The freespending habits of Americans and their government are in for a major correction, according to Addison Wiggin and Bill Bonner, authors of the new book "Empire of Debt: The Rise of an Epic Financial Crisis" (John Wiley & Sons Inc.). They argue that a series of possible disruptions, including an end to the steep climb in housing prices, rising fuel prices and the free fall of the dollar, could combine to send the U.S. economy into a severe recession. Wiggin says the impending crisis is at least 30 years in the making, dating back to the 1971 collapse of the Bretton Woods system of global monetary management, which resulted in a de-linking of the U.S. dollar and gold. Since then, he says, the government has been on a relentless spending spree, with President Bush's latest budget calling for a record deficit of $423bn. Also of concern is the nation's current account deficit of $804.9bn (as of last year), and the $8tr that the U.S. owes foreign interests. China alone accounted for $201bn of the trade deficit in 2005, a 24-percent rise over the previous year, Wiggin notes. At the same time, an explosion of credit options, coupled with rising housing prices, has caused individual Americans to take on huge levels of personal debt. Unwilling to change their behavior, "they hold on to delusions for longer than the laws of economics can sustain them." Wiggin isn't saying that disaster will strike tomorrow, but he's certain that economic cycles will soon lead to a natural correction which will be marked by personal bankruptcies, business failures, higher interest rates and the collapse of bad loans. "You've got to recognize that this is part of the way that economic trends play themselves out," he says. The safest investments at the moment, he adds, are in energy, commodities and precious metals, especially gold.

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