09/14/11 Baltimore, Maryland – Baltimore is a great town. It has more liquor stores than churches. But it is being taken over by zombies. More below…
Yesterday, the Dow went up 44 points. Gold rose $16.
Just noise. Pay no attention.
Both stocks and gold are moving against what we think SHOULD they should be doing. Of course, Mr. Market doesn’t give a hoot what we think.
At least interest rates and the dollar are following our script. Interest rates are going down. The dollar is going up.
And here’s something interesting. If you look back to the founding of the US Republic you will find only one time — in 1945 — when interest rates were this low. The US 10-year note hit an all-time low of 1.55% right after the war. That was its lowest point ever.
Today, around 2%…the 10-year is within 50 basis points of making a two-century low.
And guess what? We think it will.
Why? Because the Great Correction is for real. And it is bigger than even we realized.
Remember, there is a Great Correction underway, no doubt about that. But we don’t know yet exactly WHAT the correction intends to correct.
The bubble in housing — check.
The bubble in the financial industry — check.
The boom in stocks — probably.
The paper-based dollar reserve system — probably.
But how about this? It looks to us as though America’s outsize position in the world is going to be corrected too. Check this out, from The Economist:
By 2030 China’s economy could loom as large as Britain’s in the 1870s or America’s in the 1970s
It is perhaps a measure of America’s resilience as an economic power that its demise is so often foretold. In 1956 the Russians politely informed Westerners that “history is on our side. We will bury you.” In the 1980s history seemed to side instead with Japan. Now it appears to be taking China’s part.
These prophesies are “self-denying”, according to Larry Summers, a former economic adviser to President Barack Obama. They fail to come to pass partly because America buys into them, then rouses itself to defy them. “As long as we’re worried about the future, the future will be better,” he said, shortly before leaving the White House. His speech is quoted in “Eclipse”, a new book by Arvind Subramanian of the Peterson Institute for International Economics. Mr. Subramanian argues that China’s economic might will overshadow America’s sooner than people think. He denies that his prophecy is self-denying. Even if America heeds its warning, there is precious little it can do about it.
Three forces will dictate China’s rise, Mr. Subramanian argues: demography, convergence and “gravity”. Since China has over four times America’s population, it only has to produce a quarter of America’s output per head to exceed America’s total output. Indeed, Mr. Subramanian thinks China is already the world’s biggest economy, when due account is taken of the low prices charged for many local Chinese goods and services outside its cities. Big though it is, China’s economy is also somewhat “backward”. That gives it plenty of scope to enjoy catch-up growth, unlike Japan’s economy, which was still far smaller than America’s when it reached the technological frontier.
Buoyed by these two forces, China will account for over 23% of world GDP by 2030, measured at PPP, Mr. Subramanian calculates. America will account for less than 12%. China will be equally dominant in trade, accounting for twice America’s share of imports and exports. That projection relies on the “gravity” model of trade, which assumes that commerce between countries depends on their economic weight and the distance between them. China’s trade will outpace America’s both because its own economy will expand faster and also because its neighbours will grow faster than those in America’s backyard.
We keep thinking about how easy it would be to save America. We’re almost tempted to send a letter to the president or something. But why bother? He wouldn’t listen. He wouldn’t understand. He wouldn’t care.
The country is in decline precisely because it is not in his interest to understand. That’s what zombification is all about. The zombies take over. They control the government, the military, the schools, the doctors…even big businesses. They rig the system so that competition is difficult…and honest work scarcely pays.
It is a situation vividly illustrated here in Baltimore. It’s a great city in some ways; it has more liquor stores than churches, for example. But it is a zombie city too…living largely off of taxes and debt. The more “services” the city offers to zombies…the more it attracts zombies to take advantage of them…the higher taxes go…the more the real, private sector moves to the suburbs…and the more zombies are left in control of the city.
It would be easy to fix Baltimore, if the zombies would let you. Just cut taxes…and eliminate the warm flames that bring the zombie moths hovering around. Cut city jobs. Cut handouts. Stop paying people to do nothing.
Maybe we’ll run for mayor. Our slogan: Zombies Out of Baltimore!
We’d get 2 votes. Maybe three. You don’t get elected in Baltimore — or America — by criticizing the zombies. They’re the biggest single voting bloc!
But what caught our attention recently was the problem of security. People are worried about terrorism. Signs up on US 95 still ask for “Terror Tips,” for example.
So here…we’ve got a tip. You want to stop being a target of terrorists? Easy. Stop asking for trouble.
First you have to realize that the Pentagon is as zombified as every other bureaucracy. “Fighting terrorism” is just another zombie make-work project. But it is not just a waste of money. It is worse than that. It makes enemies. America has more enemies now than it had before it began its ‘War on Terror.’
It is a lot less safe.
Gareth Porter explains:
In December 2007, at a conference in Washington, DC on al Qaeda, former State Department Coordinator for Counterterrorism Daniel Benjamin offered a laundry list of things the United States could do to reduce the threat from al Qaeda. But he said nothing about the most important thing to be done: pledging to the Islamic world that the United States would pull its military forces out of Afghanistan and Iraq and end its warfare against those in Islamic countries resisting US military presence.
During the coffee break, I asked him whether that item shouldn’t have been on his list. “You’re right,” he answered. And then he added, “But we can’t do that.”
“Why not?” I asked.
“Because,” he said, “we would have to tell the families of the soldiers who have died in those wars that their loved ones died in vain.”
His explanation was obviously bogus. But in agreeing that America’s continuing wars actually increase the risk of terrorism against the United States, Benjamin was merely reflecting the conclusions that the intelligence and counter-terrorism communities had already reached.
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
The Daily Reckoning is your premier source for making sense of the news Washington and Wall Street generate. Each business day, The Daily Reckoning calls on its stable of world-class writers and thinkers to show you how to get ahead.
Start your 100% FREE subscription to The Daily Reckoning today and you’ll get a free research report, “How to Survive the Fall of Social Security.” Simply enter your email address below to get your free report and join over 495,000 worldwide Daily Reckoning subscribers!
We Respect Your Privacy and We will
Never Share or Sell Your Email Address
Zombies feed off the living, there are fewer and fewer of us remaining!
Can a zombie feed off another zombie?
You’re right, again.
And you say it in a delightfully concise, pithy manner with touches of whimsy & sarcasm. It must of taken decades of observation, reflection & writing to obtain the skill of making a complex situation appear simple.
And you’re right about the Military too, full of zombies … probably in it either for a paycheck/retirement or because they’re just easily misled.
“Three forces will dictate China’s rise, Mr. Subramanian argues: demography, convergence and “gravity”.
A observations:
1) Demography. China’s one-child policy may have dramatic effects on the growth of their economy. Not only will their average age of citizen increase more rapidly than the USA, but also the gender inequality brought about by male-child preferences could make it difficult for Chinese males to find mates, unless they are well-funded enough to go abroad and attract a mate from a surrounding country who’d want to become a citizen of a rather repressive state. Not saying this WILL happen, but I’d like to see what the author’s thoughts are on these.
2) The 4-1 worker ratio with the USA. This assumes that China’s working population is happy with continuing to undercut their foreign competition. How long before UNIONS come to China and prices rise to parity with USA? Already, countries such as Bangladesh are undercutting the historically low labor cost of China.
3) Education. China tends to educate its elite rather than the broader spectrum like the USA does. As the Chinese economy matures, they will have to deal with the disparity of their non-formally educated working force. American education isn’t perfect, but we’re gradually moving beyond the industrial age mode, which China hasn’t even BEGUN yet for it’s lower-class citizens. What challenges will this bring and how will they solve them?
One of the largest problems I see China having is an even more tightly controlled currency than the US has, and a vastly less educated, older population. If their currency is ever allowed to float, their trade surpluses will plummet. Also, they may overtake us in 2030 by means of gross ability to make cheap t-shirts and happy meal toys, but the US still outshines any other country in the world in GDP based on high-tech equipment. To put it another way, any third-world country can take a bite out of China’s GDP based mostly on a vast, cheap labor force, but they won’t be able to do much about stealing high-tech GDP from the USA until they modernize their economies. And once they modernize, they’ll be facing the exact same problems we are. Could be interesting to see if they come up with better solutions or if they fall prey to the same mistakes we’ve made.
“By 2030 China’s economy could loom as large as Britain’s in the 1870s”
by 2030 china’s economy might BE as large as britain’s in the 1870′s. 2/3 of china’s economy is exports to europe and the u.s. without those markets china is a rice paddy. and those markets aren’t looking so good.
“Can a zombie feed off another zombie?”
sure. what do you think most infestors do? infest in other infestors. it all works as long as there are some debt slaves at the bottom of the pyramid who feed the bottom layer of zombies, who then feed the next higher level of zombies, and so on. when there aren’t enough debt slaves then a chain reaction collapse begins – this is called “contagion”.
Ron Paul mentioned the last point at the debate. The ‘they hate us for our freedom’ crowd booed him. We’re doomed.
@Bob said:
“Ron Paul mentioned the last point at the debate. The ‘they hate us for our freedom’ crowd booed him. We’re doomed.”
Bob that’s not what he said what he said was:
“Ron Paul was booed at the CNN/Tea Party Republican debate on Monday night after saying that al Qaeda did not attack the United States because “we’re free,” but because of U.S. military operations in the Middle East and the nation’s “unfair” treatment of Palestinians.”
As I recall we had a minimal military operation in ME at the time, it was just to enforce no fly zone in Iraq that Clinton ordered. On Palestinian issue are we suppose to do not support Israel when they’re attacked? We don’t have military presence in Palestine or Israel. Also our limited military operation in no fly zone does not justify killing 3000 civilians in the US.
Tax cuts didn’t work in 2009. They were half of the Obama stimulus.
Tax cuts didn’t work for George W. Bush either. He cut taxes, what, three times?
The US, like EU-Europe has reached the inflection point for democracy. A majority of voters receives more from government than they contribute. They will always vote to get more from the fewer and fewer which create value… The point of no return..and the end of democratic structure is reached…
Ron Paul has always believed it is neither our obligation or right to enforce any laws, whether our own or the UNs upon any other nation.
What would be wrong with treating the Palestinians with dignity and respect? The brutal treatment they receive at the hands of the Israeli gov. is deplorable and should be unacceptable to a moral society.
Let others sort out their own problems. That is the Ron Paul way and should become the American way.
Were broke. The American Empire will end soon. We need to begin making more friends than enemies.
Rather than developing its own technology and products, China largely purchases the latest means of production, hobbling and stunting its own R&D. Similarly, its ethos of commandeering (or completely ignoring) patents, will guarantee its place as a second-tier manufacturer for many years. Cheating on exams yields higher marks, but otherwise short-changes the student.
Japan, on the other hand, has earned its wings the hard way, conducting its own thorough-going research and product development since 1946. This is in part why it develops world-class products of its own.
China’s “lite capitalism” leapfrogs the “problem child” and fast-tracks to the “cash cow”. And they laugh all the way to the bank. It’s an untenable model that cannot exist on its own merits.
But I’ll give China beaucoup bonus points if it avoids the US’s broken model, where freeloaders and federal parasites kill the host — the vanishing productive worker.
I’ve read recently that feds are our newest class of millionaires if you take the present value of a new hire’s pay and benefits. It’s the very definition of untenable, deplorable, and travesty.
I recently spent some personal time with a Medal of Honor winner and he was outraged by the Pentagon and the fact that it is nothing but a bunch of bureaucrats. He stated that there was bigger patriot than he and his love of country was unwaivering but he thought that we were headed for revolution. He also stated that there are at least fifty 4 Star Generals currently and that during WWII we had maybe 4. If this individual is worried we all ought to be concerned
It’s just as profitable and in most cases a lot easier to rule over the ruins of a city like Detroit or Baltimore. Lots of federal dollars floating around and everyone is corrupt. Fixing those cities is exactly what the politicians running them don’t want.
I voted for Ralph Nader in ’08 and plan to do so again in 2012. This will be the 3rd time he has been on the ballot in all 50 states in the 21st century, and you know what they say about the 3rd time, right?
3 strikes and you’re out, yes?