One nation learns. Another un-learns. - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 12 October 2012
One nation learns. Another un-learns. A  A  A

Paris, France

First, the news:

Dow down again yesterday. But not much. Gold gained $5.

Christine Lagarde, former student at the Holton Arms school in Bethesda, Maryland, and now head of the IMF, wants Europe to ease up on austerity. Wolfgang Schauble says Lagarde should keep her mouth shut.

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Schauble points out that Europe has a hard, steep path to follow. Reducing debt is like climbing up a mountain, he says. If you decide that it's too hard, and you turn and go the other direction, "then the mountain will get even higher," he says.

Lagarde probably doesn't know what whether she's going up or down. But at least she's not alone. Ben Bernanke, Mario Draghi, Larry Summers, Joseph Stiglitz, Paul Krugman - all of them are hopelessly lost.

But here's a report from the Wall Street Journal that may help these hikers find their bearings.

For the first time, Asia is the wealthiest region in the world, according to a new study by Credit Suisse CSGN.VX +2.56%.

The bank's Global Wealth Report 2012, released today, found that the region surpassed Europe in terms of household wealth in the 12-month period ending June. While total global household wealth fell 5.2%, Europe took the biggest hit due to its debt crisis and the global economic slowdown, with its wealth dipping 14% to $69.3 trillion. Asia's wealth proved more resilient, shrinking only 1.9% over the same period to $74.1 trillion.

What's more, the report projects that Asians will get rich at a faster pace than any other region in the next few years. Asia's millionaire population is expected to grow 70% over the next five years to 11.7 million, with Japan and China minting the most new millionaires. A similar study earlier this year by Capgemini and RBC Wealth Management reported that Asia is already home to more millionaires than the U.S.

The Credit Suisse report concluded that the richest nation in the world remains Switzerland, with an average wealth of $468,000 per adult, seven places ahead of the U.S., where adults have an average of $262,000 to their name. Three Asia-Pacific countries cracked the top 10: Australia ranked second, with an average wealth of $355,000 per adult, while Japan ($270,000) and Singapore ($258,000) ranked fifth and eighth, respectively. Singapore already has the most millionaires per capita in the world, according to a study released by Boston Consulting Group earlier this year.

Okay...We're number 3!

Yes, if you divide the world into 3 major economic blocs - Asia, Europe and North America - we're the poorest of the three. And if you rank nations individually, we're number 8.

Not too bad. But probably getting worse.


Zombies. Zombies with guns.

Asia has few zombies. Until recently, it couldn't afford them. Zombies are parasites. Luxuries. Deng Tsaoping and other leading communists saw what their parasitic politics had done to China. It had grown poorer while other parts of Asia - Taiwan, South Korea, Japan - had become very rich. This was bad for the country, of course. But it was also bad for the Chinese zombies, who were running out of wealth to steal.

"To get rich is glorious," he said. The private sector in China sloughed off its zombie controllers. Same thing in Russia and many other formerly-communist economies. Now, China is getting richer, while other nations fall behind.

One nation learns. Another un-learns.

Europe is full of zombies. Everywhere you look you see a parasite. One is regulating the financial sector. Another is getting a subsidized apartment. Still another is retired at 55...enjoying a pension he never paid for.

After the worst wars in history, Europeans wanted a kindler, gentler system. Let's stop fighting, they said to one another, and live better - on someone else's money. It created a whole continent where half the people work...the other half are zombies. Not that many zombies aren't earnest, hard-working people themselves. There are honest doctors, school teachers and train conductors among them. But they are a luxury class...sustained, pampered, and often indulged by subsidies, regulations and direct government spending. Does the ticket taker on a French TGV train earn his money? Is a hospital run by the government efficient and effective? Are museums really a good use of money? Who knows? Once you spend money outside the market system you never know whose work pays off and whose doesn't. And then...many people in Europe's welfare state don't work at all.

So great is the cost of all this social welfare spending that few governments in Europe can still afford it. Most run deficits year after year...and wait for the ultimate collapse of their state finances. Schauble tells them to shape up and get their spending under control. Lagarde tells them not to rush; the zombies might complain.

America, on the other hand, was founded by independent settlers who wanted to get the zombies of the Old World off their backs. Three centuries later America has more than enough zombies of its own. Romney says 47% of the people have no net tax obligation. Is that the right number? Close enough for government work!

Ever since the end of WWII, America's democrats have envied Europe's social welfare systems. They wanted to be zombies too. No heavy lifting. Regular money. And Europe's 'rich' weren't that much better off - not with tax rates as high as 87% in Sweden in 1979.

Over the years - most recently expansions of the health care system under George W. Bush (!) and Barack Obama - the US has come to look more and more like the Old World. There's something for huge cost, of course.

But the US has a whole another group of zombies too....zombies with guns. Again, one nation learns, another un-learns. Europe's experience with war in the early 20th century was so disastrous it wanted nothing more to do with it. But America's experience was, on the whole, satisfactory. Losses, compared to Europe, were minimal. Profits were high. The US came out of WWI and then again out of WWII, ahead of the game. It gained power, prestige, and market share each time.

And now, it spends money on 'security' as though it were locked in a life-or-death fight to the if the Huns were at its gates and its survival were at stake.

The 'security' budget, officially, is around $800 billion. But if you include the cost of America's foreign aid and its fortified embassies and the collateral financial damage - including veterans who will need care for the rest of their lives, as well as the cost of airport security and private sector financial compliance - the total has been estimated as high as $1.2 trillion.

That is a bill - roughly equal to the US annual budget deficit - that the Europeans don't have to pay. And it is a luxury that neither Obama nor Romney show any signs of wanting to give up.

With this burden on their backs, Americans are almost sure to slip a few notches in the world wealth line-up in the years ahead.

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

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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1 Responses to "One nation learns. Another un-learns."


Oct 13, 2012

The author's obsession with the word ZOMBIES is difficult to do away with. But are the rest of us humans really conscious of ourselves or about the happenings around is a moot question.

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