Only for the brave? Doom and Gloom analysis of "USA Inc" + solutions.

This report, co-authored in early 2011 by Mary Meeker of KPCB (Kleiner, Perkins, Caulfied, Byers) the legendary Silicon Valley Venture Capital firm, is deeply challenging.
Long PDF and Short PDF available as well.

It's not your average "Doom & Gloom" report or "The Sky if Falling, all is lost, get to the Bunkers" shrill fear-mongering.

This is solid analysis backed by good research and unrelenting numbers.

These folks know their way around a balance sheet, their record speaks for itself. If you can't refute it, you have to believe and act on it.

The headlines for me are dual:

• If nothing changes, within 15 years the USA won't be able to pay its bills [like Greece and Spain], and
• these folks are very positive. They layout the strengths of the US Economy and its people and a game-plan for getting back into the black.

So, look at the video [43mins] and pull down one or more of the PDF's if you like, I'm not only suggesting that this is not something that everyone should read, but that people should carefully consider beforehand if they even want to read this. It's not said, but the GFC was just the beginning...

Be prepared to read some deeply disturbing and challenging data/analysis, I found it quite sobering.
The authors pointedly don't dwell on the negative outcomes or consequences inside the USA and for the rest of the world. There will be many commentators only too glad to bang that drum and instil "Fear, Uncertainty and Doubt" into a wider audience.

BUT, the whole reason Mary and her team spent a small fortune constructing this report, is they, the acknowledged experts in analysing the operations of any business, not only think there is hope, but think solutions are possible and achievable. This comes from a fundamentally positive 'frame'.

That they did the research, produced the analysis and published it, is a massive vote of confidence by some of the world's best financial minds in the resilience and capability of "USA Inc" and that solutions are within the grasp of Americans. The solutions may not be easy or palatable, but they are achievable.

This report is about Hope and Inspiration, don't lose sight of that when you read it.

Vote [1] Independent: Gillard vs Abbott - why we hate them both.

The last newspoll in May-2012 had Gillard and Abbott both with  disapproval ratings of ~60%.

Who cares about the approval ratings jiggling up and down a little with one or the other sneaking 'ahead' by a single point? It's all noise.

The BIG message here for these leaders and their parties is: the electorate hates you both, equally and with a passion. Almost the only folk still supporting either leader and party are the rusted-on faithful. The rest of us want "None of the Above".


This is why we have the hung Parliament, with the balance of power being held by Independents.

The Greens may be a safe bet "to keep the Bastards Honest" in the Senate, to borrow Don Chip's line, but intense disapproval of major parties will not translate into lower-house support for the Greens. They have yet to earn that support from the majority of voters.

There are around 500-days until Gillard has to go to the polls.

Is that enough time for strong independent candidates to declare themselves in all the lower house seats? I've no idea.

It would be so wonderful if Abbott or Gillard lost their seat to an Independent, in much the same way that the electorate of Bennelong "sent a message" when they replaced PM John Howard in 2007 with Maxine McKew. But only for a single term: The ALP got sent another message when she wasn't reelected.

We are in this "Tweedledee, Tweedledum" situation exactly because of all the "sophisticated" tools that political parties have used and refined over the years.

When Dr Gallup invented sampling theory for his PhD thesis and showed it comprehensively worked in the 1948 election of Truman, we embarked on this course towards "identical candidates and parties".

Simple survey techniques have been supplemented with frequent, targeted polls, "focus groups" and enhance with technology.

But the Political Party's analysis and use of this data to create "Perfect Candidates" and "Perfect Policies" has a monumental flaw: it can only tell you what to leave out, or not do, it cannot tell you what to do, what is missing.


A perfect example from my Industry, I.T., is Microsoft versus Apple:

Microsoft has products and a persona perfectly constructed from Opinion Polls and Focus Groups. Apple builds stuff it is passionate about, that springs from a clear well-expressed vision and worldview and is intentionally, not for everyone. 

Until 5 years ago, you would've said Microsoft had won hands down. Now Apple is so far ahead on all measures and Microsoft results so poor in absolute and relative terms, that there is simply no contest. The business press has called for the firing of the long-term Microsoft CEO and a set of commentators are now waiting for them to fail.

The lesson from MSFT v AAPL?

Pandering to the whims and desires of the masses and attempting to "never offend anyone" yields short-run benefits, but in the long-run guarantees all but the most faithful hate you with a passion. The majority of people will only buy and use your product if they have no other choice. Look at the share price and revenues since the 2007 launch of the iPhone... It had stopped being a contest before then, now the iPhone and iPad have "nailed shut the coffin" on Microsoft's business model.

Apple and Steve Jobs have, since the 1984 launch of the Macintosh, shown that they put Great Design ahead of everything else. Without Jobs in the company to solidly maintain this stance with upper management and the board, the company floundered, almost to the point of extinction.

When Jobs returned with the same core philosophy but now with the skills to profitably implement it, the turn-around of the company has been nothing short of amazing to those who don't understand the rule, and more than comforting to those who do understand this philosophy.

This is the "secret sauce" of Apple and Steve Jobs: Stay true to your deeply-held Beliefs.
Jobs' 2005 Commencement Address for Stanford says more.

You cannot "cut your way to success" in business, nor elsewise achieve greatness through appeasement, placating and being "politically correct" - newspeak for "never offend anyone". Being a reed that blows in the winds of opinion does not buy you friends, influence or respect.

This is why Australian voters don't just dislike, but actively hate, the major parties, their leaders and their policies:
 they don't have the guts and gumption to strongly state their message and stick with it.
If you have real, strongly-held beliefs, you will have a whole raft of people disagree with you, but they will admire and respect you for it and given the choice, grudgingly allow you to get on with it.

Voters know too well that the party hacks they vote for locally will, when given the choice between the interests of their own electorate and "the party", consistently not put the interests of their constituents first.
So why vote for someone that won't stand up for you and your interests when it counts???

This is exactly why strong, capable Independents are being increasingly elected.

Voters know that Bob "mad hatter" Katter will fight to the death for them. He might hold a bunch of crazy and unimplementable views, but he is passionate about his electorate and volubly so. Love him or hate him, you have to respect his passion, his work ethic and commitment to his constituents: this is real Public Service, putting others interests ahead of your own.

So this is why my recommendation for the 2013 Federal election is:

Vote [1] Independent.

Because if you don't vote the bastards out, nobody else can.

If you don't have a strong, capable Independent standing in your Electorate?

You still have many avenues to make your views known, though there are few I can write about.

Just be sure when you do share your views and attempt to influence others, that you don't fall foul of the Electoral Act.

You cannot advocate that people don't vote nor that they vote 'informal', especially not that they avoid being on the electoral rolls. We are a Democracy and this entails a duty to care, it relies on your active engagement, not passive acceptance of the Status Quo and wishy-washy 'statements' that waste your vote.

Voting is compulsory in Australia (we're such an apathetic lot and seemingly love to obey authority!) and failing to vote for a good reason attracts a $25 fine. The penalties for advocating others not vote are considerably harsher and more onerous (court appearance, not a fine, possibly criminal offence) than an individual failing to vote.
To be clear: I support everyone casting a vote, this is fundamental to maintaining our Democracy.

IIRC, Somewhere around 4-6% of registered voters don't cast ballots on the day. I've no idea, nor any interest in finding out, if or where the reasons for not participating in the cornerstone of our Democratic process are tabulated.

Update 10-Jun-2012: The Financial Review has estimates that 20% [~3MM] eligible voters "choose not to vote". 2.88MM of 14.09MM people:

• 1.20MM not on the roll,
• 0.95MM don't turn up to vote (and face the fine)
• 0.73MM don't cast a formal vote

 To create change, you have to vote.

Think about it and make your vote count in 2013.

Root cause of the GFC: systemic failure in fiduciary trust/duty

Watching a Lateline interview with a British politician last night on the British Leveson Inquiry into the behaviour of the Murdoch media, crystallised my thinking on the root cause of the GFC:

A systemic failure in both fiduciary duty in the global financial community and a concomitant failure in governance and oversight by the regulators, public service and politicians.

---

The New Oxford American Dictionary defines "Fiduciary" as:

involving trust, esp. with regard to the relationship between a trustee and a beneficiary

Princeton's Wordnet defines "Fiduciary Duty" as:

the legal duty of a fiduciary to act in the best interests of the beneficiary.

---

The critical piece for me in the Lateline interview was that the politicians driving one of the most important Inquiries in recent times let their personal fears override their duties as representatives of the Public:

... Rebekah Brooks [chief executive], who rejected our invitation [to give evidence] on three occasions ... but the committee then decided not to invite Rebekah Brooks, [seen as surprising] ... And I think it is very clear now that the individual fears that committee members felt led to them ... basically losing the will to do that.

The GFC did not arrive unheralded nor without the involvement of many actors through the whole investment "food-chain".

• The front-line sellers of retail "sub-prime" loans that lied, deceived and failed to disclose to victims what they were actually buying, especially A.R.M.'s (Automatically Resetting Mortgages: a low-rate "honeymoon" period (2-3%?) before repayments were increased to the underlying rate (12-15%?).
• The churning of these sub-prime loans as if they were prime-quality loans by Banks through the Mortgage Underwriting houses, Freddie Mac and Fannie May and those underwriters accepting high-risk loans as low-risk.
• The "repackaging" of sub-prime loans from the Mortgage Underwriters as CDO's (Collateralised Debt Obligations) without fully disclosing or properly insuring the embedded risk, instead using CDS's (Credit Default Swaps).
• The complete operational failure and dereliction of duty by all Ratings Agencies in declaring these packaged "toxic loans" in CDO's backed by CDS's to be the lowest risk asset possible, AAA-rating.
• The relentless, high-pressure wie-spread sales of these complex instruments to inappropriate and uninformed consumers, with extraordinary levels of deception, misleading statements and since documented, complete fabrication and wilful dissembling (lying).

But it could only have happened if there was not only widespread failure of agents Fiduciary Duty to investors, but also criminal behaviour.
There were a slew of interlocking system failures that were necessary to translate the "zero-cost" money being thrown around by the US Federal Reserve into systemic rorting (fraudulent gaming of the system) - and none of them was ethical, moral or legal.

The GFC was fuelled by an seemingly infinite pool of zero-cost money being used to "stimulate" the US economy after the "Dot Boom" became the "Dot Bust" circa 2000.

There were many schemes to take this money and convert it into "high return, safe vehicles".
The contradiction inherent, returns are the inverse of safety (higher rates of return compensate for higher risk), went unnoticed, unchallenged and generally uncommented, except towards the inevitable collapse.

Yet, despite, the massive consequences of the GFC, the "socialisation" of the crystallised losses, which for decades will haunt the mug punters, or average taxpayers paying for these bailouts through their governments, nothing has substantially changed. More importantly, almost nobody has gone to jail.

Many banks and financial institutions declared record profits (and hence record internal bonuses), the year after they were bailed-out by the very people they were again relentlessly gouging - the average taxpayer.

There is a fundamental inversion at work in the financial and managerial world that the regulators and legislators have been ignoring for the last 30-40 years:

• CEO's and fund-managers/investment advisors want all the upside of ownership, and none of the downside. They want a large fraction of any gains when the market goes up, and suffer nothing when it goes down. They can bankrupt a company an/or destroy all your investment, and still demand a bonus, let alone compensate the owners for their reckless, irresponsible behaviour.
• Institutional Investors, in the form of Banks, Insurance companies, Retirement Funds/Investment houses give their small, anonymous investors all the downside of ownership and little or none of the upside. Risk is transferred from the Institution to the Individual investors, while they retain all or most of the benefits when the markets improve. The small investor, often forced into compulsory investment, takes all the losses of the gambles and speculation by the Institution, whilst being charged a fixed percentage of their assets and a proportion of "excess gains".

This state of affairs is consistent with the causation of the GFC and stems from a very simple thing:

Politicians, and hence Regulators and Government Bureaucrats, confuse CEO's and Institutional Investors with Owners, when they are merely employees or agents.

How I can prove these assertions:

• The GFC was inevitable from the documents released or surfacing afterwards.
• CEO, 'senior management' and Board salaries have spiralled upwards at a compound rate of 30%pa since ~1975, without any comment, constraint or Inquires by Governments worldwide.
•  while real wages of employees have remained static or declined since ~1985, and
• "big business" especially continues it outrageous calls for "more flexible working arrangements" from those employees to "lower costs" and "increase productivity" when decades of decline in real wages show that none of the savings and improved profits are passed onto those long-sufferring employees.
• Institutional Investors and Governments still pass wide-scale losses onto the general public, who were not responsible for the decisions, had no control and no 'internal information'.
• The unemployment rate is most countries is (very) high, but those people out of work, receiving lower "benefits" and paying higher taxes are exactly not the people who created the GFC.

Then there are the many studies into "Mergers and Acquisitions" of large, publicly owned companies.
They all say the same thing, despite the very expensive and detailed "Due Diligence" processes, the vast majority of Mergers not only fail to create value, they destroy substantial amounts of owner value, which is ultimately the small, anonymous investors funding Institutional Investors.

A case in point from my field (I.T.):

Unisys (UIS): Formed from the 1986 merger of Burroughs and Sperry/Univac (numbers 2 and 3 in turnover and CapEx behind IBM), not only never became #1, but has declined four-fold in share value and declined from $10.5B revenue/year and 120,000 employees to $5Bn/year and 30,000 employees in 2010.

It was never going to be a good idea due to the radically different, and incompatible, corporate cultures and that there were no great synergies in their product lines, rather the reverse, they were direct competitors in most of their markets.

Yet the deal was struck and The Great New Giant Company was formed.
Within two years, the extent and scale of value destruction to both brands was obvious, and in a rational world would've been cause for a rapid demerger and unwinding of the still incomplete "integration".

Yet this didn't happen. The Board, the CEO and all the "management team" kept resolutely destroying the company. Now, decades on, it is a mere shell of its former self, and both brands struggle. Both organisations were successful, growing and sound before the merger. The market or "externalities" didn't change significantly at the time, rather the reverse, IBM grew its business very well for the next 5 years.

At the very least, the CEO and senior management team should've been placed "on notice" by the Board at the end of the first year when they comprehensively missed all their targets, and summarily sacked after the second year when the value destruction and failure to grow was incontrovertible.

Why didn't this happen, and why wasn't the Board sacked for a gross dereliction of duty? Institutional Investors are the majority shareholders and have a general policy of "we don't interfere". It's almost like they don't care about protecting their small, anonymous contributors from the downside...

Those who caused all this carnage at Unisys, the active destruction of shareholder value and the massive opportunity losses from both brands failing to keep growing, have never been held to account or suffered dire economic or civil penalties for their actions and inaction.

The resulting questions are:

• Who pursued and benefited from the Merger? Presumably the two Boards, CEO's and combined "senior management team". Those who stayed got bigger salaries and bonuses, those who left got their "golden parachutes" (outrageously generous severance packages unavailable to the rank-and-file workforce).
• Why was this massive market failure not investigated nor pursued by Regulators and Legislators? I guess because nobody that mattered complained. No Institutional Investor would complain ("we're uninvolved"), nor did they act on behalf of their plethora of small investors, rather handing them back a slightly smaller dividend without explanation.

It seems that Politicians, those we have elected to represent us against the more powerful, have become the captives of Big Business (CEO's and Boards) and servants of Media.

Another worse GFC is coming

Without a Nobel Prize in Economics, or even a degree in it, how can I make this assertion:
There will be another GFC, and it will be worse than 2007, and make it confidently?

Because we didn't see the last one coming nor did the controls to prevent such disasters, work.

The 2007 GFC was initiated by the inevitable, predictable collapse of the US "sub-prime" mortgage market. ["sub-prime" is disingenuous double-speak for 'very risky' or 'junk'. People buying houses with this money couldn't afford to pay it back, the lenders knew it and still loaned them money and resold the debt as quickly as they could, collecting a tidy profit along the way.]

We saw this before at the end of the 1980's with the rise and collapse of "Junk Bonds".

Why weren't "sub-prime" mortgages a problem, or even a market, before 2000?
Because of the economic slow-down when the "Dot Boom" turned to the "Dot Bust", the US reacted to prevent a recession.

The US Federal Reserve, with the backing of the US Government and Central Banks around the world, dropped interest rates to near zero on US Government Bonds, the benchmark "risk-free" investment. That created the conditions for the next "market bubble".

There are two points in there that need to be unpacked from that:

• "Zero" interest rates are not numerically "0.0", they take inflation into account.
  If inflation is at 3% and you're getting 3% interest, your wealth increases by NIL over the course of a year. You can buy exactly the same number of burgers or cars at the start and end of the year.
• Economic Theory for judging the proper return from investments is based on the Risk/Reward principle.  Higher Risk translates into higher Reward (or interest rates).
  But compared to what? The equations that describe the valuation of financial "instruments" assume a baseline or benchmark: the "risk-free" rate that everything else is compared to.
  Which is the Government Bond rate. If the Government can't pay interest when due or redeem its bonds, you have bigger problems.

How did a reasonable and well-proven response to an economic slow-down convert into a massive "Market Bubble"? The usual suspects of "Fear and Greed", the same drivers of the 1980's Junk Bond bubble and all before it.

With "safe" investments offering no returns, investors looked for other avenues to get good returns: this was the environment which created a bubble in just 10 years.

There were/are a number of special conditions in the USA that created this particular scheme. Be clear: the same investors and the same money would've chased any of the other myriad schemes possible.

The peculiarities of the markets in the USA:

• Mortgagees can walk away from their debt with impunity. Banks, not borrowers, bear the risk of default (the norm in the rest of the world).
• Mortgage Debt wasn't held by banks, but resold to one of two "Government Sponsored Enterprises" (Freddie Mac and Fannie Mae) at a small discount, allowing the banks to relend the same money over-and-over again.
• The two Federal Mortgage consolidators resold their debt into the larger US and global markets.

There were two inventions that allowed the explosion of this "commercial paper" to be sold by the Investment Banks:

• CDO's, "Collaterized Debt Obligations". Individual mortgages were bundled together (aggregated) and sold together as a single lot.
• CDS's, "Credit Default Swaps". These are a form of commercial insurance. They were used to convert the highly risky CDO's into "AAA" (risk-free) debt.
• Investment Banks are not regulated like normal "Deposit Taking Institutions": Retail Banks.
  They can sell what they like because they deal with "Sophisticated Investors" who fully understand the risks they are taking and the deals they are entering into.

Which brings in another critical player: the Investment (or Credit) Rating Agencies.
Standard and Poor and Moody's are two of the largest global players.

Credit Rating Agencies are thought to be impartial and expert assessors that investors can rely upon.
As events transpired, all those "AAA" rated high-yield bonds were both too good to be true and entirely wrongly assessed.
And that the notional risk implied by the high returns were massively understated.

How could a catastrophic mistake on a massive scale and as-wrong-as-it-gets be made?
This was a systemic fault - it applied everywhere to all the Rating Agencies.

Why?
As in Why could that happen at all, and Why did it not get noticed by oversight bodies?

The simple answer is that the Ratings Agencies didn't understand the real risks: they were incompetent in their work (or more politely, unaware of the full implications), were deluded or duped, knew and didn't properly inform investors, or were complicit or negligent.

The central conflict is the Rating Agencies are paid by the Seller, not Buyer. They could only make money by assessing instruments as "very low risk", very wrongly as it turns out, and they did.

One of the contributing factors in all this, globally as well, is that individuals responsible for each part of this process bear no consequences for losses, but do gain from all sales and often share in the profits.

This asymmetry, there is no personal downside for actors in Finance and Investment, is a monumental systemic flaw that will only lead to more problems.

If you think this isn't so or doesn't matter, ask this question:
 Did any of the people who personally benefited from the bubble have to pay back their profits or make any reparations?

In most other areas of Commercial Law, fraudulent or suspect transactions can be "unwound" or reversed. At least for the last 7 years.

• Would the impact of the GFC have been nearly as bad if 7 years of faulty transactions have been reversed? [No]
• Could Governments and Financial Regulators around the world have done that? [Yes]
• Would recovery have been complete? [Not nearly]
• Would more people have been personally affected? [probably]
• Would those involved in Finance/Investment now be more cautious? [Yes]

One of the major weapons now against selling drugs is the seizure of assets and "proceeds of crime".
Losing your improperly acquired wealth is a far more potent penalty than even jail-time.

But obviously Governments don't hold this view for "white collar" crime, preferring to spread the pain to the innocent and less wealthy.

So what's my thesis?

• None of the responsible professions foresaw the 2007 GFC, nor acted to warn Governments, Investors or the Public.
• Not Accountants, Economists, Auditors, Valuers, Investment Advisors, ....
• The existing Regulatory Framework was wholly inadequate.
• The oversight bodies and control mechanisms failed completely - they didn't warn of the building problem and failed to prevent the collapse.
• The Guilty kept their ill-gotten gains, the rest of us paid through failed banks and Government bailouts - and will pay for decades to come.
• Those responsible for outright fraud and deception have not been brought to book.
  Those who's inaction, negligence, incompetence or indolence created the economic maelstrom have been allowed to escape unnoticed and without consequence.
• Systemic problems of inherent conflict of interest and lack of personal consequences remain unchanged.

As a global community,
we don't know precisely what elements, apart from greed, led to the GFC,
nor what changed to trigger it.

Without knowing the causes, we are helpless to prevent more recurrences.
There have to be more financial meltdowns simply because we don't know why the 2007 GFC happened.

In the Military, generals are always fighting the last war.
In Government and Economics, they are always fighting the last crisis.

---

From the New York Review of Books:

How They Killed the Economy

March 25, 2010

Roger E. Alcaly

Partly this was because the most serious economic crises are centered in the banking and financial system, the basic source of credit, and none of those that occurred during this period involved the banking system in a major way.

The list of crises that were contained is long and impressive,
including the stock market crash of 1987,
the junk bond collapse of 1989–1990,
the Asian crisis of 1997,
the Russian default in 1998,
the failure of Long Term Capital Management—a large and hugely leveraged hedge fund—later that year, and
the collapse of technology stocks in 2000–2001.

 Quick and effective responses to these and other dangers by Greenspan’s Fed appear to have induced banks and investors to rely unduly on its ability to stave off collapses that threaten the system, and to ignore the serious malfunctioning of the financial markets.

These same successes may have led Greenspan himself to believe that he actually was, in the words of the Financial Times, the “guardian angel of the financial markets.”

The general pattern of those years was similar to earlier extended periods of growth and great optimism.

Missing element of Economic Models

A piece I was sent, "The Quiet Coup"  by Simon Johnson in The Atlantic:

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

I think it goes much deeper, I'm much less optimistic.

Summary: Henry Ford got it right when he consciously decided to pay his workers enough to afford his products. Forgetting this is Arrogance & Hubris.

The way we're heading, there is a real chance we won't just muddle through.
My scenario is the huge US Government debt causes the collapse of the US dollar causing rampant inflation there & elsewhere and the Chinese needing to break lose.

At which point, the Australian dollar, currently tied to the Chinese economy, goes into free-fall.
I don't know the timeframe.

Solutions without knowing the Root Cause?

Friends have talked to me about "Economists" and the apparent lack of solid Economic Theory.

I think a root cause is they, academic economists, don't understand what Money is.
Which means they don't model it well or properly, either statically or dynamically.

What's the impact of 'frictionless' trading with instantaneous communications, automatic trading systems and single global market? As a side effect of a single global market, I would've thought that arbitrage would be impossible with the lack of secondary or distant markets.

Frictionless, automatic trading results in infinite amounts of cash flowing infinitely quickly.
A really, really Bad Idea.

Only this is not monopoly money. It's Real Life with Real consequences.

Burning Other Peoples Money (OPM) to the ground will get even the most self-satisfied, complacent & apathetic electorate out and manning the barricades...
Or not - I get this sort of thing wrong more often than not.

Lack of Accountability or does effective control require Skin in the Game?

There's a common problem underlying CEO & Director Salaries and Financial Planners/Advisers:

• There's wildly asymmetrical personal upside & downside.
  In fact a complete lack of downside.
  There is an inherent structural bias in the system.
  The feedback effects when control and assets are conjoint are missing.
  

   
Couple this with "Institutional Investors" and compulsory savings (Superannuation, 401(k), Pensions, ...)

All us worker drones are forced to pool our money (Anonymous Capital) husbanded by these Institutional Investors, but don't get a say in what they do or how they influence those big companies, directors and CEO's... That at least half of us work for.

"No Taxation without Representation"? might now be:

"No Investment without Responsibility"?

The Limits of Taxation

Where are Governments going with Tax?
How much of GDP will they

C. Northcote Parkinson made a bunch of Postulates in the 1950's & 60's:
http://lawsoflife.co.uk/author/cyrilnorthcoteparkinson/
http://everything2.com/index.pl?node_id=740233
http://en.wikipedia.org/wiki/Parkinson%27s_Law_of_Triviality
http://en.wikipedia.org/wiki/C._Northcote_Parkinson
http://en.wikipedia.org/wiki/Parkinson's_Law

Notably, Parkinson postulated:

• Work expands to fill the time available.
• Expenditures rise to meet income.

Which nicely explains the on-going ratcheting up of Tax rates and Government Expenditure.

But what's the Limit? Where does it end?
Governments cannot tax more than 100% of GDP, in fact a lot less..

What are the Optimal Tax Rates under certain operating conditions & assumptions??

Too little Government investment in infrastructure, or "Common Wealth", and Commercial Output declines.

Too much taxation and available Customer Expenditure and Saved Capital declines, starving Enterprises of funds, reducing growth and leading to reduced tax collections.

That modelling should be a priority of Governments, Political Parties and Economists in every Democracy (and other type of Government).

The systemic and long-running misallocation of resources caused the implosion or collapse of the USSR.

No Country is immune - large, small, new, old, Democratic or not...
For more than half a century, the U.S.A. has been the global economic standard and its currency the defacto Global Standard - replacing the Gold Standard before.
But this is nothing written in stone to say it will always be thus.

Rather, these things do not stand still.
Just as "The Sun never set on the British Empire" in the Nineteenth Century and the British Pound reigned supreme, within 50 years the Empire was gone and Britian broke after World War II.

Maybe Parkinson predicted the current situation in 1960, or at least he foreshadowed it, as demonstrated in this review of his work:

INJELITANCE: A vital Parkinson contribution was his diagnosis of why certain organizations suddenly deteriorate: the rise to authority of individuals with unusually high combinations of incompetence and jealousy ("injelitance").

Perhaps permanent solutions to cyclic Economic Crises lies in better understanding backed by good Governance, rather than more regulation.