Kman. Short-selling without the proper hedging is INCREDIBLY risky.
Derivative investing is generally very wise or very foolish and no where in between. I might add it is extremely hard to hedge based on some "information" you "suspect" the rest of the market doesn't know.
With no hedging, theoretically, there is NO limit to your potential losses.
Just ask the Nobel Laureates at Long Term Capital.
http://mondediplo.com/1998/11/05warde2
I really didn't mean to sound like a prick in my first comment, I was hoping somebody would get the pun.
Jayeff--
There are ALWAYS prophets of doom. See Malthus.
http://www.kalama.com/~dgberntsen/MaltSynSum.htm
U.S. Gov't has never defaulted on debt. Ever.
Debt isn't bad, it helps us smooth consumption over our lifetimes.
The key is to invest for the long-term.
The only time you get fucked is if you are 64 and lost your shit, but that is precisely why you should properly allocate your portfolio according to your risk tolerance, and your expected remaining life-span.
Consider Japan, where the consumers are taking money out of circulation, placing it into Gold, which unless you're Soros, is only good for jewelry. That sort of consumer behavior has caused Japanese economy to plunge deeper into recession.
Wash rinse repeat.
I'm not saying the short term won't be prone to increased volatility, but if you take your money out of the market. YOU WILL MISS THE RECOVERY.