing is about to go to Hell:

"Consumer debt is up to $2 trillion (not including $440 billion of revolving home equity loans and $600 billion of second mortgages). Not only do consumers owe a whopping $9 trillion in mortgage debt, but home equity extraction has reached $600 billion annually. Homeowners have basically received, and spent, in excess of $2 trillion that they never earned (Just take a look at the increase in total mortgage debt in the Federal Reserve's Flow of Funds Data since 2000).

 "Home prices are under horrible pressure. There are probably a few million property owners, including speculators, flippers, and second-home buyers, who are in way over their heads. We've all heard stories about second-home buyers who really couldn't afford the luxury and high expense of a second-home priced at $200,000, yet they purchased one for $250,000 and rationalized its affordability because 'the value would only go up to $300,000 or more.' Besides, they naively believed 'it could always be sold quickly in a bidding war for a profit.' In resort areas - given the number of days people actually use their second home - staying at the Ritz for $500 a night could be a much better deal. Do the math; it's not pretty.

"So, welcome to Housing Hell. Now that buyers are willing to wait one or more years before buying, there are more sellers than buyers. Interest rates, in the meantime, continue going up. Let's also not forget the Existential Equity Extraction. With $700 billion of sub-prime mortgages written (of which 10 percent could default), $2 trillion of ARMs set to reset, and mortgage delinquencies near five percent, equity to extract is vanishing.
 
"As the refinancing game ends and borrowing costs increase, a significant rise in foreclosures could put a few million more homes back on the already-saturated market! When these foreclosures come, many of the homes for sale will have no equity and the seller will want a quick sale. Buyers will still be choosey, unless there is a real deal and the prices are marked down big time. The entire structure of housing prices will move lower with these forced sales. With mortgage foreclosures mounting up, it could get unbearably hot in Housing Hell.
 
"Our estimate is it will take about six months for sellers - particularly speculators who never intended to live in their properties but whose sole intention was to "flip" them for a profit - to realize they are toast.
 
"Based on the logic of history, those who rent for a few years, rather than buy, will be rewarded the most (even though rents should increase with general inflation). Yes, the day will come again when it will, indeed, cost less to buy than it does to rent. When that day comes, it will signify the return, once again, of Housing Heaven."

*** There's a property boom in India, too. "Real estate prices are soaring," begins a story in Business Today, of New Delhi. "Consumers are stretching themselves to buy the second and third apartment, and never projects are popping up every day. Everyone agrees the price increases are unsustainable. So when is the crash coming?"

Around Delhi, prices have shot up 200% in the last 3 years. We'll report prices to you, as soon as we figure out what a Crore is.

Bill Bonner is the President of Agora Publishing.  For more on Bill Bonner, visit The Daily Reckoning.