This is part of what Wikipedia says about the collapse of the Soviet Union:

After years of Soviet military buildup at the expense of domestic development, economic growth was at a standstill. Failed attempts at reform, a stagnant economy and war in Afghanistan led to a general feeling of discontent.

The USSR’s trade gap progressively emptied the coffers of the union, leading to eventual bankruptcy. The Soviet Union finally collapsed in 1991 when Boris Yeltsin seized power in the aftermath of a failed coup.

Sound familiar? The key difference, of course, is private wealth in the US, but America’s public finances have never been in worse shape.

Seven years later Russia defaulted on its foreign debt, sparking the so-called “ruble crisis” on August 17, 1998, which is also neatly explained by Wikipedia.

So exactly where will the US be on the 10th anniversary of the Russian default next month given the imminent nationalisation of $US5 trillion worth of mortgages in the bailout of Freddie Mac and Fannie Mae?

The US is running a huge $US800 billion current account deficit, a hugely unpopular and expensive war in Iraq and is now about to add $US5 trillion of private mortgages to the existing $US9 trillion public debt, which is still soaring given the predicted $US400 billion budget deficit in 2008.

The market certainly thinks there is a problem with $US 14 trillion in government debt as the price of US bonds soars and the US dollar plunges, yet somehow Moody’s and Standard & Poors believe the US government should remain AAA rated.

These two rating agencies are a complete joke and should go the same way as Arthur Andersen after the Enron collapse.

Whilst Russia wasn’t too big to default in 1998, George W Bush, the US Treasury and America’s political duopoly clearly believe that Fannie and Freddie are too big to fail.

But what would the world think of Australia if it suddenly announced the Parliament was passing laws to permit uncapped purchases of Big Four bank shares plus tens of billions in new public loans to shore up 50% of Australian mortgages, or about $430 billion in private debt?

This Freddie and Fannie bailout, plus the collapse of Indymac Bank on Friday and the plunging share prices of other US regional banks overnight amounts to nothing short of a full-blown US financial crisis. It is America’s darkest hour in decades and the global contagion is profound.

No wonder shares in Australia’s Big Four banks are down 3-4% today, with ANZ hitting a four year low of $17.16 and NAB a seven year low of $25.47.

Business Spectator’s Tony Boyd had a fascinating column yesterday pointing out that the Future Fund has shifted $35 billion in cash from the Reserve Bank into bank bills.

Gee, if the world’s strongest banking system needs this sort of public support, the global financial system really is in huge trouble.

*Listen to this morning’s discussion on 702 ABC Sydney about why the US credit rating should be downgraded.