The Economy: “How the Feds Produced a Zombie in Every Family”

“How the Feds Produced a Zombie in Every Family”
By Bill Bonner

“We have met the zombies… and they are us! Calm action on Wall Street. After hitting a new nominal high, the Dow backed off a bit. Gold, on its way to $1,800, also dropped back for a rest. But that’s just noise. The real story is that the major governments of the world are running huge deficits… and the world’s major central banks are printing money. Where does that take us? That’s the real question.

Printed money is not the same as real money. It is cheating. Counterfeiting. Putting out something that pretends to have real value… but is nothing more than paper. And the more the feds cheat… the more everyone else cheats. When the feds connive and cheat on the money… everything else gets fiddled up. Instead of encouraging work, production, and real wealth-building, the phoney money causes people to wonder… to speculate… and to cheat. Instead of working for a living, they try to get the free money.

This is the process we call ‘zombification’. People are turned from honest workers into parasites… zombies… and chisellers, each trying to get as much as he can, as quick as he can, from the fiddled-up system.

Too bad Mitt Romney didn’t explain. But he’s got the zombies on his back too. There are so many of them now… they’ll decide this election.

As time goes by… and more and more of the nation’s wealth is redistributed, redirected and re-’invested’ by the feds… more and more people get in line. That’s why there are 46 million people on food-stamps… 2.65 million on the direct federal payroll, millions more who work for its contractors, suppliers, and federally-favoured industries… and more people, during the Obama administration, who chose disability payments rather than work. It’s also why we have $1.2trn, fully loaded, of ‘security’ related spending when the biggest threat the nation faces is bankruptcy.

Of course, a society can only carry so many zombies. As the costs mount, the productive sector bends and staggers under the weight. At some point, it has no choice. It shrugs off the burden… or it collapses. But not without a fight. We call that battle the ‘zombie wars’. Here’s the Associated Press with a report from the front in Rhode Island:

    “$1.4T In Pension Fights On The Table”

“Cities and states around the country are shoring up battered retirement plans by reducing promised benefits to public workers and retirees. All told, states need $1.4 trillion to fulfill their pension obligations. It’s a yawning chasm that threatens to wreck government budgets and prompt tax hikes or deep cuts to education and other programs. The political and legal fights challenge the clout of public-sector unions and test the venerable idea that while state jobs pay less than private-sector employment, they come with the guarantee of early retirement and generous benefits.
 

Nowhere have the changes been as sweeping as in Rhode Island, where public sector unions are suing to block an overhaul passed last year. The law raised retirement ages, suspended pension increases for years and created a new benefit plan that combines traditional pensions with something like a 401(k) account. “This saved $4 billion for the people of Rhode Island over 20 years,’ said state Treasurer Gina Raimondo, a Democrat who crafted the overhaul. ‘Rhode Island is leading the way. I expect others to follow, frankly because they have to.”

Are zombies bad people? Are they bad firemen or bad teachers? Is everyone who benefits from zombification a bad person? We hope not. Because we’ve been a major beneficiary! Yes, dear reader, a confession: when the feds fiddle the money it greatly increases financial uncertainty. And that makes more people want to read what we write. Because we try to understand it… to explain it… and to tell dear readers how to protect themselves. People pay for subscriptions to the financial press… to magazines, newsletters, and newspapers… to find out what it going on… and what to do about it. We don’t give specific investment advice in this column, but follow almost any of the links and you’ll find some.

Normally, ordinary people don’t need much investment advice. They work… and save their money. But when the feds fiddle the money… everyone needs to know how to protect themselves. That’s why we love Ben Bernanke, the feds, and the zombies… they’ve been great for business. Of course, we’ve stuck to our simple mantra over the years… sell stocks on rallies, buy gold on dips.

Zombification has gone so far that there is a little bit of zombie in every family. Someone gets Social Security. Someone gets unemployment comp. Someone works for the government. But watch out. A society can only stand so much zombification. War is inevitable. And the zombie war may not be much fun. It is a war with more than just a few isolated battles. It’s a nationwide struggle… pitting father against son and brother against brother. Here, in “The Atlantic”, a young man goes after his father’s Baby Boomer generation: “Ultimately, members of my father’s generation generally defined as those born between 1946 and 1964 are reaping more than they sowed. They graduated smack into one of the strongest economic expansions in American history. They needed less education to snag a decent-salaried job than their children do, and a college education cost them a small fraction of what it did for their children or will for their grandkids.
 

One income was sufficient to get a family ahead economically. Marginal federal income-tax rates have fallen steadily, with rare exception, since boomers entered the labour force; government retirement benefits have proliferated. At nearly every point in their lives, these Americans chose to slough the costs of those tax cuts and spending hikes onto future generations.
 

Those retirees and near-retirees bequeath a shambles to their offspring. Young people are unemployed at historically high levels… The Pew Research Center reports that middle-class families today are 5% less wealthy than their parents were at the same point in their lives, after adjusting for inflation, even though families today are far more likely to include two wage earners. Another Pew report shows that those aged 55 to 64 are 10% wealthier today, even after the Great Recession, than Americans of that age bracket were in 1984. Those younger than 35 are 68 percent less wealthy than the same bracket was in 1984.”

Judging by the last ten years, stocks will make zero real progress during the lifetimes of our children. This will force them to actually save money, the old fashioned way, if they want to get ahead. But good luck with that. The IMF estimates that they will have to endure a 35% hike in tax rates plus a 35% cut in benefits, in order to keep America’s social welfare systems from going broke. On health care alone, a couple retiring this year should reap about $200,000 more in benefits than they paid in taxes. As for the next generation… they’ll be very lucky if the system is still functioning. That’s why the next generation must fight to get the zombies off its back.”

http://www.dailyreckoning.com.au/