The Implications of Zombulation
Zombulation is simply the point where one runs out of savings, access to credit, and income is no longer sufficient to meet monthly obligations.
Note: One can be profitable and zombulated at the same time......especially if one is a business with substantial accounts receivables.
It became clear in 2006 that much of the revenues in America was simply a product of lending and spending. If you loaned a homeless person $100K, than that person would be able to spend lots of money in the businesses around him or her.
If you lent a nation trillions of dollars, than trillions could be spent around the world. The problem kicks in when you stop lending, there is tens of trillions of accumulated debt that must be serviced. Not only must this debt be serviced, but the debt is responsible of a substantial part of the income of the nation as well.
In just a few short years, America accumulated about $25 Trillion of additional debt between 2000 and 2008. At 6% interest, that debt was generating over $1.2 Trillion in income and consuming $1.2 trillion of cash flow. Towards the tail end of the period, much of the debt was simply serviced by borrowing more to pay old loans..........a classic Ponzi Scheme of lending, pretending, and spending.
If you had access to credit, you survived.....if not you died.....it didn't really matter if you sold anything. For home builders, you didn't even have to expense the interest payments, the payments could simply be added to the cost of the land so most casual stakeholders would never see the true picture.
Once credit started getting cut off, much of the revenues around the nation simply evaporated. In a few short years new home construction was down 80% and auto sales down 50% and private commercial construction is coming to a grinding halt. You knew this was coming because much of the revenues simply was initiated from the creation of credit regardless of ability to pay back.
Now revenues are evaporating to practically every segment of the economy that doesn't have access to credit.....really the only two areas that are seeing growing revenues are welfare and war/military where Congress has opened a seemingly unlimited flow of funds.
When Benny the B and Timmy the G only bailed out the banks and not the debt, one was certain that the $50 trillion dollars of debt over the nation would suffocate the cashflow to the point where eventually there would be practically no money left for goods and services. Since then tax receipts to government have slowed at an unprecedented rate, tens of thousands of businesses have shuttered, millions of employees have lost their jobs, and tens of millions have suffered material income loss.
As revenues continue to decline, servicing debt will get harder and harder as interest will consume a greater and greater percentage of cash flow. As more and more default, the cost of borrowing will inevitably rise to compensate for the greater risk of lending. As rates rise, even more debt will default until the cash flow of the nation is no longer sufficient to service its debt.
As we approach 1.01.10 we enter the critical stage.....where revenues to Federal Government have declined so much that there is a $2 Trillion dollar gap between income and expenses.....cities, counties and states are now facing a similar problem......same with schools, universities and hospitals. And the problem is getting more acute for businsses and families as credit continues to contract.
At some point the gap between income/revenues and interest expenses will become so great that it will be practically impossible to borrow money.......if the government simply prints money to cover the gap, interest rates will continue to rise consuming ever greater amounts of money. The massive printing will cause interest rates to increase so much that so much money will be required to be printed that money will be practically worthless.
The other option is to restructure the debt to make servicing it sustainable........
But to simply bail out the bankers and not the debt suffocating the economy is not much different than bailing out Madoff and leaving his victims to suffer. In this case, the victims are the citizens of the United States.....all of the citizens as the economy will eventually shut down to to lack of revenues.
We are already at the point where we have 20% unemployment, a $2 trillion revenue shortfall to government, and millions of businsses and families no longer able to service debt from cash flow....and still most of the debt is still overhanging the economy.
You begin to wonder why should anyone pay taxes or payments to the Wall Street bankers....after all this nation was founded on the principal no taxation without representation and equal justice for all under the law. How the heck can government workers and bankers keep their jobs simply because their employers have unlimited access to free money with little regard to merit yet those in the private sector are losing their jobs, losing their incomes, and losing their homes simply because no credit is being extended to them or their employers.
Is there really any difference between a money losing Wall Street Bank and a money losing trucking company responsible for moving goods around the nation? Why should the employees of one get billions in bonuses for the Holidays while the others be forced to take the bus home in freezing weather? In both cases, the businesses were insolvent.....it is just that one was handed billions in free money and the other was not.
Now hospitals are starting to feel the cash flow crunch.....as decsions are being made between keeping a lab worker or upgrading the lab equipment. Now which serves a more important societal function, a hospital or bank??? Why should one get free money and the not???
Do you really think the bankers will ever be able to pay back the free money they were given by the govenrment???? The loans are defaulting at an acellerating rate. The few hundred billion ofTARP money they just "paid back" was simply a small portion of the trillions they were given. If you loaned any citizen $10 million, it would not be difficult to pay back a few hundred thousand.
At this point, as we enter 1.01.10....the bankers, government, and their buddies have won the access to credit lottery for now, as interest rates are still in check......the rest of the nation, Happy Holidays as servicing debt is getting harder and harder for all. And if you are not having problems servicing your debt.....it is very likely your customers or employers customers are having difficulties which will eventually impact you.
Americans are finally waking up to the mess created by Benny the B and Timmy the G and others that preceeded them. Unless we restructure the debt soon, our economy will shut down, there is no doubt about it.....the only question now is whether it will be an inflationary depression or a deflationary depression as Timmy the G tells you there is no double dip recession.