"I wrote here earlier that a public-pension bust is coming that will usher in the Second Great Depression. Could California, Illinois, Connecticut, New Jersey et al. avoid disaster by raising taxes? Thatís what John Jay, a regular contributor to the Rickís Picks forum, thinks they will do. I strongly doubt it, however, since there is no way the revenuers will be able to squeeze blood from a stone. It is therefore predictable that the workers will ultimately get stiffed on their pensions because there wonít be sufficient funds to honor their contractual claims.

A catastrophic deflation is coming because it is the only way our massive, manifestly unpayable debts can ever be settled. Hyperinflation could do the job in theory, but Iíve written extensively on why this ďoptionĒ is extremely unlikely, especially during the initial stages of a global economic collapse. Following are Johnís comments, which are interesting regardless of how one believes the endgame will play out. RA"

As far as public pensions go, the states you mentioned already have a solution: Just raise taxes to the point of confiscation. Illinois is planning to give state assets to the pensions, California is working on killing Prop 13 so they can make $20k a year in property taxes on a 60-year-old, termite-infested shack a reality. None of them are backing down on taxes. Good luck finding a judge anywhere who will rule that pensions must be cut to balance the state budget.

Drifting into Feudalism

The population of Connecticut has remained more or less stable for decades, but the size of government budgets has tripled. In California, 13 million people are on the Medi-Cal state health care program. Anyone with an interest in history can see the accelerating drift into Feudalism. Twenty-two million government workers who produce nothing of value are paid two to three times what the job should pay. They have gold-plated pension and health plans, and they canít be fired.

The government has no qualms about de facto confiscation of real estate, cars, boats, aircraft, whatever, to keep the taxes rolling in. When the Roman Empire was in its death throes, it faced the same problem of tax fugitives. Their solution? Simple.

Laws were passed that forbade anyone from moving, or from pursuing any career other than the one of their fathers. And so the Dark Ages and Feudalism came to pass. Oh yeah, that solution is in the on-deck circle, you can be sure about that!