Via Marginal Revolution, Calculated Risk discusses a possible scenario concerning oil prices, Gulf Cooperation Council (GCC) country spending, and the US trade deficit:
The following graph is interesting. This reminds me of how the surge in California state government revenues in the late '90s (due to the tech stock bubble), led to a concurrent surge in government spending. When the tech bubble burst, the state budget went bust.
The same pattern has been repeated across the U.S. recently with surging government spending based on revenues from the housing bubble. Now, almost every week, we see a story about some state or local government laying off workers and cutting their budget as revenues from housing decline.
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