The 2008 Depression is lowering tax revenues due to investment losses, declining earned income, and falling property values. To raise taxes at this point, even to maintain revenue, will create even less investment if levied on business, thus hurting prospects for job creation; and if levied against individuals, will lower discretionary spending and further the crash in consumer spending.
Governments can cut spending, as is happening in most U.S. states, but the effects of that are also depressing - government spending is, after all, somebody's income. Governments at present are actually increasing their spending in a big way via the bailout mania both by 'investing,' and by covering the losses these 'investments' will inevitably bring. Additionally, there are plans in the works for a new, New Deal.
Governments tend to have pretty good credit ratings, so they can borrow quite a bit to cover the shortfall of tax revenues, but there are limits. There comes a point when lenders begin to doubt whether the funds will be repaid and that source is precluded. Currently the USA has a direct federal debt liability of about $40,000 for each and every person in the country. Evidently the USA's creditors (mostly trade partners) think that is a viable sum. How much higher will they let that go, especially as incomes start falling? We don't care to hazard a guess, but probably not too much higher. So while this option is open to the USA Federal Government for the time being, it is a temporary phenomenon.
There is a darker 'solution' to where a government could get money to spend - the printing press. This would, of course, cause a ruinous decline in purchasing power - furthering deepening the depression.
Raise taxes to cover spending - deepens the depression. Cut spending to match the fall in taxes - deepens the depression. Max out the Federal Debt 'credit card' - keeps the bills paid for the time being, but what to do when it's maxed out? 'Print' money - one way ticket to Zimbabwe. This is looking like a no-win situation.
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(Adam Smith -- Please post this comment using this account (patreides) rather then my first post using my personal account. Thanks, Muad'Dib)
It’s pretty depressing to read about all our less then stellar options. So basically, all we can do is to try and ride this roller coaster to the end. My advice? Invest in tangibles now while you still can. Make the repairs on your house and make sure it can be functional for at least the next 20 years without needing additional investment. Buy things that will retain their value. You know me, guns, guns, guns, but also technology, tools, etc. Things that you can afford now, but in the future will be way out of your price range and things that you can trade or barter for stuff that you need.
Investing in gold and silver is fine, but I worry that in the future, who will be able to trade or buy it from you? Bullets are a good investment; you can break them down into smaller trade items.
Also, invest in yourself. Now is the time to take those classes and learn those skills that might make the difference in your future. Learn to build wind turbines from junk parts, I am. Learn to do basic carpentry, if for no other reason then to fix your own problems. There are going to be countless skills that will be needed in the future, but I am guessing that most of them are very different from the skills most of us have learned so far. Start planting gardens, find out what works, and learn from your mistakes now while you can still afford to make mistakes. You don't want to be playing the trial and error game with your survival and the survival of the people you care about.
Great comment, Paul. Definitely everyone should invest in themselves first and foremost. People have invested far too much confidence, if not also money, in 'the system.' It seems you foresee a collapse of civilisation and a return to barbaric times. I'm giving civilisation the benefit of the doubt. It can withstand an amazing amount of destruction, physical or economic (consider Europe and Japan at the end of WW2). Your investment in silver and gold is an investment in civilisation. Hopeful, yes, but I think also very realistic.
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