Let's begin today's reckoning at the end.

Is the United States of America, asks Laurence J. Kotlikoff, professor of economics at Boston University, "at the end of its resources, exhausted, stripped bare, destitute, bereft, wanting in property, or wrecked in consequence of failure to pay its creditors?"

Or, abandoning the Oxford English Dictionary for Ray Charles, are Americans "busted, broke...no bread...I mean like nuthin'?"

Answering his own question in the affirmative, Professor Kotlikoff explains: "This partial equilibrium analysis strongly suggests that the U.S. government is, indeed, bankrupt, insofar as it will be unable to pay its creditors, who, in this context, are current and future generations to whom it has explicitly or implicitly promised future net payments of various kinds."

We don't know what a partial equilibrium analysis is. But since it supports our general view, we ask no questions. Instead, we merely probe more deeply into the report for elaboration and amusement.

"Unless the United State moves quickly to fundamentally change and restrain its fiscal behavior," Kotlikoff continues, "bankruptcy will become a foregone conclusion."

This does not particularly help us. We have no doubt that the nation will be bankrupt. What caught our eye was the assertion that it is already broke. But that, it turns out, depends on what you mean by the word 'broke.'

"The proper way to consider a country's solvency," goes on the professor, "is to examine the life-time fiscal burdens facing current and future generations. If these burdens exceed the resources of those generations, get close to doing so, or simply get so high as to preclude their full collection, the country's policy will be unsustainable and can constitute or lead to national bankruptcy.

"Does the United States fit this bill? No one knows for sure, but there are strong reasons to believe the United States may be going broke."

Among the strongest reasons is a study of the total net "fiscal gap" that the country faces. This is the present value of the difference between the government's future income and expenses - calculated using optimistic assumptions and not including any contingent liabilities, such as those that rise with the water level in New Orleans, or with insurgent activity in Iraq. No, these are the basics: interest payments, government operations, social security, and drug money. The figure, as negative and depressing as our Daily Reckonings occasionally are, is $65.9 trillion - or about 500% of the nation's GDP.

We have reported this number before, more in mischief than despair. Somehow, that gap has to be closed. Otherwise, the feds will have to stop sending out checks. But what do we care; the government already sends out too many checks to too many people, in our opinion. Then again, we don't depend on Social Security or have a safe full of T-bonds.

Besides, there is no chance that the gap will be closed, anyway. Kotlikoff has a sense of humor on this point. He notes that the government would have to cut discretionary expenses by 143%. Or, personal and corporate income taxes could be doubled. Just in case the reader missed the joke, he includes a chart that tells us that people at the upper end of the income scale already pay more than 50% of their incomes in taxes.

Now, a question: Which country do you think expanded its health care benefits most over the 32 year period - 1970 to 2002? Sweden, Japan or the United States? You probably can guess - America, the land of the free stuff. In fact, in the U.S. public health care benefits grew twice as fast as in Sweden during that period, which is a big part of the reason the United States is going broke.

With a problem this big staring them in the face, you might think the custodians of the nation's financial health would be staying up late at night trying to come up with solutions. If you thought that, you would be an idiot. It is late in the cycle, dear reader. Patriots can no longer save the republic; it no longer exists. Instead, they spend their time trying to get what they can out of a decaying empire. Paul O'Neill was the first U.S. Treasury secretary to bother to calculate the "fiscal gap." George W. Bush fired him for it and proceeded to sign every spending bill - no matter how preposterous - to come his way. For its part, Congress continues to add to the fiscal gap every day it is in session, which leads Kotlikoff to conclude:

"The most likely scenario is that the government will start printing money to pay its bills. This could lead to spiraling expectations of higher inflation, with the process eventuating in hyperinflation."

This is not the only reason to buy gold, dear reader, but it is one of them.

*** Meanwhile, as goes the U.S. government...so go its citizens and taxpayers. From Business Week July 12, 2006:

"The U.S. Labor Dept.'s job report on July 7 showed that retailers had shed 7,000 jobs in June, after a loss of 71,000 jobs in the previous two months combined (see BusinessWeek.com, 6/9/06, "Behind The Retail Jobs Numbers").

"Strange Trend. It's unusual that retailers are trimming their workforces when the rest of the economy is growing. For years, retailers have been the source of significant job creation in the U.S. During the 1990s, department stores, groceries, and other retailers added 2.3 million jobs, or an average of almost 20,000 a month, according to the Bureau of Labor Statistics.

"Now, the concern is that retailers, who are positioned to detect the pulse of consumers more quickly than many other types of companies, are sensing trouble ahead. 'Something is screamingly wrong with consumers, and retailers are reacting,' says Richard Hastings, economic advisor to the Federation of Credit and Financial Professionals and a senior retail analyst at Bernard Sands, a retail credit rating firm."

What is screamingly wrong is the Great Dollar Paradox of the early 21st century is that Americans have too few dollars and foreigners have too many. Global prices increase - gold is back near $670. Gold may be getting ahead of itself, but it shows clearly what direction it wants to go. Oil is setting new records. Nickel has gone up 50% in the last month.

Meanwhile, domestic U.S. prices slump (see below).

This puts the United States in a bind. When it wants to go to war with someone - or offer free drugs to old people - it has to borrow the dollars from the people who have them: foreigners. If we remember the figure correctly, 75% of all new U.S. government borrowing this century has been financed from overseas.

Back at home, Americans are running out of money. The homebuilding stocks are falling apart. So, believe it or not, is that middle-class shopping mecca, Wal-Mart. The Dow had another big down day on Friday, its third in a row.

Rich Americans are still building houses in Greenwich and Palm Beach. They're still buying art at auction and adding to their positions in hedge funds. But the middle and lower classes are having a hard time making ends meet. They are forced to use their few dollars to buy the most expensive gasoline they ever saw. Those dollars get out their passports, breeze through the metal detectors (there is no metal in them), and leave home. They go overseas, take up residence in one of the oil or trinket-exporting nations, and get ready for their next move.

No wonder the home folks are feeling a little lonely. "Consumer morale dips," says a Reuters headline. Yes, it dips because people don't have enough dollars to consume with. Many of them haven't had a real pay increase since 1973. They need dollars to help make ends meet. And now, with rising energy prices and resetting mortgages, those footloose, fancy-free, globe-trotting dollars are sorely missed. Foreclosures are up 26% in the Dallas area. June retails sales were off nationwide.

*** You can still exchange your paper money for the real thing. The U.S. government is selling gold - in the form of a pure Buffalo coin. The price of the metal will probably correct before going much higher. But with civil war at hand in Iraq, regular old-fashioned war in Israel, brand new war on terrorism worldwide, a few buffalos and bankruptcy ahead for the world's only remaining superpower...a few buffalos might give you a comfortable feeling.

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