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.
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.
for The Daily Reckoning Australia