01/18/2011 04:20 pm ET Updated May 25, 2011

People Don't Imagine The Worst Until It's Upon Them

"I believe that people will not imagine the worst until it's upon them." These are Canadian mining mogul Frank Giustra's words of wisdom at the start of 2011 about the fate of the dollar, and America's burgeoning financial difficulties.

This is a lesson for investors everywhere. Don't deny reality. Deal with painful policy decisions now.

No one thought that U.S. subprime mortgages would infect the entire planet. But, had the central banks of the U.S. and Europe not responded to the emergency with trillion dollar dollops of emergency cash, emergency guarantees and emergency loans, we might have experienced a global depression.

No one realized that AIG's $500 billion credit default swaps -- which were not hedged with even a dollar of insurance -- were financial hari kari, corporate suicide by an excess that threatened the very fabric of all markets.

No one understood that Citigroup's off-balance-sheet financial engineering -- mortgage backed bonds leveraged by selling worthless commercial paper to unsuspecting central banks -- meant the nation's largest bank was insolvent.

So, what overhanging financial problems have we been "kicking the can down the road?" Meaning, what pending matters have we waited until the last possible moment to deal with?

Americans seem unconcerned by European sovereign debt problems and the cost of the crisis to the European banking community, like the leading German, Spanish, French and British banks, which have trillions on the line to the sovereign debtors.

State governments have been "kicking the can down the road" of their financial condition and now must face painful cuts in services as well as a showdown with public service unions over the cost of benefits like Medicaid in New York State which has $63 billion in unfunded liabilities.

The estimate of unfunded public pension fund liabilities nationwide is $2.5 trillion to $3.0 trillion -- and there are no feasible plans to deal with this extraordinary problem.

Some states are selling assets (Arizona is selling its capitol building) and leasing them back just to have funds to pay the current expenses. This is the classic case of "kicking the can down the road," and cannot go on forever if the infrastructure of these states is not improved.

Then, there the nation's mortgage debt, which is larger than the current market value of many millions of homes. There is no bold solution for the prospect of declining home prices. This amounts to a pure depression in the home building industry. Did you know that 40% of the increase in jobs during boom years came from the construction industry?

Lastly, there's China, where inflation is higher than reported, where unrest is growing, where real estate companies are in financial trouble, and where official statistics are looked at circumspectly. The rush to invest in China could be causing problems not well understood in the west.