Here Comes The Next Crisis "Nobody Saw Coming"

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

When borrowing become prohibitive (or impossible) and raising taxes no longer generates more revenues, state and local governments will have to cut expenditures.

Strangely enough, every easily foreseeable financial crisis is presented in the mainstream media as one that "nobody saw coming." No doubt the crisis visible in these three charts will also fall into the "nobody saw it coming" category.

Take a look at this chart of state and local government debt. As we noted yesterday, nominal GDP rose about 77% since 2000. So state and local debt rose at double the rate of GDP. That is the definition of an unsustainable trend.

As noted earlier in the week, state and local taxes have soared 75%. While this would be no big deal if wages and salaries had risen by 75% in the same time frame, but earnings have barely kept pace with inflation (38% since 2000).

So state and local taxes have risen at a rate twice that of wages/salaries. State and local governments can keep raising taxes, but where's the money going to come from?

State and local government expenditures have risen faster than inflation or GDP.

Here is the context that matters: household income. This is median real income, i.e. adjusted for inflation.

 

Wages and salaries are barely keeping up with inflation, real household incomes are down 8.5% since 2000 and state and local government taxes and spending are rising at twice the rate of inflation--where does this lead to?

1. The bond market may choke if state and local governments try to "borrow our way to prosperity" as they did in the 2000s.

2. If state and local taxes keep soaring while wages stagnate and household income declines, households will have less cash to spend on consumption.

3. Declining consumer spending = recession.

4. In recessions, sales and income taxes decline as households spending drops. This will crimp state and local tax revenues.

5. This sets up an unvirtuous cycle: state and local governments will have to raise taxes to maintain their trend of higher spending. Higher taxes reduce household spending, which reduces income and sales tax revenues. In response, state and local governments raise taxes again. This further suppresses disposable income and consumption. In other words, raising taxes offers diminishing returns.

At some point, local government revenues will decline despite tax increases and the bond market will raise the premium on local government debt in response to the rising risks.

When borrowing become prohibitive (or impossible) and raising taxes no longer generates more revenues, state and local governments will have to cut expenditures. Given their many contractual obligations, these cuts will slice very quickly into sinews and bone.

If this doesn't strike you a crisis, please check back in a few years. It is easily foreseeable, but very inconvenient. As a result, it too will be a crisis that "nobody saw coming."

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I am Jobe's picture

Just like fucking relationships and marriage . Fuck Yeah Amerika

Haus-Targaryen's picture

When this next shit explodes, I am going to lose so many facebook friends gloating about their stupidity while picking up their assets on the cheap.

Sudden Debt's picture

I once bought a car from a couple that had a argument with each other while they where talking about devorce while my wife and I where there on a visit. And he was yelling that he would sell everything they had for next to nothing.

I got the car so damn cheap is wasn't even funny :)

When I quickly drove home to get the cash, my wife was yelling at me how in the hell I could do that because it where her friends :) I didn't really care, I needed to hurry before he changed his mind!

I guess I told this story about 5000 times already as my biggest achievement :)

I was so damn proud of myself :)

SWRichmond's picture

Wages and salaries are barely keeping up with inflation, real household incomes are down 8.5% since 2000 and state and local government taxes and spending are rising at twice the rate of inflation--where does this lead to?

It leads to getting a fucking summons for anything and everything imaginable, and lots of things you cant imagine.  it leads to accelerated pillaging of the poor and middle classes who are simply trying to make their own way in life, so that the cops can keep their pensions fully funded...until they're not.  It leads to an ever-increasing mass of pissed off and alienated people, eventually reaching a critical mass that actually does something about it...and when they find the political means is closed to them, it leads to revolution.

In other words, study history.

froze25's picture

Local gov't needs to get back to basics and they would be fine.  Roads, basic utilities and schools/Libraries.  All other social program BS that is completely ineffective needs to be cut.  But that would mean job cuts for the politically active people and that will not happen.

CrazyCooter's picture

You're a conspiracy theorist.

Regards,

Cooter

SumTing Wong's picture

Anyone else thinking that more and more people will go Galt? Anyone thinking the barter economy will thrive? And that more and more deals will be done in cash, so long as it is legal?

I'm stocking up on ammo and junk silver myself. We have almost everything else in place...

J Jason Djfmam's picture

What would be the advantages of going "Galt"?

What are the benefits of taking your ball and going home?

 

clade7's picture

"No size restrictions and screw the limit!"

(the Far Side)

cnmcdee's picture

Governments would rather sit in a wet mud puddle slicing their own wrists with broken glass than have to cut taxes.

It's full retard to martial law from here *anything* to maintain control even if they have to go full Kim Jung Un on the US population they will do it.

Just remember under martial law the food supply will crater when farmers join the 'fuk it' crowd.  They will come around your place with the machine gun goon squad to steal your shit and food because Furher De Obama has dictacted it.  Hide your keep alives in lots of underground places out in the field.

NoDebt's picture

Left unsaid in this article is "what are the states/municipalities spending all that (borrowed) money on?"

I'll give you a hint where most of it is going.  It rhymes with pensions and benefits.

And its only going to get worse with every passing year from this point forward.

Pinche Caballero's picture

Pensions and benefits

=

McMansions & classic 'Vettes

Creepy A. Cracker's picture

"Pensions and benefits."

 

Exactly.  They "can't afford" to pave roads becasue they are "out of money" because they are paying gubmint retirees millions of dollars (over time) to not work starting at the age of 38 and higher.  Tax payers are paying three people's full salaries (two retired, one "working") to do one job that most people don't want performed.  Just pave/repair the roads.  Leave the rest alone.  I don't want a tens of millions of dollars county, illegal alien, "soccer-plex."

aint no fortunate son's picture

The first three charts are very instructive, particularly chart 1 for state and local govt debt. Gradual glide slopes up from 1950 to 1980. Then it all starts to go vertical. Anyone remember who Reagan named as SecTreas in 1981? And do you remember what position that individual held immediately prior to taking that job? Hint - he was considered by many to hold the power behid the throne. Do you think it's just a coincidence that the "financialization" of American government at all levels started right about then? I don't.

Terminus C's picture

To bad most "farms" now are agri-business.  Corporations are part of the problem.

Chump's picture

"What are the benefits of taking your ball and going home?"

You're home and you have a ball.

NESD's picture

Relax; those charts don’t look nearly as scary if the Y axis is put on a logarithmic scale. Those damn linear scales are the problem. Until it goes hyperbolic on a log scale I am going to assume the ruling elite have everything under control.

greenskeeper carl's picture

One thing this article leaves out is that what will be happening to the FEDERAL GOVT while all the rest of that is going on? Their tax reciepts will plummet as well, bringing back the trillion plus deficit again. That will really put a hurting on the average person too, since that will be yet another entity other than their local/state govt lookig for an extra pound or two of flesh.

El Vaquero's picture

I was under the impression that we still had the trillion dollar deficits and the government was lying to us about it. 

White Mountains's picture

Tens of thousands of small business owners ARE going partially Galt.  I stopped innovating, stopped hiring, no longer work 75-hour weeks trying to expand and improve.  Instead, I am coasting.  I go fishing more, spend more time with my family, and enjoy life outside of business more.

Why?  Because why work my azz off only to have half of the fruits of my labor confisicated and re-distributed to those who did not earn it?  I'm done.  And so are thousands of other people.

This is a large part of the reason this economy IS NOT going to improve.

J Jason Djfmam's picture

W.M. Thank you for your very reasonable answer to my question.

If enough businesses operated outside of the government's f'ed up system,

the gv't would become irrelevant.

J Jason Djfmam's picture

I just realized that I may have gone Galt without knowing that is what I was doing.

What a revelation!

TBT or not TBT's picture

Yep.  It is a variation on the long capital strike that made FDR's Depression "Great"    Today it does not look worthwhile to bust your butt beyond a certain point.   The "inactivity rate" has skyrocketed and so has part time work and various forms of loafing while on the job.   Unexpectedly.  

J Jason Djfmam's picture

Who would have thought internet blogging would have been a major contributor

to the motion of going Galt?

vulcanraven's picture

I'm right there with you. Walked off the plantation a year ago and never felt more liberated. I realized that at an 80k job you are effectively only taking home around 50k. Then I did the math and realized that I can survive on 20k a year if I just cut out a few things like dating, cellphone, eating out, etc. The more you work, the more they take. What's the goddamn point of working so hard in this day and age? I am turning 40 in a few months and plan to spent the next 40 years of my life on myself, not chained to fucking desk.

Chumly's picture

Good for you!  What's the best option?  Probably to "make" a career not "take" one, as I heard someone say a few months ago.  I think people are finding a lot of creative options outside of the kiss-ass corporate committees and all the other hairy bullshit, and it's really liberating. 

MsCitizen2's picture

So?  Even the "haves" have realized that it just doesn't pay?  Imagine that!

Miffed Microbiologist's picture

I am envious. I make 102k and I bring home zero. Yup zero. ALL of my money goes to taxes and medical insurance for our family. We live off of my husbands income. I don't fret too much about getting raises.

People can't understand why holding a gold coin in my hand makes me get tears in my eyes.

Miffed

vulcanraven's picture

I feel you, my situation is conducive to me being able to make the choice of saying "fuck this" and going my own way. I am single, have no kids, and zero debt. During the last three years of fulltime employment, all I did was squirrel away silver and save as much of each paycheck as possible, so I am now in a position to be able to coast for awhile and figure out what my next move is. In the past, I survived for a year playing online poker professionally. It wasn't glamourous, but I was able to squeeze out a living. A return to that arena is now inevitable, there is no way I am going back to the corporate meat grinder and listening to everyone in the office jerk each other off over their college degrees and overblown "accomplishments"

Miffed Microbiologist's picture

I am happy you have freedom. I have given mine up which sometimes makes me sad. I have a man that loves me dearly, some land, water, garden, chickens and turkeys and good kids. So, every morning at 6AM my husband hugs and kisses me goodbye before I drive to my job. I know he appreciates what I do and I know my life with him is my true life. Nothing is free. I think I would look at it very differently if I were in an unhappy marriage.

Just know I appreciate what you have and the cost to attain it. This is a true accomplishment. You have my admiration and I wish you well.

Miffed

vulcanraven's picture

You lucked out finding a good man and creating a great life together. Most of my friends who have married have not been as fortunate, 90% of my buddies that married out of high school have been through a divorce or two. Over the years I have been through hell with women, and I think much of it has to do with the city I grew up in... Los Angeles. The den of hedonism and narcissism, I have to get the hell out of here before I completely lose my mind. I considered moving to Austin Texas but after visiting I realized it is just a microcosm of everything I am trying to get away from. I need to be somewhere that is more in between, not as hectic as LA but not so slow that I would easily get bored. Hmmmm

Miffed Microbiologist's picture

You have a dilemma. I have sat in coffee shops and listened to the conversations of women. Dear God the shallow idiocy! I should take a flask into Starbucks. I admit if you're looking for just a bang and move on, it's out there but for anything more meaningful? Yikes! What people have told me about on line dating makes me aghast as well. My plan is move to a nunnery in a far off land if I am widowed. Maybe zh should start a sister site where people could meet but that would violate the basic tenet of anonymity. The sex ratio may be a bit off too.

If you do find the One, you may be surprised you won't be as bored living in a slower town and need more distractions. Ok, I admit. That's a big IF.

Miffed;-)

vulcanraven's picture

In my opinion, social media has ruined the natural social dynamic between men and women. It has given rise to off the charts narcissism, rabid hypergamy, and force fed this new wave of social justice PC culture down everyones throats. The west is on the road to ruin, I have taken my ball and gone home. It's the only rational option at this point.

Miffed Microbiologist's picture

I agree. After listening to such vapid idiot women complain about the most ludicrous things, I came to realize they didn't even have the understanding of the logistics of having that coffee in their cups let alone the dire straits this country is in. When men lose the natural protectiveness they have towards women and say sayonara sweet cakes you're on you own now, they will be in deep deep shit. I see no need to warn them as they would just look at me and laugh. There is no point I see in playing.

The destruction is purposeful, disastrous and absolute, incrementally applied for many years. The chances of your survival is good if disaster does strike. Theirs, not so much. I pray some day I see the world return to sanity before I die. I have little influence to change anything.

Miffed

MsCreant's picture

Wow. Living in CA has to be some of the problem. You also have more than a .3 acre lot, I suspect.

That is horrendous, disheartening. You should be feeling like a big shot girl, (I am impressed), not just hanging on for dear life. And there is pressure to stay at the job because of the health insurance, I get that one. 

I earn a lot less than you, have a partner who earns similar, too, and I save every month. I am debt free (no mortgage) so that helps a lot. I don't have a state income tax. My state has a very low cost of living index as well, some of the reason I chose to live here. (CA is beautiful though, my husband wanted to live there at one point). City and county property tax, sales tax, and my health insurance are all still pretty good (though health insurance premiums went up a big chunk this year, as did the deductable). 

I have never had it this good ever in my life. The only kind of "more" I really want is more savings, more self sufficiency, and more "off" of all the grids. No bling, no designer clothes, no fancy car. 

I think you have a lot of what I want, if I remember your posts correctly, so I don't "pity" you. I am sorry to hear the situation is as you describe. CA clearly IS a bubble.

Miffed Microbiologist's picture

I do realize how fortunate I am. Really, there is no pity. Our mortgage is $1000/mo for a 2700 sq ft house with a 1500 ft basement on 10 acres. The only reason is it is 45 miles from my job in San Diego and it exists on a difficult dirt road sometimes impassable in a bad winter. It is a beautiful place but no mall shopping narcissistic woman would consider living here. Most men who visit love it but their wives look sick and can't wait to leave. What on earth do you do here? Where is the nail salon? Sigh.

I do realize if my husband were to die I could live on my income as long as I sell,move closer and live simply. This place is way too much for me by myself but it would kill me to leave my quiet home in the country. I pray I am not asked to face this. I see things as you do. The self centered people I meet everyday in San Diego is happily left behind at the end of my day.

I do cringe when people say $350k is a shit load of money. A financial planner reviewing our situation told us a family of four living in San Diego is at subsistence level at 150k a year. No savings is possible. He found 15k to eliminate with the goal of 30 more a year though he wasn't sure how we could do it. We keep to his budget which means no extras or entertainments.

I guess there are a lot of people in cali we need to support. Makes me so happy.

Miffed

MsCreant's picture

10 acres. Yeah baby! You live in your bugout location. That matters a lot. I can walk to work, you can't. I have no "bug out" location. Mine is a big gamble, I am planning on the long emergency vs. sudden collapse.

You sound like you are getting a lot for your grand a month. Again, I am impressed. But then again, with such a reasonable mortgage, that shows all the more how much you are being screwed on tax and insurance. I will remain impressed with you, and be pissed at the bloodsucking MIC tics. They coerce the taxes, take your cistern water when they want it, fail to replace it or give you cash for it, mismanage the water situation so badly that they are running out (gosh, if only you had your cistern water), damn it, you have everyright to feel pissed off and bent out of shape. You are doing it all right and they keep taking. Except you won't get the money back on your investment, I almost want you to sue them for that cistern of water.

And you are fortunate. A good man is hard to find. And a hard man... oh well... ;-) Best wishes.

 

Miffed Microbiologist's picture

...is certainly good to find! ;-)

Yes, our place is a bug out location for 2 families. They both bring additive skills to our own. A massive earth quake is my worry. Several ZHers have shown me what to do if faced with a 35 mile walk home ( assuming I can cut across the Indian res). One of the reasons I do try and stay in shape. But there are always things you can never plan for. This is why I try to appreciate the moment I have now.

Miffed;-)

LawsofPhysics's picture

This conversation is giving me goosebumps, if only all women were like this...

The best property my wife and I ever own was in Durango Colorado.  I never should have sold it, now she wants to live in a Condo, God help me...

Miffed Microbiologist's picture

My husband and I fell in love with Pagosa Springs and Durango ( my husband is a train buff and actually became a certified brakeman). This is exactly the type of place we were looking for. Unfortunately my husband cannot fully telecommute and flying to his job at least once a month would be difficult there. Nowhere else had we found anything remotely as good.

This is one of the worst disappointments of my life. Believe me, I do understand your frustration, anger and sadness. If your wife coerced you into doing this....well, I am venturing into troubling territory and will back away for the good of all.

Miffed

Kprime's picture

Might I suggest that is an improvement for the "economy".  The economy is now working for you.  The other way around the "economy" works for the legalized theft by .gov.   There is no reason to pursue a particular number or growth number of the "economy" unless you are one of the beneficiaries skimming a percent off the top.  If you are the generator of the economy whatever makes your life better should be the goal, not some monetary number to be skimmed by others. 

When you organize your life to your fulfillment you will pay no attention to the big number and whether or not it is growing. When you blow hot air into a balloon the balloon merely swells, it does not grow.  There is no more balloon material than there was when you started.  It just gives the illusion of being bigger.  Which eventually leads to a pop.

Livingstrong's picture

Bravo! You are one hundred percent right! I´ve been doing myself that since 2011

ajax's picture

 

 

Repeal FATCA et al.

Ban fabric softener.

Quit pretending that your massive work week will bring you anything but fucking disaster.

Quit feeling guilty about wanting to do something other than working FOR MONEY while you're alive.

FUCK!! WAKE THE FUCK UP!

 

Dave Thomas's picture

A-Men brother, never been so stress free in my life.

techpreist's picture

Great stuff, dude.

In my case, I run a small business and a couple of clickbait sites, and at 30 my goal is to get to a place where I never need to work more than 40 hours a week by 40, 30 hours by 50, etc. Once you get the basics covered, the rest is just for show, and I've come to realize that the 'show' is just a hamster (you) in a generator wheel. You run, they benefit. And the treat is always just an inch above your head.

Anyway, IMO this is the end game. I look forward to the day that more and more people stop and think about what their taxes are really going to, decide it's not worth it, work less, and thereby be taxed less.