As economic tensions escalate, the cracks in planned economies are becoming increasingly visible. For decades, government programs promoting state dependency have trapped many citizens in cycles of reliance, disrupting their ability to thrive independently. The alarming reality is that such a system ultimately cannot sustain itself; as the burden of debt grows, it becomes clear that these intricate social frameworks—once thought secure—are actually teetering on the brink of collapse.
Recently, California Governor Jerry “Moonbeam” Brown provided startling revelations about the state’s fiscal situation. Initially reported as having a $9.2 billion budget deficit, the figure has ballooned to an astonishing $16 billion—a shocking 73 percent increase appearing seemingly out of nowhere since January.
How did this happen?
Unfortunately, Governor Brown lacks innovative solutions to this pressing issue. His response to the escalating debt involves raising the state sales tax and targeting the wealthiest citizens. “Under Brown’s tax plan,” reported AP, “California would temporarily increase the state’s sales tax by a quarter-cent and boost the income tax on those earning $250,000 or more.”
It’s worth noting that California already has the highest sales tax rate in the country, and high-income earners have been fleeing the state for years. According to Brown, failing to secure voter approval for these tax hikes in the upcoming November election will force the state to implement severe budget cuts to schools and public safety.
Of course, it’s important to recognize that circumstances could always be worse…
The Dilemma in Spain
Consider Spain, where the banking sector is in dire straits. Spanish banks are grappling with a significant volume of non-performing loans that are accumulating at an alarming rate.
“The extent of non-performing property loans sitting on Spanish bank balance sheets is ballooning at an alarming pace,” reported Daily Forex Brief.
“If the Spanish government attempted to fill this gap, it would increase the debt-to-GDP ratio from approximately 70 percent to around 120 percent. Furthermore, buoyed by funds from the ECB, local banks have boosted their acquisitions of Spanish bonds by a third. Thus, if bad debts continue to mount—something practically certain—the government may find itself obligated to inject funds it simply does not possess. This would exponentially increase public debt, jeopardizing the country’s financial stability and further undermining the banks. With the economy deeply entrenched in recession and borrowing costs elevated, Spain risks spiraling into a catastrophic debt trap, necessitating substantial assistance from the EU and the IMF.”
If that weren’t dire enough, Spain faces a staggering 24 percent unemployment rate, with 50 percent unemployment among those under 25. Over the weekend, thousands of protesters took to the streets of Madrid, voicing their frustration over debilitating budget cuts and tax hikes. Their anger is understandable; they are trapped in a failing system while the government continues to shield failed banks from the consequences of their actions.
“We are really tired of this situation,” said Madrid protester Paola Alvarado, a purchasing agent. “And the new government is the same. They steal our money and give it to the banks.”
Unfortunately, Spain is not an isolated case. Numerous other European nations, such as Italy and France, are also approaching financial ruin, leaving their banks nearing insolvency. In light of this, the ECB will likely need to inflate the money supply at unprecedented rates. Similarly, America and the Federal Reserve may be compelled to pursue inflationary measures to alleviate governmental debt burdens.
We will keep you updated as these events transpire. Meanwhile, let’s reflect further on the larger implications…
The Collapse of Planned Economies
At Economic Prism, we’ve anticipated the disintegration of social, financial, and economic systems. What staggers us, however, is how long they have managed to hold together.
The governmental and societal structures familiar to us have roots that trace back to 19th century Europe. In the United States, it took the Great Depression and World War II to initiate a journey down a perilous path.
“The Planners garnered support from uncritical individuals enamored with the simplistic idea of planning as a universal good,” noted John T. Flynn in his 1943 book, *As We Go Marching*, which warned of America’s descent towards statism.
“However, the proponents of planning envisioned something far different,” Flynn continued. “They aimed for a redesign of society in which the government would not merely act as an enforcer but as a partner and stakeholder in business. Their overarching goal was to create a coerced, planned economy, consolidating businesses into large guilds or overarching corporate structures, melding elements of self-regulation and government oversight with a national economic enforcement mechanism.”
Nearly 70 years have passed since Flynn articulated his observations on the political and economic framework emerging during the 1930s and early 1940s. Today, few can conceive of a different approach, and even fewer can break free from its grasp.
This system that Flynn foresaw is now crumbling under the insurmountable weight of unsustainable debt. Central bankers and governmental officials worldwide will exhaust every avenue to preserve it. They will experiment with measures beyond comprehension. And when those fail, more will invariably follow.
In closing, it is incumbent on all of us to observe these developments critically and to remain engaged in discussions about the future of our economies.
Sincerely,
MN Gordon
for Economic Prism
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