Sold down the river - generation debt
The summer sun is slowly becoming a warm glow as the leaves begin their golden descent to herald the season of family life, festivities and celebratory expenditure. This is the time for youth to turn towards the path of maturity and begin their inward journey of education, self-discovery and of course debt. The leaders of today were privileged to enjoy long summers and an essentially free, or at the very least, subsidised education. The Baby Boomers were afforded the luxury of developing new ideas, trying new things and given four years free from the cares of children, work and responsibility. However, the moral of this tale is of addiction to excess. The Baby Boom generation enjoyed the taste of easy living and prosperity of the post-war years so much that, unlike their forebears, when times became hard they did not tighten their belts, they merely invented new ways to spend and new ways to borrow to keep the good times rolling.
For every household two cars, two holidays, a dishwasher, a holiday home and, ideally, a boat for the weekends. When the economy became uncompetitive and did not sell as many goods, they simply borrowed. They borrowed from the bank, from the Federal gold reserve, and from other countries. Debt wasn't so bad from their point of view, it was just like a trip to the dentist - an hour’s discomfort and then you can return to the sun smiling more brilliantly than before. Eventually, when there was no more capital to spend or to borrow, they simply starting borrowing against the future, creating futures, options, derivatives and government bonds. Soon even students could borrow vast sums before they had even passed a single college examination. Medical students could amass six figure debts based solely upon their earning potential. But the Big Easy did not stop there. Why process waste when you can just bury it for future generations to deal with? Why generate electricity with huge, costly hydroelectric schemes or invest in renewable energy technologies when you can simply dig it out of the ground and burn it? Why cycle to work in the City when it's so much easier to cruise in an air-conditioned SUV?
The ‘buy now, pay back later’ generation has reached the end of its natural credit cycle. The writing is on the wall, and the balance sheets have simply not balanced for far too long. The US National (Federal) debt currently stands at $8,491,091,710,000, or $8,500 trillion (assuming that a billion is a thousand million), around $50,000 per adult of working age. So then, America is presently spending around $1.5 billion per day more than it is earning. Now add to this a US consumer debt of $9,709 billion (what the people owe), and a rising balance of trade deficit (what the country is losing per month in imports) of $68 billion, and the picture isn't pretty. The USA is haemorrhaging cash like a bad gambler, and is attempting to cover its losses and extravagant lifestyle with more borrowing. The Federal government (and its people) are paying more and more in interest alone, simply to maintain the nation’s fiscally and environmentally unsustainable appetite for consumption. For those who have read Madame Bovary, it is an inevitable destiny. By any law of common sense or economics, this state of affairs cannot continue indefinitely. So who's going to pay? The answer, unfortunately, is generation Debt.
The cost of public and private borrowing will spiral until the weight of the interest collapses free spending, and with it the economy. Direct and indirect environmental costs will rise as governments are forced to fetter industry and to cover the costs of climate change. Food is becoming more expensive as global production decreases, and energy costs are increasing dramatically whichever way oil production goes. So why hasn't the system collapsed to date? The answer is the unlimited bar tab of the Petrodollar cycle. In a nutshell changing money from one currency to another is a good way to lose money, and oil, the world's number one commodity, is traded in dollars. Oil producing nations sell their expensive black gold in dollars, and then store or invest their 'petro'-dollars in New York, and the Americans get a mountain of cash to invest, spend or use to buy foreign goods, which they do on a massive scale. The Americans import Japanese cars in dollars, and the Japanese spend their dollars on oil. The cycle is complete. in 2002 Saddam Hussein made the fatal error of threatening to trade oil in Euros, and look what happened to him...
So what are the consequences for those heading off to College under the warm red glow of a dying sun? Well for a start, you'll be borrowing more to study for longer. There'll be more people who are educated chasing fewer jobs, driving down average wages and increasing the cost of housing. You won't earn a fraction, relative to the cost of living, of what your parents’ earned at their peak, and it will take you a lot longer to reach the summit. You'll probably accumulate College debts of somewhere between $30,000 and $50,000 after postgraduate education, and the average salary for those fresh to the job market at 25 will be around $30,000. The 9-to-5 your grandparents worked, and the 8-to-6 your parents laboured will be replaced by the formality of an 8-to-8 working week with rare weekend breaks. After all, you've got the pensions and debts of your parents to cover. You won't earn $50,000 until you're into your mid 30's, if you’re lucky, and with the high cost of living you won't have paid off your student debt until your late thirties. At this point you'll be thinking of a mortgage which will need to be a thirty year arrangement, as by this time the average family house price will be over $500,000.
So don't plan on your retiring before 70, because your government certainly isn't. If you do the right thing and expire before your retirement you'll be doing your country a service by reducing the pension deficit. An unduly gloomy and pessimistic assessment you might suggest? Think again. So if you're heading off to College this month and your parents give you that fond farewell from their lavish house or stylish sedan, remember one thing, you're the one who will be paying for it all...
For every household two cars, two holidays, a dishwasher, a holiday home and, ideally, a boat for the weekends. When the economy became uncompetitive and did not sell as many goods, they simply borrowed. They borrowed from the bank, from the Federal gold reserve, and from other countries. Debt wasn't so bad from their point of view, it was just like a trip to the dentist - an hour’s discomfort and then you can return to the sun smiling more brilliantly than before. Eventually, when there was no more capital to spend or to borrow, they simply starting borrowing against the future, creating futures, options, derivatives and government bonds. Soon even students could borrow vast sums before they had even passed a single college examination. Medical students could amass six figure debts based solely upon their earning potential. But the Big Easy did not stop there. Why process waste when you can just bury it for future generations to deal with? Why generate electricity with huge, costly hydroelectric schemes or invest in renewable energy technologies when you can simply dig it out of the ground and burn it? Why cycle to work in the City when it's so much easier to cruise in an air-conditioned SUV?
The ‘buy now, pay back later’ generation has reached the end of its natural credit cycle. The writing is on the wall, and the balance sheets have simply not balanced for far too long. The US National (Federal) debt currently stands at $8,491,091,710,000, or $8,500 trillion (assuming that a billion is a thousand million), around $50,000 per adult of working age. So then, America is presently spending around $1.5 billion per day more than it is earning. Now add to this a US consumer debt of $9,709 billion (what the people owe), and a rising balance of trade deficit (what the country is losing per month in imports) of $68 billion, and the picture isn't pretty. The USA is haemorrhaging cash like a bad gambler, and is attempting to cover its losses and extravagant lifestyle with more borrowing. The Federal government (and its people) are paying more and more in interest alone, simply to maintain the nation’s fiscally and environmentally unsustainable appetite for consumption. For those who have read Madame Bovary, it is an inevitable destiny. By any law of common sense or economics, this state of affairs cannot continue indefinitely. So who's going to pay? The answer, unfortunately, is generation Debt.
The cost of public and private borrowing will spiral until the weight of the interest collapses free spending, and with it the economy. Direct and indirect environmental costs will rise as governments are forced to fetter industry and to cover the costs of climate change. Food is becoming more expensive as global production decreases, and energy costs are increasing dramatically whichever way oil production goes. So why hasn't the system collapsed to date? The answer is the unlimited bar tab of the Petrodollar cycle. In a nutshell changing money from one currency to another is a good way to lose money, and oil, the world's number one commodity, is traded in dollars. Oil producing nations sell their expensive black gold in dollars, and then store or invest their 'petro'-dollars in New York, and the Americans get a mountain of cash to invest, spend or use to buy foreign goods, which they do on a massive scale. The Americans import Japanese cars in dollars, and the Japanese spend their dollars on oil. The cycle is complete. in 2002 Saddam Hussein made the fatal error of threatening to trade oil in Euros, and look what happened to him...
So what are the consequences for those heading off to College under the warm red glow of a dying sun? Well for a start, you'll be borrowing more to study for longer. There'll be more people who are educated chasing fewer jobs, driving down average wages and increasing the cost of housing. You won't earn a fraction, relative to the cost of living, of what your parents’ earned at their peak, and it will take you a lot longer to reach the summit. You'll probably accumulate College debts of somewhere between $30,000 and $50,000 after postgraduate education, and the average salary for those fresh to the job market at 25 will be around $30,000. The 9-to-5 your grandparents worked, and the 8-to-6 your parents laboured will be replaced by the formality of an 8-to-8 working week with rare weekend breaks. After all, you've got the pensions and debts of your parents to cover. You won't earn $50,000 until you're into your mid 30's, if you’re lucky, and with the high cost of living you won't have paid off your student debt until your late thirties. At this point you'll be thinking of a mortgage which will need to be a thirty year arrangement, as by this time the average family house price will be over $500,000.
So don't plan on your retiring before 70, because your government certainly isn't. If you do the right thing and expire before your retirement you'll be doing your country a service by reducing the pension deficit. An unduly gloomy and pessimistic assessment you might suggest? Think again. So if you're heading off to College this month and your parents give you that fond farewell from their lavish house or stylish sedan, remember one thing, you're the one who will be paying for it all...
posted by The Angry Man at 4:43 PM
0 Comments:
Post a Comment
<< Home