In yesterday's Market Observation column for Financial Sense, I noted the continuing deterioration in our nation's finances:

The latest results of Washington's spending-and-borrowing spree are in and, as you might expect, they don't look pretty. According to the Congressional Budget Office, the U.S. budget deficit hit a record $1.4 trillion in the fiscal year just ended; at 9.9% of gross domestic product, it was the largest such shortfall since 1945. In addition, September's monthly deficit was the 12th in a row, a losing streak that has not been seen in least four decades.

I also highlighted some recent remarks by an old market hand suggesting the steady accumulation of red ink has reached dangerous proportions:

More ominous, perhaps, is the fact that the FY 2009 deficit turned out to be just over 40% of outlays. According to research highlighted by Hayman Advisors in their October Letter, the fact that such a sizeable share of government spending is being financed with borrowed money has, historically at least, been a harbinger of trouble ahead:

There have been 28 episodes of hyperinflation of national economies in the 20th century, with 20 occurring after 1980. Peter Bernholz (Professor Emeritus of Economics in the Center for Economics and Business (WWZ) at the University of Basel, Switzerland) has spent his career examining the intertwined worlds of politics and economics with special attention given to money. In his most recent book, Monetary Regimes and Inflation: History, Economic and Political Relationships, Bernholz analyzes the 12 largest episodes of hyperinflations - all of which were caused by financing huge public budget deficits through money creation.