First of all - what does that mean in practical terms?
Surely the government can't stop existing completely, that's a crazy idea??!
I have no expectations of a full on wiping out of the state for all time, what I see coming down the pike for most of the western world is a dramatic reduction is the size and scope of the states powers and place in society. Ironically, this will also come when the power and reach of the state seems to increase beyond all measure overtly.
At some point soon in the UK/US/eurozone either people will go to withdraw their money from the bank at the end of the month and it won't be there, or they will succeed and it will be worthless due to inflation. This basically means that state workers (and everyone else) are not going to get paid.
The tertiary functions of the state - roads, police protection (i.e. the stuff they do to provide excuses for taxing everyone) hospitals, schools, welfare, benefits......this kind of stuff is going to have it's funding curtailed, stopped altogether or stolen by insiders.
And so those services will break down. But not as badly as one might think because it is the case that a lot of well meaning and indeed hardworking people are in those sectors. In extremis some nurses, teachers, policemen, doctors etc will roll in to work for free.
But not for long and not without a lot of shouting. The good news is that people actually want those things, so there will always be a market for them and always be a way of acquiring at least some measure of them.
The governments of the west are enormous and powered as much by inflation as by taxation. With the inflation mechanism effectively broken the government will have to cut back on what it does.
First order - looting for those who run the upper tier of the state. That's what this game is all about. Once the people "at the top" can't extract lots of wealth without a lot of risk, they'll bugger off overseas or retire or whatnot.
Second order - protecting the top tier and forcing the population. This is the troops on the street, the policemen who do what the top statists tell them, the army, the muscle of the state.
These will be the priority for the statists to keep going. As the inflation mechanism falters, expect them to try and get in resources in other ways - more taxes, more fines, more licences, more control, direct seizures of property with no recourse - everything they usually get up to, but on steroids.
Traditionally this has meant.....a really large land grabbing war but nuclear weapons have made such a war a pointless activity, there is no point in stealing several thousand square miles of radioactive crap while having to live in a bunker yourself forevermore.
http://en.wikipedia.org/wiki/Failed_state#Indicators_of_State_Vulnerability
Economic Indicators
6. Sharp and/or severe economic decline: measured by a progressive economic decline of the society as a whole (using: per capita income, GNP, debt, child mortality rates, poverty levels, business failures.) A sudden drop in commodity prices, trade revenue, foreign investment or debt payments. Collapse or devaluation of the national currency and a growth of hidden economies, including the drug trade, smuggling, and capital flight. Failure of the state to pay salaries of government employees and armed forces or to meet other financial obligations to its citizens, such as pension payments.[10]
7. Criminalization and/or delegitimisation of the state: endemic corruption or profiteering by ruling elites and resistance to transparency, accountability and political representation. Includes any widespread loss of popular confidence in state institutions and processes.[11]
8. Progressive deterioration of public services: a disappearance of basic state functions that serve the people, including failure to protect citizens from terrorism and violence and to provide essential services, such as health, education, sanitation, public transportation. Also using the state apparatus for agencies that serve the ruling elites, such as the security forces, presidential staff, central bank, diplomatic service, customs and collection agencies.
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The question I have been asked is "Do you think that state failure has been planned."
And my honest answer to that is I do not think so, but on my more tinfoil days I might be inclined to. I certainly think that the fallout has been planned for - witness the Uk's now prime minister Brown selling all the states gold to his banker chums when it was at it's lowest price in decades...
The problem that even the statists have is that using the state is a lot like riding a tiger, it might get you where you wanted to go but it's dangerous to get off once you arrive. Once a state is started, it's hard to stop the inevitable growth, levelling off and collapse.
