Zombie Spending on Things Already Consumed

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Recently by Bill Bonner: The Once and Future Dips of the USEconomy

     

Yesterday, stocks continued to slide. The 10-year note yield fell to exactly 3%. Oil traded at $99. And gold rose another $4.

Has the post-crisis bounce finally exhausted itself? It’s beginning to look like it. But you wouldn’t be surprised if this turned out be just another feint to the downside, would you? We’ve seen several. We expected the end of the bounce last summer. Instead, the rally has held up for a full year longer than we expected.

Is it ready to roll over now? Let’ wait and see…

We’re attending a conference of financial analysts, investment advisors and writers.

What have we learned so far?

How about this? Porter Stansberry told us that together, public and private sectors in the US now spend $3.5 trillion just on interest. Since almost all the borrowed money was spent on consumption rather than capital investment, this expense is just one big drag on the economy. It produces no growth, no real jobs, and no real wealth.

And here’s another big drag: taxes. Porter says the total tax take is about $2.5 trillion. Again, this is money almost 100% consumed…eaten up…used up, with nothing to show for it but people eager to consume even more next year.

These two expenses combined tote to about 40% of GDP.

No wonder the economy is not growing! Four out of every ten dollars is zombie spending. It supports hamburgers consumed in 1998…gasoline burned in 2002…bankers’ bonuses handed out in 2008…and food stamps distributed in 2011.

Debt, in other words. But what can be done about it?

Households are already defaulting on mortgage debt. As the Great Correction intensifies, there will probably be more defaults. And not just on mortgage debt, but on credit card debt and student loans too.

Over in the public sector, they’re counting on inflation to wipe out much of their debt. Already, inflation is said to have reduced seniors’ purchasing power by 32% over the last decade. And that is with an official CPI of only 1% or 2%. Wait until inflation really gets going!

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Bill Bonner is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and The New Empire of Debt: The Rise Of An Epic Financial Crisis and the co-author with Lila Rajiva of Mobs, Messiahs and Markets (Wiley, 2007). His latest book is Dice Have No Memory. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning.

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