Goodbye, Detroit Motor City

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Gold is not the only money. But it’s the only kind the works in our extended economy.

Today, we approach the same story from a different angle.

It is the story of what happens next — when the growing power of zombies meets declining available resources.

Motor City has been flattened. Now it’s being scrapped. The largest municipal bankruptcy in history. Detroit was once one of the richest…and most dynamic…cities in the world. And it was the centre of America’s most profitable industry: automobiles.

German and Japanese automakers had the good fortune to be bombed out in World War II. But Detroit grew bigger…more prosperous…and full of zombies.

Yes, dear reader, Detroit is a zombie story. Since 1971, almost all big stories have a zombie angle. Because the credit-based monetary system that Richard Nixon put us in is a perfect habitat for zombies.

The New York Times has the report:

Detroit, the cradle of America’s automobile industry and once the nation’s fourth-most-populous city, filed for bankruptcy on Thursday, the largest American city ever to take such a course.

Not everyone agrees how much Detroit owes, but Kevyn D. Orr, the emergency manager, has said the debt is likely to be $18 billion and perhaps as much as $20 billion.

For Detroit, the filing came as a painful reminder of a city’s rise and fall.

“It’s sad, but you could see the writing on the wall,” said Terence Tyson, a city worker who learned of the bankruptcy as he left his job at Detroit’s municipal building on Thursday evening. Like many there, he seemed to react with muted resignation and uncertainty about what lies ahead, but not surprise. “This has been coming for ages.”

Detroit expanded at a stunning rate in the first half of the 20th century with the arrival of the automobile industry and then shrank away in recent decades at a similarly remarkable pace. A city of 1.8 million in 1950, it is now home to 700,000 people, as well as to tens of thousands of abandoned buildings, vacant lots and unlit streets.

Yes, the handwriting has been on the wall for a long time. But what does it say?

We’ll answer that without hesitation. It says ‘Beware of Zombies’.

And here we offer a simple test so Dear Readers can tell which side they’re on.

Ask yourself: In the absence of government would people still willingly give you money to do what you do? If the answer is no, you are probably a zombie.

Here’s how it works…

When people realise they can use the police power of the government to get other people’s money, they rarely hesitate. In the case of the Motor City, unionised workers found that they could use government to back their demands. Gradually, wages and benefits rose…

After World War II, Germany and Japan built new auto industries, with factory workers who were willing and able to turn out better cars at lower prices.

Detroit, by contrast, let its machinery get old…and let its workers get soft. Due to poor quality, out-of-date styles and high costs, the US auto businesses could barely make a go of it.

Light manufacturing was fleeing the country — to China, Southeast Asia and Mexico.

The heavy industry — car making, steel, mining — was a sitting duck. It couldn’t protect itself from zombies. The zombies soon got control over the government…and then preyed upon fixed industries.

Only four years ago, the US federal government bailed out GM. Or rather, it bailed out its zombified labour unions — guaranteeing wages and benefits the company couldn’t afford to give.

What was happening in the motor business was happening even faster in the Motor City.

As Detroit zombified, productive businesses and taxpayers moved out. Zombies were all that was left. People on welfare. People working for the government. People who were disabled. Crooks, malingerers, shysters — they were all there, getting money for nothing in the age-old zombie fashion.

Was there no way to turn Detroit around?

Of course there was. It was obvious how to do it. But who wanted to do it?

The more dysfunctional the city became the more money the city’s sleaze-ball leaders got from the federal government. That’s how zombieism works: The worse things get the better they are for the zombies…

Zombieism is like drug addiction. You rarely just ‘give it up’. Instead, you have to go all the way…and hit bottom.

Detroit may be hitting bottom now.

And how long will it be before Baltimore and Chicago go broke too?

It depends on how fast interest rates rise. The higher they go the harder it is for these cities to keep up with their promises to the zombies. And since interest rates are probably embarking on a long-term secular rise…it is just a matter of time before they all go broke.

That is when the jig is up. Zombies fall. The credit-based money system collapses…

Gold rises.

Regards,

Bill Bonner
for The Daily Reckoning Australia

Join The Daily Reckoning on Google+

Ed Note: This is an edited version of China’s Game of Texas Hold ‘Em, which originally appeared in The Daily Reckoning USA.

From the Archives…

Why There’ll Be More Fringe Benefits Tax-Like Bombs in the Future
19-07-13 – Greg Canavan

The End of The Economy Deformed by Easy Money
18-07-13 – Greg Canavan

A World Without Money?
17-07-13 ­– Bill Bonner

A Credible Threat to Gold?
16-07-13 – Greg Canavan

The Making of a Modern Debt Slave…
15-07-13 – Bill Bonner
 

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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7 Comments on "Goodbye, Detroit Motor City"

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John Graham
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Would we have gotten the same result had we not given up to the idea of Globalisation ? We can buy cheap Asian cars now made with cheap labour. There would have been a revolt on our hands had we asked Auto workers in Western Countries to work for a bowl of rice day . Loyalty went out the window with Globalisation. Most betrayed their Country and switched to cheaper costing higher quality Asian vehicles. Alright so we got to buy things alot cheaper. Not just Auto cars but almost everything. Great result for the downtrodden and poor. Their Govt… Read more »
Pravin
Guest

nonsense graham -more detroit jobs were lost by automation and hi technology rather than asian competition.the US manufacturing output is still far above what it was in the 1980s.it just takes fewer workers/low skilled hands.most of the output comes from machines now.
also,what loyalty? the concept of nation states as we know it today is less than 100 years ago – a blink in the eyes of history.such faux economic patriotism is essentially a convenient deadhorse to flog for pseudo patriots

slewie the pi-rat
Guest

“And how long will it be before Baltimore and Chicago go broke too?”

Step right up, ladies and gentlemen!
reckon when wreckin!

as the judges fly toward “#9” this also has a legal aspect beyond Beatles’ royalties: the mucky-mucks also decide whether CDS are triggered, somewhere along this can-less, kick-less road.

BK is deflationary.

telling retired Detroit cops they aren’t gonna get their pensions?
priceless!

Greg
Guest
John, I suggest that you read “The Great Betrayal” by Pat Buchanan if you want the truth about globalisation. He wrote the book in 1998, a decade before the GFC, which vindicates him completely. He is American, and he writes about America, but the same principles apply to all developed economies. Pravin’s comments are nonsense. Most of American manufacturing has already been outsourced to countries with cheaper labour costs, and US manufacturing output has been decimated. Furthermore, nation states have existed for at least 500 years. Beware of people who just make stuff up to support viewpoints that are not… Read more »
none
Guest
John said: “Loyalty went out the window with Globalisation” Loyalty that leads one to buy an inferior product that is badly overpriced is misplaced. The only kind of loyalty that would linger if you want would be race-tinged: a refusal to buy better foreign cars because they are made by foreigners. Pat Buchanan is one of these racist. His views are “National Socialist”: he wants the government to run our lives and take away our freedoms based on some perception of national interest. Buchanan never tells the “truth” about globalization, but he does want governments to make economic decisions that… Read more »
none
Guest

The opposition to globalism is a combination of fascism (defense of the divine right of ruling elites to make our personal economic decisions for us), resistance to change, greed and sloth, and a large tinge of racism.

none
Guest
And finally, Mr Graham, it is not about “betraying our nation” at all. In case you have not gotten the news, WW2 is over. Japan is no longer the enemy. If anyone is an “enemy”, it is certainly not a Japanese worker who offends some people by daring to do high quality work to produce a generally above-average car in the global market place. Perhaps the “enemy” would be the Chrysler worker who demanded to be paid $70 an hour to come in to work drunk, and do such work that the cars he/she made were the worst sold in… Read more »
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