How does a Zombocracy end?

Sep 14, 2012

Normandy, France

Zombocracy: a government run by parasites, loafers and chiselers....for the zombies, by the zombies and of the zombies.

How does a Zombocracy end? Disastrously.

But we'll come back to that. First, let's look at the latest zombie news.

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Yesterday, Ben Bernanke announced that he would keep feeding the zombies until...well...until the economy goes broke or improves. (We know which way we're betting!) Here's the story from Bloomberg: Bernanke's Battle for Jobs Eclipses Inflation Concerns

Ben S. Bernanke for the first time pledged that the Federal Reserve will buy bonds until the economy gets closer to his goals, cementing his place as the Fed's most innovative chairman and signaling the battle against unemployment eclipses any concerns about inflation for now.

The central bank yesterday announced its third round of large-scale asset purchases since 2008, with the difference that it didn't set any limit on the ultimate amount it would buy or the duration of the program. Instead, Bernanke said stimulus will be expanded until the Fed sees "sustained improvement" in the labor market.

Stocks rallied, sending benchmark indexes to the highest levels since 2007, and gold climbed after the Fed announced it would buy $40 billion of mortgage debt a month. The central bank also extended the prospect of near-zero interest rates until mid-2015 and said policy will stay accommodative "for a considerable time" even after the economy strengthens.

"This is a Main Street policy, because what we're about here is trying to get jobs going," Bernanke said at a news conference yesterday in Washington. "We're trying to create more employment. We're trying to meet our maximum employment mandate, so that's the objective."
A 'main street policy'? Not at all. Main street gets no juice from QE. Real people earn real money by doing real work. Instead, it's a zombie policy - feeding the banks and the layabouts with phony money no one ever earned. The Dow rose 206 points yesterday. Gold shot up more than $30.

How does Main Street benefit? Will it increase jobs? Nah... why would it? It will push down interest rates further, discouraging people from lending money. It will put more money in the hands of the zombies...and less in the hands of honest working stiffs. And it will push up prices for food and gasoline - discouraging regular households from spending money.

But Bernanke says he'll keep doing it. And so, we wonder...

How does it end?

Some of these zombies can really strike it rich. Take Bradley Birkenfeld. The guy stabbed his colleagues at UBS in the back. He did a little time in prison for his own role in tax evasion. And then he walked off with $100 million.

The feds call him a 'whistle-blower.' We call him a zombie rat fink. A 'whistle-blower' is someone who dares to tell the truth when the government is wasting the public's money in a particularly egregious way. A rat fink is someone who turns in his buddies to the feds in return for a reward. Here's the Telegraph report:
Birkenfeld... was not present at the news conference where his attorneys said the reward was believed to be the largest ever given to an individual whistleblower in the US.

Birkenfeld, who worked in UBS's wealth management arm, was jailed for conspiring to defraud the US after admitting to assisting a wealthy American real estate mogul conceal $200m (£121m) from the IRS in offshore accounts.

UBS paid a $780m settlement to the IRS in 2009, admitting that between 2000 and 2007 it helped 17,000 clients conceal their identities from the IRS in order to hide money offshore.

Birkenfeld was sentenced to 40 months in prison in August 2009. The US government said that while he had turned over information about UBS to the authorities, he had withheld other information.

However, the office collected only $48m in tax revenues in 2011, down from $464m in 2010, the IRS reported to Congress in June - the lowest collection level since at least fiscal 2004.
And here are some zombies who needed to have the whistle blown on them: Chicago teachers. The Sun Times reports:
Can a public school teacher be greedy?

At one time the answer was "no." Increasingly it is "yes," a problem for America's labor unions.

The teachers want, as one might expect, higher pay, more job security, and greater recognition of tough working conditions. (Who doesn't?)

There is just one problem: Chicago teachers are already the highest paid in the nation. Their average salary is between 71 and 76,000 dollars, depending on who you ask - a notch more than what New York City teachers make, and 20k more than their Dallas and Miami counterparts.

The real comparison, though, is with what the average hard-up American makes. US household income is well below what a big city teacher's. The average adult male's salary is somewhere in the 40s. Nor does this speak to the epidemic of Americans underemployed or out of work.

Worse still, the city of Chicago is broke. The entire state of Illinois is broke. There are deficits in the hundreds of millions, projected shortfalls of billions. The only way to scrounge up more cash for teachers will be to squeeze Chicagoans for higher property taxes - when teachers are some of the best paid in the city already.

Regardless of how you feel about teachers - or the public school system - this fight foreshadows much bigger battles to come.
Yes...the Zombie Wars

Which is how a Zombocracy ends. First, it goes broke. More and more people try to become insiders, using government to take money from the outsiders. Sooner or later, the outsiders can no longer carry the weight of all the retirees, disabled people, government employees, military contractors and so forth. Their knees buckle. Their backs break.

Insiders try to keep the money rolling their way - by extracting more and more money from 'main street' borrowing...and sometimes by just printing it.

But the end cannot be stopped. The system goes broke. It collapses. The barbarians show up at the gate.

And it's over.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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