Debt-fueled spending? It's not the same as growth.
The zombies are taking over!
Stocks went up 4 points on the Dow on Friday鈥� Gold went up $10.
Noise. Distraction. Headlines. Opinions.
The important trend is the big one 鈥� the shift of resources from the private sector to the public sector.
During the bubble years, the private sector made a big, big mistake 鈥� taking on far too much debt.
Now, it is correcting its mistake鈥eluctantly, painfully, and with plenty of foot-dragging and interference from the government. Instead of letting the dead die in peace鈥he feds are pumping financial adrenaline into their veins鈥urning them into zombies.
It鈥檚 expensive work鈥o government is now making the same mistake the private sector made a few years ago. It鈥檚 pretending that debt-fueled spending is the same as growth. Ain鈥檛 no such thing.
The feds鈥� 鈥済rowth鈥� is even more pernicious and counterfeit than the bubble era growth in the private sector. At least people actually wanted houses鈥hey just couldn鈥檛 afford to pay for them.
The feds, on the other hand, produce things that people wouldn鈥檛 buy even if they had the money 鈥� zombie products. Who would buy a billion-dollar software program to spy on other people? Who would pay other people to do nothing? Who would take on the debts of a failing financial institution?
Consider this, from听叠濒辞辞尘产别谤驳: 鈥溌爓ill seek $15.3 billion in US aid, bringing the total owed under a government lifeline to $76.2 billion, after its 10th consecutive quarterly loss.
鈥淭he mortgage-finance company posted a fourth-quarter 聽of $16.3 billion, or $2.87 a share, Washington-based Fannie Mae said in a filing yesterday with the Securities and Exchange Commission.
鈥淔annie Mae, which owns or guarantees about 28 percent of the $11.8 trillion US home-loan market, has been hobbled by a three-year housing slump that wiped 28 percent from home values nationwide and led to record . The company, which posted $120.5 billion in losses over the previous nine quarters, and rival Freddie Mac were seized by regulators in September 2008.鈥�
Did you read that carefully? Fannie Mae guarantees almost a third of the $12 trillion home mortgage market 鈥� or about $4 trillion. And guess who guarantees Fannie Mae? You do!
Fannie made bad loans. It ought to be put down, like a horse with a broken leg. But Fannie鈥檚 bondholders don鈥檛 take a loss. The losses have been moved to the public sector and Fannie itself has been turned into a zombie company.
Assets, liabilities, spending 鈥� it鈥檚 all shuffling over to the government鈥nd sucking the life out of the private sector. In the area of durable goods, only about 4.4% of them, on average, were purchased by the pentagon over the last 17 years. But since the beginning of the financial crisis, durable spending by private industry decreased鈥hile pentagon spending went up. The most recent figures show that 8% of durable orders are now bought by the military.
Recovery? Don鈥檛 bet on it. This government spending only makes it look like a recovery. The numbers may show an increase in durable goods sold, but tanks and armored personnel carriers don鈥檛 lead to genuine growth. They lead to Soviet-style zombie growth鈥y the government, of the government, and for the government. The rest of the economy shrinks.
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