Economy hits the tax haul

Tax revenue collections have dropped by nearly 14% in California this year, despite massive increases on tax rates and fee amounts:

The state collected just over $101 billion in 2009, down $16.4 billion, even though the legislature and governor approved the largest tax increase in state history including hikes in sales, motor vehicle and income taxes.

Fears of a deflationary spiral may not be unfounded or hyperbolic after all.

Federal policy makers have been walking a fine line between allowing the nominal value of assets to deflate while trying to keep the entire economy running on borrowed cash and easy money policies.  If all of these interventions are unable to kick-start “business as usual,” the next temptation for the Federal Reserve may simply be to literally print up the money needed to pay down debts and create new jobs.  Unfortunately, the down side effects of that could include unintended levels of inflation, a drop in international confidence regarding the U.S. economy, and even the potential of widespread civil unrest as wages are unable to keep up with the price of food and other basic necessities.

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