One of the great mysteries…..at least to me…..is the absence in the media of any sort of discussion of what I consider the most significant point at the present time.

It is difficult to define the time of birth of this epic bubble that is now bursting…..but its most dynamic growth certainly occurred during the last three years or so. While the media are filled with stories about how marvelous the economy is….and even more miraculous, how resilient the economy is/will be to any sort of grief…..the media are strangely silent on the greatest benefactor from this immense bubble: evil government.

As thousands have made the high point of their lives day trading, and the current value of stocks is the high point of most conversations, little mention is made of the immense benefit that government has gotten from a golden flood of capital-gains taxes/profits from stock options/sharply higher sales taxes….and a cynic might wonder why Alan worked so hard to craft this epic bubble.

One of the latest issues of The Economist has some graphs showing the sharp upward move in total tax flow to government both at the federal and state level levels over the last few years…..and there is certainly no doubt that the sum total of taxes has increased far faster than the increase in the GDP. In California, state spending has increased at a rate of about 30 percent a year over the last few years and is now nearly 100 billion dollars a year.

However, we are down to a few trading days this year, and it will take a major miracle to get stocks positive for the year, and it will take some very idiotic accountants to not find some stocks to sell to balance out any gains, so that there will be no capital gains taxes this year…..and worse, of course, both federal and state governments received large advance payments on taxes in March, June, and September that will mostly have to be given back next year as newly impoverished tax payers file for immense refunds.

The way the NASDAQ is behaving, it will be quite some time before profits from stock options cause much money to flow into government coffers, and from early indications, this Christmas is going to a major bust, as those who are watching the value of their stocks decline each day do ever less shopping.

So, the major question is how will government adjust to a serious decline in income. I would imagine that government at all levels will see something like a 20 to 25 percent decline in income next year. For instance, California has a 100 billion dollar budget, but with the collapse in equity prices, one imagines that next year will see 75 to 80 billion in income. I have been wondering for some time which programs will be cut…and, more interesting, how. States, unlike the federal government, cannot run deficits and any attempt to increase other taxes while millions are newly impoverished and at risk of losing their homes that they stupidly borrowed against to buy stocks, would cause recall petitions to circulate with great ease for any legislator so silly as to want to raise taxes during such an economic calamity.

The federal government can print money at will, but this would put immense strain on the dollar and bond market. The latter, of course, has been looking for surpluses forever and to suddenly have hundreds of billions of dollars of new Treasury paper sold to make up for the lack of capital-gains taxes would drive bonds down spectacularly, and eliminate instantly the desire of foreigners to hold any paper of such of deadbeat country.

At any rate, I suspect that one great beneficiary of this bursting bubble will be freedom, as millions of useless government employees are suddenly discharged, and jillions of unconstitutional programs are not cancelled but made unenforceable as all the people who were imposing them on the country have been laid off.

At any rate, the governments reliance on financing itself to a large part from the profits of a bursting bubble means that government will take the largest his as the bubble bursts…..and that will certainly be a blessing.

In the 30s as epic depression covered the land, a very devout people began to forsake God who seemingly had abandoned them, and put their faith and belief in government, which seemingly was leading them out of the hell hole they were in. But now, as government will be seen as the cause of virtually everyone’s new impoverishment, and virtually all will see that government only has the power to make things worse.

There will be the beginning of a wide-scale abandoning of government, and a seeking of something more substantial and reliable to put one’s trust in, and that can only be for the good. And yet in spite of this epic change about to happen there is no mention at all of any of this in the media.

December 5, 2000

Jack Perrine runs Athena Programming in Pasadena, CA.