By Monty Pelerin
And now it begins –the long-awaited financial collapse! The domino effect is not underway yet, but a preview of what is coming can be visualized. Detroit, Greece and Puerto Rico are harbingers of what faces many, if not most, political jurisdictions. Common to all is political legerdemain, lying and promises made that never could be fulfilled. All that differs is the degree of harm already inflicted and a jurisdiction’s ability to hold out.
Economics and mathematics are required to determine the downward spiral that most government entities have boxed themselves into. Economics tells us why there is not, nor will there be, a recovery. Mathematics tells us the hole is now so deep that there is no way out without massive defaults on debts and promises. Throw a bit of public-choice theory in and it all seems inevitable.
The three defaults mentioned above do not signal a domino effect. They are early warning signs, however, of what lies ahead. There is little similarity among the three entities other than the common element of political excess. Excess is a universal tendency of the ruling class of any democratic regime. It is independent of culture, language, religion, etc. It is the way that plunder is achieved and office is retained.
Time seems to be the only difference between Greece, Detroit, Puerto Rico and the rest of us. Think of the process as an actuarial table where different jurisdictions are at different points on their life cycle. Eventually your jurisdiction too will succumb. At some point there will be a triggering that creates a massive waterfall of failures. That waterfall will mean every entity for itself. Europe will not be able to assist a Greece and the US will not be able to assist a Detroit or a Puerto Rico.
If civilization survives, modern-day thinkers will have a chance to reconstruct matters as our founders once did. Optimism over such a prospect is unwarranted. (my emphasis)
By Monty Pelerin for Economic Noise
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