Basically, France had been in what amounted to a five-year long financial crisis by 1789, and it faced a serious, multifaceted economic emergency in that year. One major economic problem the French government confronted was a crippling national debt. This was the result of massive spending on the administration of the royal bureaucracy, the financial burden of supporting the royal court at Versailles, and especially military spending, much of which had been expended on French participation in the American Revolutionary War. By 1788, the French government was no longer even able to pay the interest on its growing debt.
Another facet to the economic crisis had to do with the structure of the French tax system itself. Under the outdated social and political system, the French nobility was basically exempt from taxation, and attempts by the ministers of Louis XVI to reform this system were met with opposition from the French courts. This was both a symptom and a cause, because by diminishing confidence in the ability of France to repay its debt, the French government made it unlikely that they would be able to secure future credit, either from the sale of bonds or from foreign investors.
Finally, the year 1789 witnessed one in a series of crop failures which led to a severe food shortage and inflation (rising food prices) especially in Paris and other urban areas. This economic crisis struck at exactly the time the nobles, the monarch, and the educated bourgeoisie were squabbling over the tax system, and when Louis's ministers were scrambling to figure out how to service the debt. This even goes a long way toward explaining why many ordinary Frenchmen supported the early efforts toward reform that led to the French Revolution. As one historian puts it: "Hunger...did not abate, and the traditional bread riot became more serious because it was occurring at a time of political crisis."