By Charles Hugh Smith
OfTwoMinds.com
May 15, 2026
The state has two monopolies it must protect whatever the cost: the monopoly on decreeing what is legal tender and on force.
We're entering an era in which push comes to shove will lead to immovable objects encountering irresistible forces. All sorts of verities and vanities will be bulldozed as kicking the can down the road descends into desperation to stave off collapse, a desperation that unleashes second order effects the desperate did not anticipate. The only responses at this late stage are even more desperate, so desperation is self-reinforcing.
The previous eras of institutional-state desperation were 1) The 1930s Great Depression, 2) the 1973-74 Gas Crisis and 3) the inflationary recession of 1980-82. The desperation in the 1930s was truly serious: banning private ownership of gold other than coin-collecting, attempting to remake the Supreme Court, one new federal program after another, slashing the wages of municipal / city employees to keep as many people employed as the shrinking revenues could allow, and so on.
The desperation of the 1970s and 80s were relatively narrow in scope, but felt serious at the time: gas rationing and wage/price controls in the 1970s, and then rocketing bond yields / interest rates in the early 1980s that triggered millions of layoffs in interest-sensitive sectors such as autos and housing.
The strong-arm policies of the 1970s and 1980s worked, and were relatively brief. The crises lasted around two years, and then things normalized.
The strong-arm policies of the 1930s didn't work, and desperation slid into despair. The official happy-talk continued, but it rang increasingly hollow as the decade ground on.
Given the present-day confluence of disintegrative forces, a.k.a. mutually reinforcing polycrisis, hopes for a brief recession and a quick return to "growth" may be misplaced. If inflation and scarcities intensify, the usual bag of tricks-dropping interest rates to zero, flooding the financial sector with credit / liquidity, increasing federal pork spending, etc.-will not just fail, they will be counter-productive, fueling inflationary forces not in assets that enrich but in real-world goods and services that impoverish.
The footprint of the Central State-and state/county/local government-was relatively modest in the 1930s compared to the footprint of the state now: 36% of GDP in the US (23% federal, 13% state/local) and much higher in many developed nations.
Note that in a recession, GDP drops and state spending tends to rise to compensate for the contraction of private sector spending. so this ratio can climb very quickly.
To a degree few question, the state is the nation. The nation is defined by the state's legal structure and its ability to enforce that structure. If the state collapses, the nation is in dire straits.
Should the state's finances enter a self-reinforcing death-spiral, the desperation will quickly reach a level in which nothing is off the table-no extreme is too extreme. The typical self-reinforcing death-spiral is a currency crisis in which the currency loses value so rapidly that everyone holding it wants to convert it into some other form of value. That selling is self-reinforcing.
But that doesn't exhaust the possibilities of the state's finances becoming unsustainable, either financially and/or politically. A slow-moving crisis can phase shift into a fast-moving crisis like an avalanche no one is prepared for.
States face an insoluble dilemma: the powerful interests that dominate state decisions find higher taxes on corporations, trusts, foundations and the wealthy unacceptable, while the public living off the state's largesse finds cuts deep enough to matter unacceptable.
Recency bias kicks in hard: after decades of "growth" and expanding state spending, anything that smacks of discipline or sacrifice is rejected out of hand as needless: why can't we just go on as we have for the past 17 years, where assets soar in value, and the state spends more every year?
This leads to the illusory "solution" of kicking the can down the road: monetary policy tricks, fiscal sleight of hand, fake policy-tweak fixes presented as "solutions," and so on. This magic can prop up the illusion of sustainability for years, but since every trick eventually makes the problems worse, this illusory "solution" actually hastens the push comes to shove moment where everyone is seated at the banquet of consequences.
Those tasked with saving the state's finances from collapsing will view themselves as absolutely The Good Guys, working to saving the nation from greedy leeches on the state, speculators, financiers and those hoarding wealth acquired back when the state could afford to be generous. Now that things are at risk of unraveling, the fun and games are over and we need to do whatever it takes to save the nation-i.e. the state.
The wealthy trying to evade the new taxes will consider themselves The Good Guys: we worked hard for our wealth, created jobs and innovations that benefited the nation. Why should we give our hard-earned wealth to a corrupt, spendthrift state?
In the lower reaches of the economy, those evading taxes will also see themselves as The Good Guys: I'm just trying to support my family, and it's the rich who should make the sacrifices as they have more than enough.