What peak government looks like

Private businesses with zero growth rates are unattractive investments.  You can see them from a mile away.  At one time they were exciting, compelling businesses with a bright future and exploding growth.  Then something happened.  They reached their peak.  They start paying a dividend as a lure just so you'll hold the stock.

It gets worse.

After some time, the stale leadership realize they cannot juice returns enough to even fake it on the conference calls anymore.  So instead of reinvesting in new areas or new markets, they quietly begin a campaign to do share buybacks.  They can retire old units and make existing shareholders richer, or they can issue new shares and dilute them.  If it's the latter, beware.  The company has decided to cannibalize itself, beginning with the most superficial flesh: ignorant and passive portfolio unit holders typically buried within boring mutual funds.  

This is an extra-judicial liquidation without any formal acknowledgement.  It is done by the insiders – the board members, the corporate officers or anyone with the privilege of voting rights.  Certainly not shareholders.  The company has decided to consume itself.  It could take years before it officially dies, as some carcasses are huge, but dead is dead.

Think of government the same way.  When you reach peak government, it looks exactly like where we are today.  You, the taxpayer civilian, are the poor shareholder of a country that has been in a no-growth environment for 20 years, not entirely dissimilar to Japan.  What did Japan do?

The holders of debt, because that's what government is and what it does (manufactures debt), become the prey of its leadership.  Just like shareholders of a dying company, the leadership decide how best to screw over the people, the very ones to whom they originally sold their paper stock certificates in exchange for a promise of some return.

Government begins to eat its own people.  It does this through dilution or inflation – issuing more debt on top of older debt, then digitally printing up money as a bookkeeping gimmick that would get private companies investigated not just by the SEC, but by the attorney general for prosecution.  It is called embezzlement.

When government embezzles, it does so on the backs of its own people while lying to them at the same time that it is their savior.  Japanese citizens hold most of the Bank of Japan's debt, as do Americans their debt.  No, China does not.  They have been intelligently divesting.  

Government acts like a predator.  It is essentially liquidating itself without a formal Chapter 11 filing.  Governments don't have to file for legal protection.  They just default – sometimes suddenly, sometimes over several decades.  

Populism works for only a short while politically.  Initially as the public wise up to the fraud, the political class will blame other entities besides themselves (the banks, big oil, greedy companies).  Then the government will "go after" these other entities after portraying them as "evil" and at fault for the public's anger.  It takes the blame off them.  And so private enterprise is directly attacked and finally extracted via force through concessions, as all socialist economies do eventually by going after the only real things left: private businesses that do real things, unlike the government, which does nothing except make promises (lie) and produce debt.  

Peak government is the juncture where the demands of debt become so unmanageable that government begins to consume its own private businesses.  Some of them invariably flee the country and repatriate their assets.  Others encourage a foreign company to buy them out.  Both of these have been happening to once American companies for over two decades now – in earnest, the last ten years, which is why Obama has been so vocal on inversions.  But what's he going to do?  Violently force a non-sale of a private transaction and make companies prisoners of their own nationalistic borders, much like Hugo Chávez did?  Why, of course.  That's what socialism's end game always is: coercion.  

Welcome to governments gone wild, zombie edition.

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