As Mish points out in this article: http://globaleconomicanalysis.blogspot.com/2010/06/arizona-sells-supreme-court-building-in.html, Arizona is in the process of selling off public assets on the cheap in order to keep its debt Ponzi going. It used to just be able to sell bonds that were backed by the good word of the state. In other words, non recourse loans; If the state failed to repay then there would be no recourse for the investors but to eat the losses. State default was considered so unlikely in the past that investors would go along with this. But now investors have figured out that the word of the state isn’t much good anymore so they are now demanding that the loans be backed by collateral, most recently, state buildings such as the supreme court building.
As usual, those at the top of the Ponzi don’t care if they piss away tens or hundreds of millions of other people’s money if it means they can make a few hundred thousand or a few million in the deal. They are selling the whole state down the river in order to keep their high paying jobs for another few months or a handful of years. Absolute power corrupts absolutely. The deals being made are ridiculously bad for the people of the state who will be asked to pay for these missteps long after the short term benefit has completely evaporated. At some point there will be nothing left to collateralize new debt with – all the worthwhile stuff will already have been committed to existing debt. At that point the state will either have to downsize massively, raise taxes dramatically or default on the bonds. Unfortunately for Arizona, it is just a state within a larger country. It cannot easily close its borders to the flight of people and capital as many countries have done in the past when posed with similar financial collapse. The rancher has no control over its livestock, they are free to roam and mingle with the herds of other ranchers. If the state tries to raise taxes too much, people will just relocate to other places that are more tax friendly. The harder the empire squeezes, the more the people will slip between its fingers. Thus the most likely course of action is to default on the bonds sending the collateral into the hands of the investors.
We are entering some entirely unprecedented times in the US. I wonder what will happen in Arizona as investors take control of its justice system. I see it as no accident that first the prison system is bought and then the means to send people to prison (or to keep elite out of prison for that matter) are set up to be acquired once the bonds backing the supreme courthouse default. Once investors own the buildings they will have incredible sway over the activities of the tenants IMO. After all, judges feel more powerful and lordly when they practice their trade from plush settings. Anyone in a position to threaten their working environment wields more than a little influence on the legal system IMO. If this sounds outlandishly tin foil hat/conspiratorial, please consider that profit seeking investors are not doing any of this randomly or without some type of strategy. The quest for profit and power knows no bounds.
If the people of the state were in any way smart they would wait until the bonds default, let the courthouse building fall into the hands of the investors and then set up more modest facilities and demand that legal bureaucrats (judges and their staffs) take up residence in what amounts to a Wal-Mart warehouse building with modest cubes instead of plush offices with granite and marble inlay. Once the people of power are separated from the fancy building, the building becomes nearly worthless to the investors who would then likely sell it back to the state a few years down the road for pennies on the dollar. But judges and people of power would fight that tooth and nail so it will not happen. It is much more likely that they will instead become the willing captives of those who are responsible for maintaining their lavish work environment.
Taking a big step back to look at the longer term picture, where might all of this lead? Every state is having problems but some are much worse off than others. The most likely outcome is that people move from the weaker states into the stronger states as the herd flees the snapping jaws and gouging claws of increased taxation and tyranny. Direct and highly visible competition between states for the best people (the most productive, taxable livestock) may become the order of the day and states within the union could begin to act a lot like bickering sovereigns in the EU (or like the 15 individual Soviet Republics which formed the now defunct USSR). An eventual Soviet style breakdown of the United States is not out of the question and in fact is practically assured if the US dollar collapses as a viable fiat currency. In that case each state or aligned region will want the right to print money from thin air just as the US does at the federal level today. I can already envision Arizona and New Mexico issuing currency with a picture of the Grand Canyon (representing the bottomless pit of big government ; ) on the back. I’m not predicting all of this will certainly happen, but if it came about in the next 1-2 decades I would not be terribly surprised either.
