Don't Count on Government Programs When Deflation Strikes

Even after a nine-year bull market and an improving economy, a March 28, 2018 Wall Street Journal headline and sub-headline read:

Why Are States So Strapped for Cash? There Are Two Big Reasons

The proportion of state and local tax revenues dedicated to Medicaid and public pensions is the highest since the 1960s

Now, imagine how "cash-strapped" states will become if a deflationary depression strikes. That would mean a dramatic shriveling of tax revenues.

Robert Prechter's Conquer the Crash warned:

Don't rely on government programs for your old age. Retirement programs such as Social Security in the U.S. are wealth-transfer schemes, not funded insurance, so they rely upon the government's tax receipts. Likewise, Medicaid is a federally subsidized state-funded health insurance program, and as such, it relies upon transfers of states' tax receipts. When people's earnings collapse in a depression, so do the government's tax receipts, forcing the value of wealth transfers downward. Every conceivable method of shoring up these programs can lead only to worse problems. A "crisis" in government wealth-transfer programs is inevitable.

Don't rely on projected government budget surpluses. A couple of years ago, the U.S. government declared a budget surplus, projected it years into the future and predicted healthy trends for its wealth-transfer programs. Was that a proper conclusion? Well, in 1835, after over two decades of economic boom, U.S. government debt became essentially fully paid off for the first (and only) time. Conventional economists would cite such an achievement as a bullish "fundamental" condition. (Any time an analyst claims to be using "fundamentals" for macroeconomic or financial forecasting, run, don't walk, to the nearest exit.) In actuality, that degree of government solvency occurred the very year of the onset of a 7-year bear market that produced two back-to-back depressions. Government surpluses generated by something other than a permanent policy of thrift are the product of exceptionally high tax receipts during boom times and therefore signal major tops. They're not bullish; they're bearish and ironically portend huge deficits directly around the corner.

Don't rely on any government's bank-deposit "insurance." The money available through the FDIC, for example, is enough to cover only a small fraction of U.S. bank deposits. ... The whole idea of having other banks and taxpayers guarantee bank deposits is theft in the first place and thus morally wrong and thus ultimately practically wrong. Government sponsored deposit insurance has lulled depositors into a false sense of security. After the 1930s, when thousands of banks failed, depositors became properly wary of profligate banks. Today they don't know or care what their bank officers are doing with their money because they think that the government insures their deposits. Deposit insurance will probably save accounts in the first few distressed banks, but if there is a system-wide money and credit implosion, this insurance won't protect you. ...

Don't expect government services to remain at their current levels. The ocean of money required to run the union-bloated, administration-stultified public school systems will be unavailable in a depression. School districts will have to adopt cost-cutting measures, and most of them will result in even worse service. Encourage low-cost free-market solutions, which will benefit both children and teachers. The tax receipts that pay for roads, police and jails, fire departments, trash pickup, emergency (911) monitoring, water systems and so on will fall to such low levels that services will be restricted. Look for ways to get better services elsewhere wherever it is legal and possible.

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