Zombulation is defined as running out of savings AND access to capital.
The reason is simple:
For 60 years, private industry drove profits to government. For most of those years, private industry grew based on increased production. In the last ten years, a significant amount of profits in America was simply based on leveraged transactions. People and businesses borrowing money and buying and selling things back and forth to each other at a profit.
The BIGGEST beneficiary of this behavior was GOVERNMENT with huge tax revenues flowing in and property taxes going through the roof. Federal, State, and Local spending grew from about $3 Trillion to OVER $6 Trillion dollars. Even though government was continuing to spend more than it was bringing in, all was fine because it was NOT spending much more (just a few hundred billion per year) AND RECEIPTS WERE GROWING.
As a result, since we were buying lots of stuff, foreigners were more than happy to finance this relatively small deficit. This wonderful relationship flourished as economies around the world boomed.
All was fine until we borrowed so much that we could no longer service the debt. Debts started defaulting, banks stopped lending, and prices crashed. Anyone with a pulse could see this was coming.
So here we are today, millions of jobs that were created simply because of the credit bubble have been lost, tens of millions more suffered massive wage losses WHILE costs(especially health insurance) have increased AND THE DEBT REMAINS.
Servicing debt is suffocating our economy and destroying profits. Earnings for American corporations are a fraction of what they were just a couple years ago. Same with earnings for many individuals and families. Many are on the brink of bankruptcy.
FOR THE FIRST TIME IN AMERICAN HISTORY, TAX REVENUES TO GOVERNMENT ARE EVAPORATING! THIS IS THE KEY AND WHY THERE HAS NEVER BEEN ANY PERIOD LIKE THIS IN THE PAST.
In The Great Depression, government was very small and ran a surplus...it did not play a significant role in our economy. Today, if you factor total spend, INCLUDING ENTITLEMENTS, the government is practically the entire economy once you consider direct and derivative payments.
It was one thing to ask the world economy to finance a few hundred billion dollar deficit against a backdrop of growing tax receipts and flourishing trade relationship.....BUT SOMETHING VERY DIFFERENT when trade is DOWN over 25% in just a year, the deficit is now collectively OVER $2 TRILLION per government estimates, and tax receipts evaporating as fewer and fewer Americans can afford to pay taxes .
If Obama tries to apply a new stimulus package, and receipts keep contracting at the current rate, our total government deficit WILL double again to $4 trillion dollars factoring the current rate of declining tax receipts.
$4 TRILLION DOLLARS IS CHINA'S TOTAL GDP AND OVER 4X MORE THAN THE TOTAL AMOUNT OF TREASURIES CHINA HAS ACCUMULATED SINCE IT STARTED MAKING POTTERY.
You rarely hear commentary on the shrinking revenues to our government.....you also rarely hear how important government spend has become so important to keeping our economy going.
Tens of millions of Americans depend on Social Security, tens of millions more on Medicaid and Medicare, even more tens of millions on Welfare and Food Stamps, further, THERE ARE OVER 20,000,000 GOVERNMENT EMPLOYEES....plus millions depend on unemployment checks. The numbers get higher and higher. Hundreds of billions of dollars of sales to our private companies result from these payments that in effect were paid for primarily by American taxpayers and supplemented by a little borrowing each year.
WalMart should not only pay taxes to government, but send the American Taxpayer a rebate.
All was good when the America's private sector could generate enough tax revenues to support our government. In turn, our government supported us. However, much of our profits and tax revenues in the last ten years came simply from borrowing and buying.
Without government continuing to spend, we really do not have much of an economy today. Now that our government needs so much, there is no one in the world that can provide anything close to the required amount, especially if you consider that tax receipts are so low and getting lower.
It is one thing to borrow when you have a strong income and your outlook is good....it is quite another when your income evaporates. Today, our government requires $6.5 Trillion for its spending requirments and tax receipts are not even close anymore and getting lower.
Yes it is a mess...and monetizing this amount of deficit without any hope of generating tax revenues would destroy our nation's economy in an instant. Once everyone realized what was going on, panic selling would occur and the world would liquidate their dollars and interest would skyrocket into triple digits.
Many are dependent on the government for income...we are all dependent on government to provide for our safety.....now that our government is running out of money, we must as citizens prepare for a unprecedented restructuring of our economy.
Let's hope it's done in a fair and equitable manner....Goldman seems to be in charge.