Gold is not the only money. But it's the only kind the works in our extended economy.

Today, we approach the same story from a different angle.

It is the story of what happens next - when the growing power of zombies meets declining available resources.

Motor City has been flattened. Now it's being scrapped. The largest municipal bankruptcy in history. Detroit was once one of the richest...and most dynamic...cities in the world. And it was the centre of America's most profitable industry: automobiles.

German and Japanese automakers had the good fortune to be bombed out in World War II. But Detroit grew bigger...more prosperous...and full of zombies.

Yes, dear reader, Detroit is a zombie story. Since 1971, almost all big stories have a zombie angle. Because the credit-based monetary system that Richard Nixon put us in is a perfect habitat for zombies.

The New York Times has the report:

'Detroit, the cradle of America's automobile industry and once the nation's fourth-most-populous city, filed for bankruptcy on Thursday, the largest American city ever to take such a course.

'Not everyone agrees how much Detroit owes, but Kevyn D. Orr, the emergency manager, has said the debt is likely to be $18 billion and perhaps as much as $20 billion.

'For Detroit, the filing came as a painful reminder of a city's rise and fall.

"It's sad, but you could see the writing on the wall," said Terence Tyson, a city worker who learned of the bankruptcy as he left his job at Detroit's municipal building on Thursday evening. Like many there, he seemed to react with muted resignation and uncertainty about what lies ahead, but not surprise. "This has been coming for ages."

'Detroit expanded at a stunning rate in the first half of the 20th century with the arrival of the automobile industry and then shrank away in recent decades at a similarly remarkable pace. A city of 1.8 million in 1950, it is now home to 700,000 people, as well as to tens of thousands of abandoned buildings, vacant lots and unlit streets.

Yes, the handwriting has been on the wall for a long time. But what does it say?

We'll answer that without hesitation. It says 'Beware of Zombies'.

And here we offer a simple test so Dear Readers can tell which side they're on.

Ask yourself: In the absence of government would people still willingly give you money to do what you do? If the answer is no, you are probably a zombie.

Here's how it works...

When people realise they can use the police power of the government to get other people's money, they rarely hesitate. In the case of the Motor City, unionised workers found that they could use government to back their demands. Gradually, wages and benefits rose...

After World War II, Germany and Japan built new auto industries, with factory workers who were willing and able to turn out better cars at lower prices.

Detroit, by contrast, let its machinery get old...and let its workers get soft. Due to poor quality, out-of-date styles and high costs, the US auto businesses could barely make a go of it.

Light manufacturing was fleeing the country - to China, Southeast Asia and Mexico.

The heavy industry - car making, steel, mining - was a sitting duck. It couldn't protect itself from zombies. The zombies soon got control over the government...and then preyed upon fixed industries.

Only four years ago, the US federal government bailed out GM. Or rather, it bailed out its zombified labour unions - guaranteeing wages and benefits the company couldn't afford to give.

What was happening in the motor business was happening even faster in the Motor City.

As Detroit zombified, productive businesses and taxpayers moved out. Zombies were all that was left. People on welfare. People working for the government. People who were disabled. Crooks, malingerers, shysters - they were all there, getting money for nothing in the age-old zombie fashion.

Was there no way to turn Detroit around?

Of course there was. It was obvious how to do it. But who wanted to do it?

The more dysfunctional the city became the more money the city's sleaze-ball leaders got from the federal government. That's how zombieism works: The worse things get the better they are for the zombies...

Zombieism is like drug addiction. You rarely just 'give it up'. Instead, you have to go all the way...and hit bottom.

Detroit may be hitting bottom now.

And how long will it be before Baltimore and Chicago go broke too?

It depends on how fast interest rates rise. The higher they go the harder it is for these cities to keep up with their promises to the zombies. And since interest rates are probably embarking on a long-term secular rise...it is just a matter of time before they all go broke.

That is when the jig is up. Zombies fall. The credit-based money system collapses...

Gold rises.

Regards,

Bill Bonner
for The Daily Reckoning Australia