When the Fiscal Cliff Gets Wet and Slippery


Zombie Smackdown!

Reckoning from Normandy, France…

Yes, dear reader, we’ve found a new form of entertainment. More authentic than professional wrestling. Higher jackpots than Mixed Martial Arts. More action than golf or tennis.

We’re talking about Zombie Smackdowns.

Here’s the story. Governments all over the world are running out of money. Politicians may want to give more cash to the farmers… or to the underprivileged… or to defence contractors.

But there’s not enough money to go around. After paying interest on their debts…and the cost of keeping the lights on…there isn’t much left.

So the zombies are going to have to fight for it amongst themselves. The subsidised farmers against the protected autoworkers. The specially privileged against the underprivileged. The fat-cat defence contractors against the fat-cat tort lawyers association.

It’s going to be fun. Like women mud wrestlers, the scrappers lose all sense of poise and all pretence of dignity.

And it’s coming soon to legislatures all over the world.

Sure, they can talk about taxing the rich. But you could tax the 1% at 100% of their income and it still wouldn’t make much of a dent in the US deficit. The only way to avoid bankruptcy is to tax the middle class… and take away some ‘middle class benefits’. But watch out, you are getting into zombie territory.

Here’s the New York Times:

‘If the government does not hit the brakes and all the provisions that make up the fiscal cliff come to pass, the impact on gross domestic product will be to reduce it 4%, according to the Congressional Budget Office.

‘The nonpartisan Tax Policy Center made the impact more personal: 90% of Americans will see their taxes rise, with an average increase of $3,500. The United States economy will slide back into recession.

‘”Our belief is Congress is going to punt,’ said Thorne Perkin, a managing director at Papamarkou Wellner Asset Management, which advises very wealthy investors. ‘They will turn the fiscal cliff into a fiscal hill and do some form of compromise people can live with. I don’t think anyone wants to go through the full shock.”‘

Yes, the zombies won’t stand for the full shock of austerity. Yesterday came news of a zombie revolt in Britain:

‘Police said the main march was peaceful, but two people were arrested as breakaway anarchist groups protested outside major companies including McDonald’s and Starbucks in the Oxford Street shopping hub.

‘Scotland Yard did not provide an estimate for the turnout on the three-mile (4.8-kilometre) march route but organisers said police had told them that around 100,000 people attended.

‘”This is not a crisis that is going to sort itself out through cuts,” 19-year-old protester Jonathan told AFP. “We’ve had a double-dip recession now, and we are here today to show we are not going to stand it any longer.”

‘In Scotland’s biggest city Glasgow around 5,000 people took part in a separate protest while there was also a march in Belfast, Northern Ireland.

‘Protesters paused to boo at Cameron’s Downing Street residence, and shouted “Pay your taxes!” at a Starbucks coffee shop.

‘Starbucks was embroiled in a row this week after it was reported that the US giant paid just £8.6 million ($13.8 million) in British corporation tax over 14 years.

‘A smaller group of protesters, many of them masked and clad in black, gathered in Oxford Street to demonstrate against big brands accused of tax avoidance.

‘”There’s plenty of tax-avoiding businesses round here and they’re being targeted today – companies like Starbucks, Topshop and Vodafone,” said 18-year-old protester Johnny, a student at London’s Goldsmiths University.’

So far, it’s still “rich vs. poor”. But soon, the zombies will realise who their real enemy is: other zombies!

Here’s a report from Iowa, where some zombies are living high on the hog:

‘”Iowa had had historically low levels of inequality, but now it is skyrocketing,” said David Peters, a sociologist at Iowa State University in Ames who specialises in income disparity. “Today you have far fewer farmers and a small number earning larger and larger incomes. It doesn’t spread through the economy like it used to.”

‘These rural counties reflect divergent recoveries in the first two years since the last recession ended in 2009. During that time, the top 1% of Americans captured 93% of real income growth, compared with 65% during the recovery from the 2001 recession, according to an analysis by Emmanuel Saez, an economist at the University of California at Berkeley.

‘Iowa’s most recent unemployment rate was 5.2%, well short of the national average of 7.8%. While that has complicated Republican Mitt Romney’s efforts to take the state’s electoral votes away from President Barack Obama, the job growth has largely bypassed its least-populous areas.

‘The split has produced climbing levels of need in the nation’s breadbasket. Food-stamp demand in Iowa rose 6% in July from a year earlier, according to the latest government data. That’s twice the 2.9% nationwide increase.

‘Some, like Kari Langel’s directing a federally funded program that taught disadvantaged youth, are disappearing altogether. On the mid-July morning of the farm auction, the 37- year-old mother of five was seeking rental assistance at a local church in Plymouth County. She’s seen other properties sell for even more than what the Schoenemans’ drew.

‘”I’m looking for help, and Johnny Farmer down the road is making $18,000 an acre when I was making more than they did three years ago,” said Langel, who says she lost her job in June and found herself applying for food stamps, unemployment compensation and Medicaid for the first time in her life. “It’s frustrating on so many levels.”‘

Most likely, the feds will turn the fiscal cliff into more like a fiscal water slide. Whee! Taxes won’t rise as much as forecast. Spending won’t be cut as much as the law now requires. Politicians won’t want to take the chance of a full zombie revolution.

But reduced resources will still leave the zombies scrambling. Solar panel manufacturers are likely to have to duke it out with ethanol producers. Food-stamp recipients against college professors. Postal employees against the unemployed.

If only we could charge admission!


Bill Bonner
for The Daily Reckoning Australia

From the Archives…

China’s GDP Growth Ponzi Scheme
19-10-2012 – Greg Canavan

An Australian Property Boom and Bust all at Once
18-10-2012 – Greg Canavan

The Fed’s New Stooge
17-10-2012 – Bill Bonner

Discordian Religious Advice for the Investor
16-10-2012 – Nick Hubble

Electric Cars and Platinum Mines
15-10-2012 – Dan Denning

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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