Bill Gross is the world’s biggest bond trader. He runs the PIMCO bond fund with over $250 billion under management. He recently disclosed through financial filings that PIMCO has sold every single U.S. bond in its portfolio. Local, state, federal bonds- all sold off. Gross knows bonds are about to default in record numbers. And most importantly, he knows that the last resort of the Federal Reserve buying our own government’s bonds at auction is a certain sign of Armageddon. When no one is left to buy your own debt but you, you have reached the end of a Ponzi Scheme.

Then there is legendary Wall Street investor Stanley Druckenmiller. He, too, is calling the Fed’s bond purchases a fraud and a Ponzi scheme. Druckenmiller says, “There is a phony buyer of $19 billion per week of Treasury Bonds.” The phony buyer he refers to is the U.S. government. Druckenmiller knows that when a country resorts to buying its own debt, we are seeing the last days of the Roman Empire.

Another Wall Street legend, Jim Rogers, spoke out at a business conference last week. He said he plans to short sell (bet against) U.S. bonds with both hands. Rogers added, “If any of you have bonds, I would urge you to go home and sell them. If any of you are bond portfolio managers, I would get another job…if I were you, I would think about becoming a farmer.”

Finally, we have the opinion of municipal bond expert Meredith Whitney, named by Fortune magazine as “one of the 50 most powerful women in business,” and by Time magazine as “one of the 100 most influential people.” She sees America in financial ruin with 50 to 100 cities defaulting on their debt in the next year.

What do these financial legends know that the rest of us do not?

First of all, reality is catching up to America. The Ponzi scheme of printing fake money to pay real bills is coming to an end. The jig is up- there is no way to sustain America’s massive welfare state anymore. When the Stimulus runs out, states will face disaster. The federal government currently pays for 30% of the states’ bills. Without that welfare from the feds, the game is over for the states.

But that is just the start. The states pay 40% of the bills of their cities. As soon as that welfare ends, look for mounting numbers of municipalities to declare bankruptcy and default on their debts. The vicious cycle is only getting started.

On the federal level, the trustees of both Social Security and Medicare admitted just this past week that their massive Ponzi schemes are running on empty. Both funds are running out of money far sooner than projected. Social Security will now run a permanent deficit. It is also important to remember there is no money in the “lock box.” All that is in the lock box is worthless paper IOU’s. It has all been spent. The Ponzi scheme is unraveling.

The list goes on. The country’s annual deficit approaches $2 trillion. The national debt approaches a staggering $15 trillion. The debt plus unfunded liabilities approaches an unimaginable $100 trillion. The debt-to-GDP ratio approaches the 90% number- a figure that few countries have ever recovered from. One of every seven Americans is on food stamps. We are fighting three expensive wars with no purpose, and no end in sight.

Every economic recovery in modern history has been led by a residential real estate boom. Yet today, the real estate crash is accelerating. The current real estate implosion is now worse than the Great Depression.

But I have saved the worst for last. The two scourges of any economy are unemployment and inflation. That is why those two statistics make up the entire “Misery Index.” The only expert I trust to give the true figures is John Williams of ShadowStats.com. He calculates those numbers the way our own government did until 1990, when they decided to rig the system to prevent panic and unrest. Based on pre-1990 calculations, today’s CPI inflation is now over 10% and unemployment is 15%. This 25% Misery Index is, by far, the highest in modern history.

Even more foreboding, 10% inflation is a leading indicator of hyperinflation on the way. Any rise in inflation would force dramatic raises in interest rates, which would eat up the entire budget. Game over for America.

History always repeats. This vicious cycle of misery will force massive layoffs of government employees, and massive cuts in entitlements and social services. This will result in Greece-like levels of protests, government employee union strikes, unrest, and riots.

The ancient Chinese proverb says, “May you live in interesting times.” We are all watching history. This is the unraveling of a Ponzi scheme.

I was arguing that the deceptive  accounting techniques used by  the federal government–techniques that would send anyone to jail in the private sector– is hiding the fact that $4 trillion (more than the federal government spends in a year) is unaccounted for. Well, it’s accounted for but as if the money still exists, when in fact, it has been gone for a while. And guess who will be stuck with the tab?

Okay, now bear with me because it’s a little geeky. However, I promise that this is a story worth reading  about (if you like sickening stories that is).

Remember Al Gore’s lock box or FDR’s bank-account-with-your-name-on-it? Yes, the lock box in which your payroll taxes were supposed to go to produce interests until you can get it back in the form Social Security and Medicare payments when you are old and sick. Well, as it turns out, the federal government had the key of that lock box and helped itself with the $4 trillion accumulated to pay for its daily consumption of wars, Prescription Drug Bill, Freddie and Fannie and ACORN and else.

Not to worry, we are told, because in exchange for the cash, the Social Security and Medicare Trust funds received federal government IOUs. The day the two programs need the money, because they are paying out more money that they are receiving in tax revenue, they will get it back. Bankrupted Federal government’s honor.

Well, turns out, the time is now. Two of the three Medicare Trust Funds have been in the red since 2005 and 2008. And this year, the Social Security Trust Fund is in the red (6 years sooner than expected). See the cool chart below.

Now, the two programs want their money back. But oops, the money isn’t there anymore. The only way the big fat federal government can repay the Trust Funds is by borrowing the money to the public or increasing taxes (or cutting benefits). Either way, it’s not exactly what we were told right? If it borrows the money, it adds to our gigantic publicly held debt and exposes us to potential interest rate increases (sooner than we expected it to happen). If it taxes us, it means that the same people who have contributed payroll taxes their entire lives to fill the Trust Funds will have to pay taxes all over again, so that the federal government can pay its debt back.

That’s a ponzi scheme if I have ever seen one. Ad yet, no one will go to jail with Madoff for this one.

Hope you had a good Tax Day!

The bursting of the real estate bubble and the ensuing recession have hurt jobs, home prices and now Social Security.

This year, the system will pay out more in benefits than it receives in payroll taxes, an important threshold it was not expected to cross until at least 2016, according to the Congressional Budget Office.

Stephen C. Goss, chief actuary of theSocial Security Administration, said that while the Congressional projection would probably be borne out, the change would have no effect on benefits in 2010 and retirees would keep receiving their checks as usual.

The problem, he said, is that payments have risen more than expected during the downturn, because jobs disappeared and people applied for benefits sooner than they had planned. At the same time, the program’s revenue has fallen sharply, because there are fewer paychecks to tax.

Analysts have long tried to predict the year when Social Security would pay out more than it took in because they view it as a tipping point — the first step of a long, slow march to insolvency, unless Congress strengthens the program’s finances.

“When the level of the trust fund gets to zero, you have to cut benefits,” Alan Greenspan, architect of the plan to rescue the Social Security program the last time it got into trouble, in the early 1980s, said on Wednesday.

Read the whole thing here. Not to be too harsh on the Congressional Budget Office, but they have a rather bleak track record of accurately predicting too far into the future. (Their biggest problem is that Congress doesn’t keep its word, which negate many of CBO’s basic assumptions.) Keep that in mind when politicians tell you that ObamaCare will save money in the long run.

But we do know some of the critical unforgiving numbers. And we have strong reason to suspect that radical changes to Medicare Part E (as in Medicare for Everybody) is the real endgame, whatever the interim steps are called: public option, cooperatives, or mandated Insurance Exchanges.

We have the unmentionable truth that Medicare is insolvent. And the common dogma that Medicare is efficient, popular, and impregnable. Is it a Hegelian thesis and antithesis? With the synthesis being to throw the whole rest of the system, which is also allegedly bankrupting the country, into Medicare?

Are our leaders stark, raving mad? Or diabolically clever?

The on-the-books public debt is around $12 trillion, and Congress needs to pass still another law to increase the debt limit. The annual deficit is close to, or even exceeds,  40% of expenditures, the point that some call the tipping point for hyperinflation.We’re not going to grow our way out of this, not with GDP already down 25%, compared to 2000, if calculated in euros.

Then there are the unfunded liabilities of Medicare and Social Security, about which former U.S. Comptroller General David Walker has been sounding the alarm for years. Estimates are as high as $100 trillion or more—orders of magnitude greater than any conceivable ability to pay.

So here we have a legal obligation to pay back the $12 trillion we have loaned out, much of it to Chinese, Saudis, and other overseas investors. And the moral obligation, backed by politicians’ full faith and credit, to soon-to-be-retiring Baby Boomers.

The Chinese and the Saudis have the industry and the oil we absolutely need to live. Not to mention the Chinese army, nuclear weapons, and missiles. American seniors have—the vote.

It is incontrovertibly true that seniors, especially of the Baby Boomer generation, have been taxed all their working lives to pay for their medical needs in retirement. Their money has gone—into the “lock box”? Wherever it is, it is in the form of IOUs. Whose IOUs will get paid first?

Americans have been robbed by the Medicare system, just like Bernie Madoff’s investors were, only in vastly greater amounts. And they are just as likely to get their full benefits from Medicare as investors are to get their money back from Madoff’s prison cell.

No politician, however, wants to default openly, not on his own watch. There’s the danger to his career, from a voter revolt. And when voting doesn’t work, and peaceful demonstrations don’t work, people could become very surly indeed—and worse possibilities loom.

So here’s the con: We put everybody into the comprehensively reformed system. We suck in huge amounts of new revenues, not called “taxes” but rather “premiums,” “penalties,” “fees,” “surcharges,” or “shared responsibility payments.” Since the thresholds aren’t indexed for inflation, the “responsibility” to “share” the load for other people’s needs migrates down the social scale as the dollar deteriorates. Remember, also, that current health care proposals envision the government collecting new revenue for several years before full benefits–i.e. costs–kick in. Its health care on a layaway plan. A neat trick to plug some budget holes without admitting it.

Now comes the allocation part. We make everybody dependent on the system: patients for their care, doctors for their livelihood, so everybody is in a cooperative mood. An inspiration from a consummate politician named Bismarck, also implemented by Lenin and Stalin. Is there any other way than promising “universal care” that politicians could get away with cutting hundreds of billions from expected Medicare expenditures?

We let politicians off the hook by delegating the key decisions to an appointed Federal Reserve-like agency.

We set up a “fair,” “evidence-based” system, with the apparently laudable goal of improving the overall health of society. No discrimination of course—“disparities” are to be eliminated.

Remember, however, that age discrimination is not “invidious.” Every 60-year-old was once 20. The “complete lives system” (a.k.a. “Reaper Curve”) favored by Ezekiel Emanuel is by this logic completely fair.

Here is what it means: people over age 65 would get 3.4 times less care than a 50-year-old. At present, however, spending on people over age 65 is about 3.1 times higher than for 50-year-olds (Uwe Reinhardt, Health Affairs November/December 2003). Under the Emanuel system, older people would get only about one-tenth as much care as they do now [1/(3.4 x 3.1)].

The elderly would not all be cut off at once. They would simply be placed in an overloaded boat with everybody else, with lower-priority people pitched overboard—one at a time.

No death panel is needed. The system simply ratchets down doctors’ pay to the minimum they will tolerate, then punishes those on the top end of the spending curve. It will know who they are because of intense electronic monitoring of everything. Rational rationing—“equitable redistribution”—will occur.

Key words include “universal” and “consensus.” With “everybody in, nobody out,” social hydraulics will occur. Pull one lever at the top, and everybody beneath it is complicit in the “hard” decisions.

Default? No, no. Just a change.