When the financial problems occur, they typically first hit the private sector and then the public sector. Because governments will never let the private sector’s financial problems sink the entire system, it is the government’s financial condition that matters most. When the government runs out of buying power, there is a collapse. But on the way to a collapse there is a lot of fighting for money and political power.”
“From studying 50-plus civil wars and revolutions, it became clear that the single most reliable leading indicator of civil war or revolution is bankrupt government finances combined with big wealth gaps. That is because when the government lacks financial power, it can’t financially save those entities in the private sector that the government needs to save to keep the system running (as most governments, led by the United States, did at the end of 2008), it can’t buy what it needs, and it can’t pay people to do what it needs them to do. It is out of power.”
“A classic marker of being in Stage 5 and a leading indicator of the loss of borrowing and spending power, which is one of the triggers for going into Stage 6, is that the government has large deficits that are creating more debt to be sold than buyers other than the government’s own central bank are willing to buy. That leading indicator is turned on when governments that can’t print money have to raise taxes and cut spending, or when those that can print money print a lot of it and buy a lot of government debt. To be more specific, when the government runs out of money (by running a big deficit, having large debts, and not having access to adequate credit), it has limited options. It can either raise taxes and cut spending lot or print a lot of money, which depreciates its value. Those governments that have the option to print money always do so because that is the much less painful path, but it leads investors to run out of the money and debt that is being printed. Those governments that can’t print money have to raise taxes and cut spending, which drives those with money to run out of the country (or state or city) because paying more taxes and losing services is intolerable. If these entities that can’t print money have large wealth gaps among their constituents, these moves typically lead to some form of civil war/revolution.”
“Those places (cities, states, and countries) that have the largest wealth gaps, the largest debts, and the worst declines in incomes are most likely to have the greatest conflicts. Interestingly, those states and cities in the US that have the highest per capita income and wealth levels tend to be the states and cities that are the most indebted and have the largest wealth gaps—e.g., cities like San Francisco, Chicago, and New York City and states like Connecticut, Illinois, Massachusetts, New York, and New Jersey.”
“Facing these conditions, expenditures have to be cut or more money has to be raised in some way. The next question becomes who will pay to fix them, the “haves” or the “have-nots”? Obviously, it can’t be the have-nots. Expenditure cuts are most intolerable for those who are poorest, so there needs to be more taxation of people who can afford to pay more and there is a heightened risk of some form of civil war or revolution. But when the haves realize that they will be taxed to pay for debt service and to reduce the deficits, they typically leave, causing the hollowing-out process. This is currently motivating movements from some states to others in the US. If bad economic conditions occur, that hastens the process. These circumstances largely drive the tax cycle.”
“History shows that raising taxes and cutting spending when there are large wealth gaps and bad economic conditions, more than anything else, has been a leading indicator of civil wars or revolutions of some type.”
“Populism and Extremism”