US Wealth Distribution: Where Zombies Go to Feast

Reddit

A warning… Bad stuff coming!

We’ve come to the warm latitudes for our Christmas holiday. Your editor didn’t really want to do so. He travels so much for business, he longed to stay home for Christmas. He imagined himself sitting in front of the fire…happily drinking eggnog and eating fruitcake. Or, cutting down trees and mending fences.

It was not to be. He was outvoted. Here we are in Florida…on our way to Nicaragua…where we will spend Christmas not too far from the scene of an incipient border war…

We haven’t been down there for 2 years. We’re going to find out what is going on.

First, we have to warn readers. Bad times are coming. Our Indian colleagues alerted us. The Hindu era of Kalyug is beginning.

What’s Kalyug?

It’s the “age of bad stuff…about 432,000 years of it!”

Whoa. Well, that kind of puts our worries about de-leveraging debt crises into perspective, doesn’t it? By our calculation, de-leveraging will end and we’ll still have about 431,992 years of Kalyug to get through.

Those Hindus really do think long-term, don’t they?

We Episcopalians are more short-term oriented. We’ll worry about things 6 months out. Maybe 24 months. But that’s about it.

Not much action on Friday. The Dow was down 7. Gold was up $8.

What do we see 24 months into the future? Well, you’ll probably think we’re kidding about this, but we’re actually very serious:

The zombies are taking over.

We’re not joking about this zombie thing. Look at what is happening. Here’s a report from Bloomberg:

Dec. 15 (Bloomberg) – The gap between the haves and have-nots in the US is being drawn along geographic lines, Census Bureau data showed yesterday.

The number of counties where median household income decreased is almost 10 times the number that saw an increase, according to a Bloomberg analysis of Census figures comparing an average of the years 2005-2009 with 2000. The government figures also showed a concentration of wealth and education in coastal states.

The Washington metropolitan area emerged as the wealthiest and most educated region of the past five years. The only three communities with median household incomes higher than $100,000 are in suburban counties in Virginia. Maryland, which also borders the nation’s capital, saw income levels in Howard County increase at the eighth-fastest pace in the US since 2000.

The Washington suburbs are home to government contractors such as Bethesda, Maryland-based Lockheed Martin Corp., the world’s largest defense company, and General Dynamics Corp., the Falls Church, Virginia-based maker of Abrams tanks and Gulfstream business jets.

The Washington Post, the zombie paper, gave the news a positive tune:

“Area Counties Richest in Nation,” was the headline…or something like that.

So you see, this “geographical” distribution is really a zombie distribution. If you work for the feds – directly or indirectly – you get more money. Most likely, you’re no longer creating wealth; you’re consuming wealth that others created. That’s what being a zombie is all about.

And as a society becomes more corrupt and degenerate, there are more and more zombies and fewer wealth-creating citizens.

But wait. There’s more…below.

And more thoughts…

The zombification process runs deep. It changes the nature of what most people regard as “wealth.” Instead of wanting to own a profit-making business, or lend to a wealth-increasing enterprise, more of what passes for wealth is actually a claim against the government. It is a promise by sitting politicians to rip off the future on behalf of the present.

Let’s look at how it works…

In an economy like India’s, a man who wants to prosper will start a business of his own…or invest in someone else’s business. If he wants a decent retirement, he will have to save real money. He’ll need real capital…which supports him by producing real interest or real earnings. He has a claim against future increases to the world’s wealth. But that is wealth that he helped create…by saving and investing.

But in the US, more and more people depend on the government for their retirement financing. The government pledges to take money from future earnings too. But it is a zombie claim; it does not depend on adding to the world’s wealth. It merely takes away the wealth of others.

If an American wants a good-paying job, he looks to the government itself, knowing that its salaries are higher than those in the private sector, and more reliable. And even if the American invests in a private business, the enterprise is more and more likely to depend on the government for contracts, subsidies, tax breaks, regulatory approval or bailouts.

Gradually, “wealth” itself becomes zombified. Insurance policies are backed by government bonds – local or federal. Pensions are heavily dependent on claims against the government. And don’t forget that 42 million people in the US depend on government handouts just so they can eat. Food stamps – the breakfast, lunch and dinner of zombies – have never had so many takers.

This process is completely predictable. The more you subsidize zombies, the more zombies you get. And as the zombie population grows, it becomes more difficult to support. Finally, the paper zombie claims – US Treasuries/welfare/government employment/the US dollar – fall in value. There are too many of them for the private sector to sustain. PIMCO chief and bond expert Bill Gross says the Fed’s purchases of US Treasury bonds “will likely signify the end of the great 30-year bull market in bonds.” That’s just the way it works. As the parasites grow, the host weakens. The more you borrow, the lower your credit rating. The more women you date, the harder it is to remember their names.

*** The poor Irish. Moody’s downgraded their debt. Not just one level. Five levels. Irish debt is now rated at the same level as Russian debt.

Isn’t it obvious that the Irish problem is not just a cashflow crisis? The problem is solvency, not liquidity. Irish banks got in over their heads. Then, the Irish government jumped in the water after them, taking on the debt of the banks.

The solution? Simple. Default.

But zombification continues in Europe as in America. Claims against profit-making (though reckless) private banks are now claims against the government. And governments can print money as well as lend it. The European Central Bank is doing the same thing the Fed is doing. It is buying up bonds issued by Ireland and other nations – at the rate of about $1 billion per week.

Regards,

Bill Bonner.
for The Daily Reckoning Australia

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

Latest posts by Bill Bonner (see all)

Reddit

Comments

  1. talking of what could transpire for the next decade – a read of what happened in the long depression of 1870 – 1890 in the United States may be of interest

    http://en.wikipedia.org/wiki/Long_Depression

    richard goers
    December 21, 2010
    Reply
  2. This article is very offensive. The poor and dependent are people too. This sort of talk may be acceptable in the US- but it turns us right off.

    Reply
  3. From a purely psychological perspective, Dan has a few problems. His insatiable desire for world wide chaos and financial ruin indicates he holds deep hatred for those who currently hold the majority of wealth and power. A bit like Assange with his anti-power stance.

    Dan correctly observes that the World’s governments are hopelessly short sited, inept and self-serving. But really, this is the way governments have always been! It’s never been any different, and economies still seem to chug along quite ok.

    Dan would have you all believe that you need to prepare yourselves for the end of the World. What he’s really saying is “I want those in positions of power and wealth to lose everything”.

    If you looked at Dan’s childhood, you’d likely find his parents were more concerned with their own wealth and status than his welfare. This creates enormous resentment and bitterness towards the establishment.

    Anyway, the thing is, don’t waste time building a bunker.

    Reply
  4. Calling a bludger a bludger doesn’t turn me off Michael. I reckon BB is correct when he says “The more you subsidize zombies, the more zombies you get.”

    Reply
  5. The poor and needy are people too, I agree fully. I also believe that we need a social welfare system to support those in genuine need.
    I also believe that if the social welfare is too expansive, too easy to obtain and too generous then it will be abused.

    Think of you as the government, throwing a couple of chips to the seagull with the missing leg.. does not take long for the other sea gulls to start squawking for “their fair” share of the handouts.. soon they stop working (looking for food) and wait for their handouts.

    I don’t mind paying taxes to support the genuine needy, public hospitals, public education (to high school standard) our defense force..
    I do not like paying taxes to see those taxes wasted on FHBG, Lesbian Surf Board Designers and sporting stadiums and government grants on the study of navel fluff. FHBG take the incentive out of saving, The First Home Savers Account I like, I would also like to see some sort of “equity” deal people could use their superannuation to help buy a house.. that creates incentive to save money, not spend it on crap and then put the bite on taxpayers for a freebie gift to help buy a house. If the FHBG was a HECS type system whereby you had to pay the money back if/when you sell your home would be better. eg buy a $400000 property with $40000 Grant/Super Equity as a deposit Sell house in 10 years for $600000 pay 10% of that back to your super or government. Only on owner occupied properties.

    Stillgotshoeson
    January 1, 2011
    Reply
  6. “…does not take long for the other sea gulls to start squawking for “their fair” share of the handouts…”

    The stats tell us this is probably 5% of our current population at max.

    Though we’ll never get a dollar in pension, neither of us begrudge the first great wave of BBs who turn 65 this year accessing old age pensions. Nor do we mind those who genuinely seek work getting an interim payment to keep them alive and mobile enough to look for work.

    And FHBGs and FHSAs actually assist tenants to break out of the lifelong tenancy trap. We ought to be _entirely_ against that, as it means rents plateau and even fall. At the rental peak, realtors were predicting $420 per week for the second last of our projects. We’ve been getting $380 ever since. That’s mainly the result of a.) the emptying of the rental pool, as 200,000+ FHOGs moved from tenancy to ‘ownership’; b.) a two year house over-supply, which appears to have ended here around October-November 2010. We’re now in undersupply, with rents rising again.

    I do realise that FHOGs can’t help a significant population of Keen’s Kavaliers, who ride forward believing in a crash; other than to keep their rents down as they charge forward into another decade. ;)

    Biker Pete
    January 2, 2011
    Reply
  7. I thought about questioning your stats Biker. But figure 10% would pull it up regardless. So it’s not especially worth squabbling about.

    Though it would be nice to have some definitive way to definitely identify the bludgers and pack them off to Antarctica with a nice thick sweater, a knife and a fishing line. Though we’d just get the squeals: “What about their little kiddies!?!?” Hmmm …

    Reply
  8. I’ve got it!!! – If their little kiddies are female we can sell them to Chinamen in need of a missus and if they are male we can give them to Obama to bolster his armed forces – Now how’s that for a plan! :D

    Reply
  9. Figure that the US is going to have major industrial issues dwarfing those of Greece, Portugal and France, Ned. Glad we live in GOC, mate!~ :D

    Biker Pete
    January 3, 2011
    Reply
  10. Comment by Biker Pete on 3 January 2011:

    Figure that the US is going to have major industrial issues dwarfing those of Greece, Portugal and France, Ned. Glad we live in GOC, mate!~

    Those coming troubles for the US are going to effect China and so us here in “GOC” will also be effected.. To what extent? That is the conundrum.

    Stillgotshoeson
    January 3, 2011
    Reply
  11. Must admit, I’m parochial enough to think it’s a jolly fine thing if Asia and India can continue to grow nicely with Oz tagging along for the ride.

    China isn’t the only BRIC battling higher inflation than they’d like. Russia is having problems with it too. The official figure is about 8%. But that translates into 10 to 15% for real people buying real things I gather – Not that it is anything exceptionally unusual for Russia!

    Not sure about the others.

    Reply
  12. Any US industrial effects on China must certainly affect our share market. To what extent will China’s emerging domestic markets and those of Asia reduce any other effects on GOC?

    It’s possible that China will surpass the US in the next decade, in many areas of critical importance. I don’t see this as particularly desirable, any more than I do the economic collapse of the US. The latter seems inevitable given the rate at which they’re squandering their natural resources and the unlikely probability they can turn the ship around, should they even wake in time.

    So far we’ve enjoyed relative immunity, along with Canada. My guess is they’ll be more affected by economic and industrial troubles in the US;
    although as a larger market than GOC, they’re likely to benefit from any US-China trade reduction.

    Unlike a few here, I see China’s growth as complementary to resource-based economies and can’t see it slowing for a decade or two, other than the occasional brakes China itself will apply. There’ll be some downside to that, particularly for economies which have, in the past, been able to manufacture products competitively. If you think Hyundai is a success story, wait until China revolutionises cheap, longer-range EVs… .

    Biker Pete
    January 3, 2011
    Reply
  13. “Must admit, I’m parochial enough to think it’s a jolly fine thing if Asia and India can continue to grow nicely with Oz tagging along for the ride.”

    Mate, you took the words right outa my mouth!~

    Biker Pete
    January 3, 2011
    Reply
  14. Steve’s quote of the day

    “Wealth redistribution can best describe the property investor of the past 10 years”

    Reply
  15. Biker’s quote of the day:

    “Bought my dream TV 54% off last year’s prices… with more features… and a five-year-warranty thrown in”

    Gawd, we investors are _hurting_ !! We HATE this recession! ~ :D

    Biker Pete
    January 3, 2011
    Reply
  16. Shoes Quote of the Day

    Biker is a hypocrite……..

    Derides those he thinks are waiting for the property crash like vultures waiting to feed on the suffering of others…….

    Yet he rides in to the electrical retailer struggling to maintain sales… discounting just to get sales and try to stay in business and he says, yes Mr Retailer, I will buy goods from you now…

    Stillgotshoeson
    January 3, 2011
    Reply
  17. Waiting in hope that the US will crash, Shoes plans his trip to the US, in adulation of this mighty power. There’s hypocrisy for you… . ;)

    Shoes is also illiterate: affect [verb] effect(s) [noun(s)]

    Shoes *are* slipping. People who rent glass houses shouldn’t throw stones.
    How’s that auction proceeding, son?

    Reply
  18. Shoes plans his trip to the US

    I go every few years…. regardless of economic conditions of the world ;)

    Stillgotshoeson
    January 3, 2011
    Reply
  19. “I go every few years…. regardless of economic conditions of the world ;)”

    Of course you do!~ ;)

    Biker Pete
    January 3, 2011
    Reply
  20. Grammar Rules for Affect and Effect

    If you are talking about a result, then use the word “effect.”

    If you want to describe something that was caused or brought about, the right word to use is “effect”.

    Pretty sure I am talking about a result…

    Stillgotshoeson
    January 4, 2011
    Reply
  21. Comment by Biker Pete on 3 January 2011:

    “I go every few years…. regardless of economic conditions of the world ;) ”

    Of course you do!~

    1989, 1993, 1997, 2001, 2003, 2005, 2007, 2008 and now 2011.

    Stillgotshoeson
    January 4, 2011
    Reply
  22. Sounds like a little bit of hero-worship, Shoes!~ :D

    But more to the point, how are your plans for your SMSF property acquisition faring, son? Got your fellow P & C vendors down on their knees yet?!~ ;)

    Biker Pete
    January 4, 2011
    Reply
  23. “Grammar Rules for Affect and Effect If you are talking about a result, then use the word “effect.” If you want to describe something that was caused or brought about, the right word to use is “effect”.

    Pretty sure I am talking about a result…

    Mate, you don’t know WTF you are talking about. ;)

    You said: “Those coming troubles for the US are going to effect (WRONG) China and so us here in “GOC” will also be effected.. (WRONG) To what extent? That is the conundrum.

    Yes, it’s a conundrum all right. Irishman trying to teach me English… :D

    Biker Pete
    January 4, 2011
    Reply
  24. Mate, you’re obviously pretty p*ssed.
    Go to bed.
    Let’s hope we’re not on the same effing plane!~ :D

    Reply
  25. “…he includes selected “fan mail” in his latest research pack…”

    HaHa… . Reminds me of the fella who cites a fan who claims he has ‘God-like powers’.

    (At least he ‘sees’ China, Ned. That other keen visionary appears to have completely overlooked it. ;) )

    Biker Pete
    January 4, 2011
    Reply
  26. Comment by Ned S on 4 January 2011:

    This nasty man doesn’t like China fellahs:

    I am siding with this guy. He IS on the money.

    Stillgotshoeson
    January 4, 2011
    Reply
  27. Well Shoes, you’re _always_ right, son… so China is doomed, along with the Ozbuck, the banks, retailers, FHO, other home owners, property investors, the employed… let’s see, did I leave anyone out? No, that’s your current list, I think.

    Meanwhile, for those of us who don’t have crystal balls, some classic Pascoe:
    http://www.watoday.com.au/business/something-for-everyone-in-legs-11-20110104-19ebm.html

    Reply

Leave a Reply

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@dailyreckoning.com.au