Indestructible Luxury Zombies
Monday, 10/15/2012 10:00
The rich world does not want to give up that which it can ill afford...
FORMER student at the Holton Arms school in Bethesda, Maryland, and now head of the IMF, Christine Lagarde wants Europe to ease up on austerity,
notes Bill Bonner in his Daily Reckoning.
Wolfgang Schaeuble says Lagarde should keep her mouth shut.
Schaeuble points out that Europe has a hard, steep path to follow. Reducing debt is like climbing up a mountain. 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 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.
'The bank's Global Wealth Report 2012, released [Wednesday], 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 US.
'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 US, where adults have an average of $262,000 to their name.
Three Asia-Pacific countries cracked the top ten: 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.'
Ok...America's number three!
Yes, if you divide the world into three major economic blocs – Asia, Europe and North America – it's the poorest of the three. And if you rank nations individually, America's number eight.
Not too bad. But probably getting worse.
Why?
Zombies. Zombies with guns.
Asia has few zombies. Until recently, it couldn't afford them. Zombies are parasites. Luxuries. Deng Xiaoping 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 kinder, 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... and 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 inspector 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. Schaeuble 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 the US has come to look more and more like the Old World – most recently with expansions of the health care system under George W Bush (!) and Barack Obama. There's something for everybody... at huge cost, of course.
But the US has a whole 'nother 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 finish... as if the Huns were at its gates and its survival were at stake.
The 'security' budget, officially, is around $800bn. 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 $1.2trn.
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.
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