I don't recomend you turn to Cracked.com for investment adivce. Nonetheless, the site has offered a useful and entertaining introduction to "Socionomics," which is worth a read:  

You could say that "Freakonomics" (numbers 7, 6, 4) is the use of micro-economic reasoning to offer nifty explanations for a social trends in a way that makes you seem smart.

"Socionomics" (numbers 5, 3, 2, 1), on the other hand, is something quite different. The discipline was developed by Robert Prechter, the legendary financial analyst and, currently, an über-bear on every asset but cash. In Prechter’s mind, your average trader and CNBC analyst makes his decisions and opinions based on “news”; Prechter flips this on its head, claiming that “news”—along with fractal moves in market indices—is an effect, not a cause, of deeper waves of social mood and outlooks toward the future. Such waves are repetitive and cyclical—and thus predictable; in themselves, they are inexplicable...

My predictions for 2011 were all fulfilled: over the past year there was indeed more debt, more taxes, higher taxes, more inflation, more immigration, more liberalism, more legislation, more surveillance, and more bureaucracies. Turbulent as it was, 2011 consisted of more of the same, and it was turbulent precisely for that reason. My predictions for 2012 are as follows:

More Debt

Efforts to solve the financial crisis—now entering its fifth year—will be made, but they will consist of finding ways to kick the can down the road, hold on to credit ratings, levitate the markets, resuscitate consumption, and prevent civil unrest, rather than on actually eliminating the problem. It seems that the only politically viable option is covertly to devalue the debt. The news services will keep the middle class on the edge of their seats dramatising the never-ending Euro crisis, which may provide some jolts.

More and Higher Taxes

Although debt reduction through currency devaluation will remain the preferred method of crisis containment this year, the political establishment is acutely aware of the need to pacify the populace. The White middle class has proven timid and, following the Tea Party experience in the United States, members of the establishment are satisfied that their most profitable constituency (the White middle class is the establishment’s open wallet) can be successfully neutralised by simply calling them racists. The establishment, however, worries about the lumpen proletariat. The Tottenham riots in London in August this year, albeit triggered by a police incident, offered a preview of the civil unrest that an economic shock could bring: the rioters did not demand equality or rights, they wanted iPhones and plasma television. So, more and higher taxes will be levied on the middle class (‘the rich’ in political parlance) in order to fund pacifying handouts for coloured immigrants and their descendants (‘the poor’). Some of the increases in the fiscal burden will be hidden, but some of them will be open, and will be justified in terms of the need for ‘the rich’ to do their bit for society. The system’s contrived pseudomorality will seek to bring tax avoidance further into convergence with tax evasion.

More Wasteful and Counter-Productive Government Measures

See above. In general: good spending will be cut, bad spending will increase. With the shutting down of the space shuttle programme and assorted NASA cutbacks, Americans in 2011 saw Obama end the space age in the United States.

More Money Printing

The money printing will continue, and efforts to conceal its true extent will also continue. Because banks have so far hoarded much of the money that has been printed since the crisis began, the true consequences of the money printing have yet to be felt. Consumer depression will also contain demand and therefore price increases, although the latter only partially. I suspect that parts of this containment will start to fail in 2012, even if consumption and consumer confidence is low. However, even if there is higher inflation, we are years away from the hyperinflationary apocalypse dreamt of by some. We will not see price tags printed on electric paper exponentially revising prices upwards in real time as we make your way to the till.

More Colonisation

Despite the millions of unemployed, ‘immigration’ policy will continue to focus on pacifying voters through deceptions. In the United Kingdom, wholly unsurprisingly, the same Conservative Party that promised drastically to cut ‘immigration’ has governed over a record increase over the past year. Instead of the tens of thousands annually that the promised, the Conservatives have governed over a quarter of a million settler colonists arriving in Britain. Of course, new measures were designed to work like sieves. The modern Conservatives will carry on being more Labour than Labour, the same way that Democrats and Republicans in the United States will carry on increasing their redshift values.

More Scams

A desperate consumer culture co-existing with an economic crisis means only one thing: glory for the Golden Age of the Scam. The ever-diminishing opportunities for legitimate wealth creation mean an ever growing necessity for illegitimate wealth redistribution. Corporations will focus more than ever on a model of planned obsolescence, slave labour, and government handouts. More small and medium entrepreneurs will drop out of the economy and get on the government teat. Cheap consumer products will break on the same day we buy them, forcing us to buy more expensive versions next, which will break after a week. True quality will still only be found in obsolete technology and goods, found in museums, eBay, attics, and antique shops.

More Obamanation

Obama is likely to win a second term, albeit by a narrow margin. The Anglo-American media will back him. All-White Republican candidates will pull their punches, any one of them afraid of being the one who ends the Afro-American dream. Should Obama lose, Afro-Americans will be enraged. If by a narrow margin, as I think likely in this scenario, accusations of racist electoral fraud may well surface. Obama’s post presidential career, whether it begins in 2013 or in 2017, will see him rise to the status of a secular saint. The Left’s historical revisionists will labour to recast him as an American Nelson Mandela, victim of racism, bad luck, and an insuperable legacy of mismanagement by his blue-eyed predecessors. Some way will be found to enumerate allegedly great or visionary achievements that were derided or underreported at the time.

On a Positive Note, However . . .

There will be positive developments on the fringes. Marxists will of course benefit from the continuing crisis because it is easy for them to point to banksters and Big Business as exploiters of the labour force. Yet, in this they share common ground with dissenters on the alternative Right, who are also likely benefit from the disturbances of 2012. Opportunities will continue to grow outside of the mainstream, and traditionalist dissenters will continue shifting away from quantitative gloom-and-doom analyses in favour of a more positive, subjective approach; away from simple forensics in favour of aggressive deconstruction and the active pursuit of new and original solutions, new ways of thinking, speaking, and operating.

In Sum

…more of the same, with some jolts, shocks, and possibly even a few changes along the way in the economic sphere that, although apparently dramatic, will not be fundamental, together with exciting opportunities on the fringes and beyond. The place to be will be on the outside.

Essentially every article one reads regarding the current Eurozone mess focuses on one end of the chain of irresponsibility or the other. Half of the finger-wagging is directed at the stingy Germans, who are deemed recklessly irresponsible for their reluctance to shovel their savings into the endless money pit that is southern Europe in order to socialize the losses of various bankers who have profited enormously from the previously artificially inflated credit-worthiness of the PIIGS. The other half is typically directed at the PIIGS themselves, most notably at  Greece since it seems to be the pig on the spit at the moment. This half of the self-indulgent finger-wagging is intended to admonish them for not tightening their belt enough . . .  with a fair amount of hand-wringing about the proles and their inconceivable unwillingness to either sell their country's assets at fire-sale prices, or to accept a descent into abject poverty via austerity measures imposed to reduce an astronomically high level of completely unserviceable debt to a slightly lower level of completely unserviceable debt.

I must admit, I'd never thought the S&P downgrade would happen this soon. Indeed, I never thought it would happen at all. My image was of a coming inflationary depression in which the regime and its connected entities would announce to its citizens something to the effect, “Move along. Nothing to see here. All is well” The unemployment rate, credit ratings, GDP statistics would each be cooked to give a veneer of prosperity, while bank runs would became mundane, EBT cards would be traded on a derivative markets, and formerly middle-class Americans would begin living in self-storage units.

Nevertheless, as a friend quipped on Friday, “Today, America's first Black president just got 'red-lined!'”

Below are some interconnected thoughts on this next chapter in America's economic collapse.

1) Commentators are grasping for narratives to explain the recent plunges in the Dow Jones and (quasi ironically) S&P indices, but these lines of causality are operative only in their minds.

If investors were really taking Standard and Poor's words seriously—i.e. that Washington can't cut spending and thus will either default on and or inflate away its bills—then the stock market would not have crashed; investors would have, instead, fled those double-A Treasuries.

In reality, the world hurled itself, lemming-like, into the “safe haven” of the asset that just got downgraded.

Markets are breaking down, all over the world. Apparently our beloved Democratic officials weren't able to save us by raising the debt ceiling. What a shock and disappointment.

This phenomenon, certainly reminiscent of 2008, has a lot to do with the interconnectedness of markets and the “global bubbles” John Authers has written about. Its proximity to the “debt ceiling” theatrics also brings to mind Barack Obama's irresolvable dilemma, which I discussed last fall. Obama wants a “recovery,” of some kind, in order to get reelected; the Treasury Department, on the other hand, requires an equities collapse. Why? Because, as we saw today, there's nothing like a massive crash to convince investors to buy all the new debt the Treasury just issued.

Barack Obama is caught in a financial Catch 22.

On the one hand, his party’s fall re-election prospects rest on the stock market consolidating its gains since March 2009 (Dow 10,000), if not rising. Since his first day in office, the president has announced that the country is experiencing a great economic “recovery,” and any serious downturn in the major indices would give middle- and upper-class Americans whiplash and be politically devastating .

On the other hand, in order to remain viable, the Treasury Department needs an equities collapse -- and probably not just a slow bleed but a dramatic crash -- in order to herd millions of investors into the U.S. dollar and government debt.

The will of the Treasury will prevail, and the president and his party will be left high and dry. Furthermore, the crash will greatly empower the Treasury and federal government … for a time.

{snip}

If investors, especially the big ones like China and Japan, got the inkling that Washington were going to print its debt away (and thus cause massive inflation), then demand for bills, notes, and bonds would collapse and interest rates, soar. The government, and the currency underlying it, would deconstruct.

This perilous situation is heightened by the fact that, as of this writing, around a quarter (20-30 percent) of U.S. debt is in short-term Treasury bills, which mature in less than one year. (Clinton’s Treasury Robert Rubin (formerly of Goldman Sachs) can lay claim to developing this financing arrangement, which came to bear his name.) If the market expects monetization, then in order for the Treasury to roll its debt over, interest rates would have to be increased every three months. A classic Vicious Cycle. And rates wouldn’t actually have to go to stratospheric levels for Washington to be doomed. If they simply returned to where they were in, say, 1980, the Treasury would pay close to a trillion each year just to service its debt.

The prospects for monetization would be much improved, however, if the Treasury could lock investors into long-term Treasury debt, bonds that don’t mature for decades and which investors would have a difficult time exiting from.

This is where the equities crash comes in.

The Crash of 2008 was notable not only for the steep decline in stocks and commodities, but the dramatic increase in the demand for “cash” -- that is, liquidity in the form of the U.S. dollar as well as Treasury debt of all sorts. ...[I]n the gloomy days of November, long-term interest dipped below 1 percent -- short-terms yields went, absurdly, negative! Investors were hurdling headlong into Treasuries.

Hurray! Our democratic leaders have rescued the nation, once again, from a crisis of their own making!

After the debt-ceiling was (inevitably) raised, and Gabby Giffords was wheeled out to take part in the exercise in bi-partisanship, the frequent refrain was sounded that “both sides” engaged in “painful comprise.” The reality is that nothing really happened and nothing really changed.

The initial increase in the debt ceiling of 900 billion (or what’s actually 2.1 trillion) is “matched” by cuts of $1 trillion... over the next 10 years. One hundred billion per annum will, of course, put but a mild dint in the projected growth of the federal government; no component will actually go away. Such “cuts” will, moreover, be quickly overwhelmed by the growth of debt, whose current clip is 4 billion per day. 

Put simply, America remains strictly debt-financed—this includes its military empire, entitlement programs, and multicultural obsession. And until that happy day when this system collapses—or is destroyed by geopolitical actors—Washington will get away with it.

What still amazes me, though perhaps it shouldn’t, is the way in which the media and so many political activists—even AltRighters and White Nationalists—got caught up in the “crisis,” which was fabricated by Tim Geithner through his arbitrary and mythical “August 2nd deadline.” (As Jim Rickards points out, Geithner creates media events in a real Timmy Geithner kind of way—passive aggression and the projection of weakness.) Despite the millions of warnings of default, interest rates on Treasuries remained at historic lows. No one actually believed that a country that can emit its own currency would ever stop paying interest and its bills.

And there’s another important, and deeper, element to this that should be stressed. Despite the frequent claims by liberals that the Tea Party is a group of libertarian extremists, none of them—indeed, no one in the entire country—actually wants to reduce government.

Or put another way, Washington has covered its bases: The Red States get a debt-financed military, a debt-financed Military Industrial Complex, and debt-financed Medicare and Social Security. Liberals get debt-financed liberalism. Blacks get debt-financed public employment and debt-financed affirmative action. Hispanics get free entry into the country and the chance to feed off the debt-financed welfare state. Jews get debt-financed grants to Israel. Wall Street gets debt-financed bailouts. Und so weiter... Each side thinks that the other side’s programs are “wasteful” and “pork” and that its own programs are “essential.”

Though Congress might be unpopular, an Economist poll revealed last year that the vast majority of Americans don’t want to change anything about Washington. With the exception of the easy-to-hate foreign aid, ending any major entitlement is opposed by a supermajority of voters.

What this reveals, in the final analysis, is that with debt-financed “democratic capitalism,” the U.S. has achieved a more lasting and insidious form of egalitarianism than anything attempted by the Soviet Union of old.

Domestically speaking, by the middle of the 20th century, “America” signified, perhaps for the first time, a real nation. After the mass Third World immigration inaugurated by the 1965 Immigration Act, America was transformed into an economy (or a place where all people from around the globe can “achieve their dreams”). At the beginning of the 21st century, America is not even an economy but some kind of egalitarian, obviously unsustainable credit bubble that makes terms like “capitalism” and “socialism” seem irrelevant.

No, America is not about to default on its debts. And, no, Grandma’s August Social Security check won’t bounce. Nor would a failure to raise the debt ceiling result in a financial breakdown and ensuing Mad Max-style societal collapse. (This latter fact will, no doubt, disappoint many AltRight readers.)     

Democracy seems to function through mass delusion, but few recent issues are obscured by so many misconceptions and misdirections as the current “debate” over raising the debt ceiling.  Below, I’ve listed a few, all of which revolve around the fallacy that the government is about to run out of money.

One might take solace in the fact that Washington’s latest political crisis is more smoke than fire. To the contrary, examining the errors of the current debate brings one closer to an understanding the truly catastrophic nature of the world monetary system.

First, the misconceptions.

1) “If we don’t raise the debt ceiling, America will default on its debts."

No. In terms of income and outflow, Washington isn’t anywhere close to default.

As Karl Denniger points out, “default is only the failure to pay interest or principal on a loan.  Nothing else is a default.”:

The United States takes in about $2 trillion in taxes a year.  The total interest paid last year was about $180 billion, a ridiculously low blended rate, but that's what ZIRP (zero interest rates by The Fed) get you.

Let's assume for a moment that the blended rate was to more than double, to 4%.  That would be about $560 billion in interest a year, including interest on the Social Security and Medicare "trust funds" (which aren't trust funds, but I've been over that before.)

$560 billion is about one quarter of the tax revenues that the government takes in.  So even were interest rates to more than double The United States would not default.

Whatever the case, I predict that when Boehner, Cantor, & Co. finally agree to raising the debt ceiling, they will take credit for “avoiding a default.”

2) “The markets are jittery that America might default.”

No, they’re not.

First off, a default is not the end of the world. There have been many episodes of defaults by individual states throughout American history; shortly after the crises passed, bankers showed up to lend them more money.

And the Federal government is in a far better position. Washington can reproduce—for all practical purposes, without limit—the currency in which its debts and entitlement obligations are denominated. This differentiates it from Greece, which can’t print Euros and thus must plead for bailouts from its paymasters in Brussels and Berlin. As further below discussed, Washington will never default on its explicit debt, nor will it renege on Social Security and Medicare payments, for the simple reason that it always has the capacity to create more money.

True, dollars are created through issuing debt, and since 1917, Congress has had the power to limit debt issuance. However, the “ceiling” has been raised more than 100 times since it was instituted and 10 times over the past decade. On all fronts, scant resistance has been levied against the finacialization of the U.S. government.

Moreover, gold’s recent rise over $1,600 indicates that markets are (quite rationally) not predicting a default; they instead expect Washington to continue to spin off debt-to-service-debt to finance its some $15 trillion outstanding and some $70-100 trillion in liabilities [PDF], many of which, like Social Security, are currently unfunded.

Paradoxically, if Washington were to default (which, again, it won’t), the immediate result would be a strengthening of the dollar. If Washington cancelled its debts and entitlement payments, there would be, quite literally, less money now and promised in future. People would scramble for the dollars left over, and prices of most everything would fall. If the Republicans were truly concerned about the value of the dollar (which they say they are), they would be demanding not only a hard debt ceiling but a massive reneging on the innumerable future obligations. Being that the latter would necessitate informing their constituents that they should prepare for a diminished lifestyle, they won’t do anything of the kind.   

3) “The Republicans are risking financial armageddon due to their libertarian, anti-government ideology.”

It’s hard to take this one seriously.

Without question, this standoff wouldn’t be happening were it not for the Republican leadership’s desire to throw the Tea Party a bone. (Otherwise, the ceiling would have been raised with little fanfare, as it was in the past.)  That said, most proposed spending cuts, which were said to “match” hikes in the debt ceiling, are entirely symbolic.

As Gary North notes, “ . . . over the next decade” is tacked on at the end of any promised reduction. Thus, John Boehner’s big number of $4 trillion in unspecified cuts (which has been floated, then retracted, then floated again) becomes a relatively small number of $400 billion each fiscal year—which would still result in Washington running deficits of a trillion per (!).     

4) “If the debt ceiling isn’t raised, Grandma won’t get her Social Security check.”

Once again, no.

It is quite ironic that during the Obamacare “town halls” two summers ago, Democrats ridiculed the idea that Obama would take away Grandma’s Medicare payments (or even “pull the plug”). Now, Obama is quite explicitly threatening seniors with their lives: “There may not be the money in the coffers” to send out August-3 Social Security checks, Obama informed 60 Minutes’s geriatric audience.

And some might think that Obama’s hands are tied in this situation, since, according to government accounts, Social Security went bankrupt last year (that is, its “fund” issued more than it took in.)      

But Obama’s threat rests on the widespread illusion that the federal government’s finances amount to “coffers” filled with money—that is, some kind of large, though limited, source of wealth: eg, a bank account or gold hoard or dark basement filled with stacks of hundreds.

But this is not how modern government finances work. The Social Security “trust fund,” for example, is not a fund at all but a mass of liabilities. When it was cash-flow positive for 75 years, its revenues were traded for Treasury Bond IOUs and used for other governmental expenses: war, contracts, salaries, etc. Social Security is now cash-flow negative and requires debt to operate. There is all but no chance that Boehner and Cantor, or any politician, would allow themselves to be the one to shut off the credit line necessary for Grandma’s Social Security check to go out.  Obama certainly knows this, which is why he’ll make such threats, knowing his opponents will cave.    

But let’s stop here with the minutia. It’s easy to get lost in the political maneuvering and posturing and lose sight of the big picture. Overall, there are two elemental components of Washington debt-financed everything that are of paramount importance; both of which are so simple, and so nefarious, they boggle the mind:

1) There is practically no limit to the amount of debt Washington can issue.

2) Washington never plans to actually pay off its debt (ie, clear its balance); it will instead service its debt with more debt ad infinitum.   

The first of these is directly relevant to Washington’s innumerable and unfunded promises and liabilities, which again, it will have no problem fulfilling in nominal terms.

Forget about paying Grandma two grand a month. If it so desired, Washington could request that the Fed purchase 30 trillion in new bonds, have the treasury print this up in thousand-dollar bills, and mail each citizen 100 grand in cash. A “stimulus package” of this kind is entirely feasible in a fiat-money system.

Of course, something like this would likely result in a Weimar/Zimbabwe hyperinflation, and hilariously high prices for everyday goods. And Washington is well aware of this, which is why a scheme of this kind would only be tried as an act of desperation.

And it’s also unnecessary, for in avoiding brazen money printing—and instead maintaining the dollar as the premiere vehicle of worldwide indebtedness—Washington has gotten away with inflations that are equally, if not more, outrageous than what I just described. Currently, the total dollar-denominated debt (including sovereign debt, consumer and student loans, mortgages, etc.) amounts to some $50 trillion (350 percent of GDP). And as mentioned above, the entitlement promises actually dwarf this gargantuan number.

Actually clearing America’s balance sheet would require most all of the production and savings of the entire world for years to come. But again, Washington won’t ever truly pay it off. Its solution is more insidious.   

Dick Cheney’s infamous 2002 statement that “deficits don’t matter” wasn’t a mere confession of irresponsibility. He was accurately describing an arrangement in which America’s overseas empire, its citizens lifestyles and entitlement programs could be expanded—practically endlessly—through debt—debt serviced by the issuance of more debt.

Normal governments have to bring their expenditures in line with tax revenues. The exceptional nation doesn’t have to bother. That Washington collects revenues at all seems only to be a means of assuring its creditors that it has enough cash flow to make interest payments.  

Conservatives and Republicans might want to blame this all on “big government,” but the reality is that for decades, all components of the Establishment have benefited from the arrangement: it is the way—indeed, the only way—Washington can finance wars, entitlements, student loans, mutliculturalism, and mortgages all at once.

The arrangement’s fatal flaw is not so much that it’s unfair but that it’s based on a paradigm of infinite debt growth in an intrinsically limited world. (And it’s only a matter of time before a rival country has the guts enough to offer a replacement for the dollar or at least stop indefinitely footing Washington’s bill.)

America’s debt empire, too, shall pass. And when it does collapse, the consequences will be more spectacular and catastrophic than anything prophesied in the current debt-ceiling debate.      

Liberals and neocons are inclined to romanticize civil unrest by non-Whites when they can gaze at it on cable news from the safety of their living rooms. Hence, the "Arab Spring." When American Blacks act up, on the other hand, the Beltway crowd prefers not to talk about it. At most, they'll promise to address the matter with new social legislation. They certainly never wax hopeful about violent disturbances that threaten their status quo. 

In a gutsy move, Drudge has detailed this nation-wide social phenomenon, which includes a hilarious story about gay SWPLs in Miami pushing back against the violenent antics attendant to "Urban Weekend." (We are assured that "it's not about race"...)

It's worth revisiting my piece from last summer on the "flash mob" phenomenon, "Race Riots 2.0." These latest outrages on the beach appear to be the canary in the coal mine of a major social and economic breakdown. 

Who knows the mental condition of the man? And who can say what the criminal hopes to gain by speaking the truth?  But then who can contradict his analysis?  

Madoff to NY magazine: Government a Ponzi scheme

NEW YORK – Wall Street swindler Bernard Madoff said in a magazine interview published Sunday that new regulatory reform enacted after the recent national financial crisis is laughable and that the federal government is a Ponzi scheme.

"The whole new regulatory reform is a joke," Madoff said during a telephone interview with New York magazine in which he discussed his disdain for the financial industry and for its regulators.

The interview was published on the magazine's website Sunday night.

Madoff did an earlier New York Times interview in which he accused banks and hedge funds of being "complicit" in his Ponzi scheme to fleece people out of billions of dollars. He said they failed to scrutinize the discrepancies between his regulatory filings and other information.

He said in the New York magazine interview the Securities and Exchange Commission "looks terrible in this thing," and he said the "whole government is a Ponzi scheme."

Watching the raw footage of the union-led protests in Madison, Wisconsin—footage reminiscent of this past month’s rioting in Egypt, sans the gang rape—I began to wonder whether we might be exiting the Age of the Bailout and entering the Age of the Default. 

That is, the time might have passed when any and all problems are solved by the Federal government and the Federal Reserve throwing billions at them. (The bailouts of the banking- and housing-sectors, the Big Three automakers and their unions, and commercial real-estate investors were only the most memorable episodes in what was a global phenomenon.) We might—and I stress might—be at a point when the only choice for the massively indebted is bankruptcy. 

In a statement on January 8 that didn’t receive the attention it deserved, Ben Bernanke announced that the Fed would not assist state and local governments with their municipal bonds and obligations. Bernanke’s Wall Street overseers will have their losses socialized by the Fed, but Madison, Sacremento, and Springfield will be forced to make do with their unpayable burdens. (Ben's economic forecasts are some combination of propaganda and bunk, but when he makes a clear statement on policy, he should be taken seriously.)  

I was shocked, and disappointed, really, at the absence of physical protests when Bernanke dolled out unfathomable sums to the “banksers” throughout the fall and winter of 2008-09. The scenes from Madison—and Athens last spring—make clear that when entitlements and government jobs get negated, the bureaucratic and dependent classes will take to the streets.

Illinois or California outright reneging on their debt and pension obligations is probably just outside the range of the thinkable for the media and most Americans. But the fact is, there’s a long history of state’s defaulting debts. Murray Rothbard described it:

Although largely forgotten by historians and by the public, repudiation of public debt is a solid part of the American tradition. The first wave of repudiation of state debt came during the 1840's, after the panics of 1837 and 1839. Those panics were the consequence of a massive inflationary boom fueled by the Whig-run Second Bank of the United States. Riding the wave of inflationary credit, numerous state governments, largely those run by the Whigs, floated an enormous amount of debt, most of which went into wasteful public works (euphemistically called "internal improvements"), and into the creation of inflationary banks. Outstanding public debt by state governments rose from $26 million to $170 million during the decade of the 1830's. Most of these securities were financed by British and Dutch investors.

During the deflationary 1840's succeeding the panics, state governments faced repayment of their debt in dollars that were now more valuable than the ones they had borrowed. Many states, now largely in Democratic hands, met the crisis by repudiating these debts, either totally or partially by scaling down the amount in "readjustments." Specifically, of the 28 American states in the 1840's, nine were in the glorious position of having no public debt, and one (Missouri's) was negligible; of the 18 remaining, nine paid the interest on their public debt without interruption, while another nine (Maryland, Pennsylvania, Indiana, Illinois, Michigan, Arkansas, Louisiana, Mississippi, and Florida) repudiated part or all of their liabilities. Of these states, four defaulted for several years in their interest payments, whereas the other five (Michigan, Mississippi, Arkansas, Louisiana, and Florida) totally and permanently repudiated their entire outstanding public debt.

Hat tip to Credit Bubble Stocks for bringing this passage to my attention.