“Great empires, such as the Roman and British, were extractive,” the economist Paul Craig Roberts observed recently. “The empires succeeded, because the value of the resources and wealth extracted from conquered lands exceeded the value of conquest and governance.”

But unlike empires of the past, the American Empire has a perverse logic all its own.

“America’s wars are very expensive,” says Roberts, stating the obvious. “Bush and Obama have doubled the national debt, and the American people have no benefits from it. No riches, no bread and circuses flow to Americans from Washington’s wars.”

In the big Iraqi oil auction of 2009, for example, even as US military helicopters droned overhead, the Iraqi oil minister gave out zero contracts to American firms. Not one. And we spent at least $3 trillion on war — $2.9 trillion more than Team Bush’s original budget. So much for paying for war with “oil profits.”

Russia was actually the big winner here. So what gives? The American Empire has perverted the Roman mantra “Veni, vidi, vici” (I came, I saw, I conquered) into the odd imperial slogan: “We came, we saw… we borrowed!”

The results from this turn of phrase are less than desirable. Again Roberts: “Washington’s empire extracts resources from the American people for the benefit of the few powerful interest groups that rule America. The military-security complex, Wall Street, agribusiness and the Israel lobby use the government to extract resources from Americans to serve their profits and power. The US Constitution has been extracted in the interests of the Security State, and Americans’ incomes have been redirected to the pockets of the 1%.

“That is how the American Empire functions,” concludes Roberts. Instead of plundering foreign resources to finance itself, the American Empire is always looking to inflate the next financial bubble. Each of these serial bubbles has the effect of “extracting” wealth from the citizens — by drawing both savings and credit into overly inflated asset classes that then implode.

As the bubbles inflate, robust tax revenues flow to the federal government. As the bubbles implode, tax-payer dollars flow to the connected Wall Street elite. Thus, over time, savings pass from the wallets of citizens to the pockets of scoundrels in Washington and on Wall Street.

For confirmation of this assertion we need look no further than the top o’ the 1%, the Oracle of Omaha. Peter Schweizer of Reason reckoned in his March exposé on Warren Buffett that this folksy fellow “needed the TARP bailout more than most.”

Let’s run through the numbers. Berkshire Hathaway firms in total received $95 billion in TARP money. Berkshire, you’ll recall, held stock in Wells Fargo, Bank of America, Goldman Sachs and American Express. Not only did these companies receive TARP funds… they also dipped into the FDIC’s treasury to back their debt. Total bailout: $130 billion. TARP-enabled companies accounted for 30% of the Oracle’s publicly disclosed stock portfolio.

He’s definitely one of the top beneficiaries of the big bank bailout. And to sharpen the sting, he even got a better deal to help ailing Goldman Sachs than our own government. Buffett got a 10% preferred dividend while the Feds got all of 5%. He cleaned up with $500 million a year in dividends. Without the bailout, you can bet many of his stock holdings would have gone near-zero instead.

Contrast that with a blog post from Rosemarie Jackowski, a community activist at Dissident Voice. She’s describes her experiences working with the underclass in a small town in Vermont.

“In Bennington, there are three very distinct classes,” writes Jackowski. “First, there are the ‘fancy people.’ They are the ones who rule and control everything. They are on the boards — the hospital board, the library board, the select board, the school boards. They have the power — even the power over life and death. They, occasionally during a medical crisis in the hospital, make the decision to pull the plug or allow life to go on.”

Then there is the large group of ordinary citizens. Some are blue-collar workers. Most work hard. Love their families. And have had family in Vermont for generations. They acknowledge the class system in conversation often. They call it the ol’ boys network — cronyism.

The third group consists of those who are in need. Those on the bottom of the economic pile. A poor mother of two disabled children, for example, talked about the oppressive avalanche of redundant paperwork required to get any tiny benefit. The social services system is designed by nameless, faceless, unelected bureaucrats. It is set up to assure maximum job security to the workers in the system. To a struggling family, it often feels like an attack of the “paper churners.” Being poor is a full-time job.

In her post, Ms. Jackowski provides a list of 35 ways poverty robs you of your dignity. Here are just a few:

Poverty means living with shame.

Poverty means working three jobs, and still not “making it.”

Poverty means that you go to work when you are sick. Worse than that, you send your children to school when they are sick.

Sometimes poverty means that you skip meals so that your children can eat.

Poverty means that your housing is never secure…

Poverty means following all of the rules, then graduating with oppressive student debt so that the president of UVM can be paid $447,000 per year.

Tragically, more and more “ordinary citizens” are faced with the challenge of joining this third group of government dependents. Case in point: “In the most recent Census,” writes our managing editor Samantha Buker in The Little Book of the Shrinking Dollar (a book we co-authored for the Wiley Little Book Series), “48% of America qualifies as ‘low income.’ There are more Americans living under extreme poverty than have ever been recorded.

“Since 2009, we’ve added another 4 million souls to the category of low income to below the poverty line. That’s 146 million people in America who aren’t consuming much aside from ever-increasing applications for food stamps.”

In November 2008, food stamp applicants topped 30 million for the first time in history. Today, we’re still posting “record highs,” having added over 16 million more names to the food stamp list.

Does this sound like a nation of financially healthy citizens, able to contribute to the national coffers? Au contraire. Sounds like another case in which our Empire will hand out more than it’s taking in.

Again.

Regards,

Addison Wiggin
for The Daily Reckoning

Borrow-As-You-Go Politics originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

— Reminiscences of a Stock Operator, circa 1923

Poor Zuckerberg. He’s got all those Facebook shares. And they’re dropping in price. The stock closed a bit over $31yesterday…and then kept sinking… It was down to $30 in afterhours trading.

What did you expect? The company has sales of $4 billion. IF…IF…it were able to claw out a 10% profit margin…and IF a fair multiple for its earnings were, say, 10…the company would be worth $4 billion. Not $100 billion. Four billion dollars. And instead of having shares valued at $15 billion, Mr. Zuckerberg would have shares worth about $800 million.

The Dow itself was flat yesterday. Not a very good showing after so many down days. We’ll keep our ‘Crash Alert’ flag up. The bottom could drop out at any time.

The Facebook IPO looks more and more like the end of an era. The end of the pie-in-the-sky social network era. The end of the post-crisis recovery rally. The end of the public’s residual confidence in Wall Street. The end of America’s youthful energy…its era of growth, innocence and hope for the future.

Now, growth rates are low; they’ve been falling for the last 30 years. The baby boomers are neither booming nor babies. Stocks are passé…people want bonds now. And 63% of voters think their children will be worse off than they are.

At least Zuckerberg has it made. He’s got about 500 million shares and options. But every two dollars they fall costs him about $1 billion. So, he’s lost $5 billion since the company went public on Friday.

Still, we’re not going to feel sorry for him. He’s still got $15 billion or so.

Not that we care how much money he’s got. He could have twice as much; he’d still be a putz. We saw the movie!

Seriously, Americans care far too much about money. That’s what people who don’t have it say. They say that too much money is a sign of greed. And that people with too much money can’t relate to everyone else. We lose our sense of community…our public space. People with money live separately from the rest of us. They buy elections and use too much energy…and leave small tips. They’ve got too much power, too much influence, and too much of the pie.

Paul Krugman, Thomas Friedman and Barack Obama want to solve this problem by taking money away from the people who have it. And making it harder for them to earn more.

The guys at J.P. Morgan lost a few billion. You’d think the anti-money crowd would be happy about that. Instead, they want to make a federal case out of it. Practically every pundit is calling for more regulation. “If even good bankers can lose so much,” they say, “we’ve got to get control of them!”

The whole idea that they can regulate risk out of the system is loony. It doesn’t work that way. The more they regulate, the more they distort the market, and the more mistakes investors make.

Investors are buying US treasury bonds, for example, by the boatload. Why? Because the regulators at the Fed have taken the risk out of buying bonds. If interest rates rise, the Fed will buy bonds itself.

Dear Readers and connoisseurs of regulatory FUBARity will appreciate the flexibility of America’s central bank. Its aim is to drive investors into risky assets…by suppressing yields on “safe” treasuries. The unintended consequence is to create depression-like yields…and capital gains for bond buyers. Investors flee stocks…and go into the Treasury bonds the Fed was trying to get them out of. Thus does the Fed manage to bend its right leg far enough to kick its own derriere.

People who don’t like the rich should spend a little time thinking about how the rich got that way. Were they smarter than others? Greedier? Or just luckier?

In our humble observation, we’d say they were a little of all those things. But most of the big increase in wealth the rich enjoyed has come thanks to those same regulators whom the feds want to sic on them.

Yes, dear reader, the rich got richer because of the fixers…not because of the rich themselves. In 1971, Richard Nixon changed America’s money. The old money — backed by gold — flowed to the hardworking producers. It was saved, invested, and put to work. This new money had different ideas. It ran around in different circles. It preferred a different class of friends — bankers, money managers, investors, speculators, venture capitalists, derivative mongers, private equity operators…

You can see this shift illustrated in the difference between Mitt Romney and his father. The ol’ man ran an auto company. He made cars. That’s where the money was back then. He made the Rambler. Remember that? We had one. It was cheap. It was ugly. It ran. What more could you ask for?

But the son never made anything…but money itself. He didn’t run productive companies. Instead, at Bain Capital he was a leading member of the new class of people who fiddled with them.

By 2007, this class had gotten far too big for its britches. The whole capital structure began to wobble. Left alone, it would have crashed to the ground…bringing rich people down to earth with it.

Left to its own devices — without the generous support of the feds — the Dow might have fallen to 6,000 in 2008…and kept falling. And it probably would have brought down J.P. Morgan…and Goldman Sachs…the Bank of America and most of the rest of Wall Street. Even GM, which by then had become a finance company, would have gone out of business.

And today…there wouldn’t be nearly as many rich people to complain about. Problem solved.

Instead, the fixers fixed it so the fixees stayed fixed.

Hey…here’s another bubble…getting ready to blow up. Bubble bubble student trouble:

Student Loans With Over $1 Trillion are Likely One of the Next Hindenburg Zeppelin Financial Infernos

Barry James Dyke, author of The Pirates of Manhattan II: Highway to Serfdom predicts that student loans, in excess of $1 trillion, will likely be one of the country’s next financial infernos.

Federal student loans interest rates will rise to 6.8% on July 1st 2012 from their current 3.4% base if Congress does not act. Banking lobbies oppose any reduction in interest rates. If Congress does nothing, the average student’s $23 thousand subsidized loan costs will increase an additional $5,000 over a ten year period.

The author states, “Student loans are a form of indentured servitude as student loans cannot be discharged in bankruptcy. Student loans do not die with death. Collection agencies can call day and night to collect student loan debts. Garnishment to pay student loan debt is common. Students are not getting enough well-paying jobs to pay back these enormous loans, yet The Department of Education through the Department of Treasury can attach tax refunds to pay off student loans. What is more, our Congress drove the getaway car for academia and the banks in 2005 with the Bankruptcy Abuse and Consumer Protection Act of 2005 — which turned student loans into non-dischargeable debt.”

According to the Department of Education, two thirds of students who earn a bachelor degree use some type of loan to finance their education with an average loan of roughly $23 thousand. The New York Times recently reported that as much as 94% of students borrow to get a college degree.

The taxpayer underwrites roughly $105 billion a year in Title IV student loans a year, with $24 billion going to for profit schools owned by Wall Street asset managers. Student loans guaranteed by the taxpayer are a major source of revenue for the US higher educational system and if default rates accelerate, it could bring about a Greece like debt problem to the nation’s colleges.

“Excessive borrowing for an education will be a dark cloud hanging over this generation for decades,” claims Dyke. ”Default rates on student loans for traditional undergraduate and graduate rates are currently as high as 15.8%, and as high as 48% for for-profit colleges. The New York Fed reports that nearly one in four student loan holders are falling behind on their student loan payments.

Regards,

Bill Bonner
for The Daily Reckoning

The Delusion of Regulating Risk originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

Day after day for the last 2 weeks…almost everything has been grinding down.

Stocks, oil, copper, bond yields… It looks as though the whole world economy is slowing down. China, India, America, Europe. All are slowing.

How much longer can this slow down continue?

A lot longer!

We should have some bounce in the markets this week. But beware. Our “Crash Alert” flag is up.

Meanwhile…

We spent the weekend in Charlottesville, VA…at the UVA graduation for our son, Henry.

The University of Virginia is probably the most handsome campus in America. Especially in May. It has a green central esplanade bordered by columned buildings in the Greco-Roman style. At one end is the famous Rotunda. Flowers and trees bloom everywhere.

We know of no other president who achieved anything equivalent. Some waged dubious wars. Some launched weasely social welfare programs. The best of them idled away their careers, shaking hands, making deals, and otherwise shuffling offstage leaving it no better or worse than it was when the curtain first went up. But Mr. Jefferson left an architectural monument that is breathtaking. He would be proud of it today.

It is too bad that the soliloquies of its 2012 commencement exercises came nowhere close to the grandeur of the setting itself. Instead, there was nothing more than the usual hollow, air-head do-goodism you associate with graduation speakers. One urges students to go out in the world and ‘make a difference.’ Another tells them to use their educations for some great public purpose. Another insists that they become the leaders of tomorrow. All declare that their years spent (there was no mention of the money) at UVA were a good investment…both formative and decisive…making them the determined, capable people that they have allegedly become.

Jefferson would roll his eyes.

Herewith, we offer an alternative graduation speech. An honest address to the class of 2012. One we will never be invited to give:

I see you before me. Arranged in alphabetical order. From Mr. Aaron from Alexandria to Mr. Zyman of Richmond. You are all suited up…wearing the ancient vêtements that have marked men of learning for hundreds of years. And in a few minutes you will move the tassels on your funny little hats from the right side to the left, indicating that you have been awarded a bachelor’s degree. This signifies that you have joined the few…the elite…the learned.

But how many of you really are learned? How many are imposters? How many are capable of writing a simple essay? How many can decline a Latin verb? How many have mastered calculus and quantum physics?

You’ve heard about the group of men at the old English club. The waiter comes up and asks if they would like some hock. One of them cleverly says ‘hic, haec, hoc.’ So the waiter comes back with drinks for all of them except him. When he asks why, the waiter replies: ‘But sir, you declined the hock.’

How many of you got that joke?

I only ask the question because I am suspicious. Many college grads of today could hardly be called intellectuals. Many have hardly used their brains at all. Some have merely spent the last four years learning a few tricks and the latest jargon of a trade. Marketing, for example. Or journalism. Marketing evolves so fast that whatever you learn here will be mostly obsolete by the time you get a job. If you ever get a job. Besides, the important points could be picked up in a few weeks on the job anyway.

As to journalism, there are a few skills you need to know, which you could pick up in an afternoon; the rest is undifferentiated. You look. You ask questions. You think. And you tell the world what you come up with. No college necessary. In fact, college may hinder you. Instead of using your own eyes and your own brain, and developing your own way of looking at things, you spent your best years in class absorbing the claptrap du jour of the mainstream media.

Others among you have read popular novels or a few history books. You think you know something. Maybe you call yourself a historian. Or perhaps a literary critic. My advice is to keep that to yourself. You have paid a lot of money for something that millions of other people — just as smart as you are — do for a hobby or past-time. There’s not much real knowledge in either of those things…just opinions and ideas which are more vanity and entertainment than genuine learning.

Same thing for those who have spent years studying ‘politics’ or ‘economics.’ Drop the pretense that you know something. You don’t. All you have is a full plate of opinions…most of them preposterous…and most of them indigestible by a thoughtful person.

I don’t doubt that many of the courses offered here — to say nothing of the beer parties — are interesting and fun. But are they worth $160,000 and 4 years of your life? How about some of these titles that I got out of the Course Catalog for 2012: “Fantasy and Values” or “Black Women Authors” or the “Cinema of India” or “Feminist Theory in Anthropology,” or “Creole Narratives” or “Zen” or “Business Ethics”…?

As to that last one, when you get out in the real world, which unless you go to graduate school is happening as of tomorrow…you will find that it is very unlike the make-believe world at this university.

They say that by going to a university you open yourself up to a whole world of knowledge. Yes, perhaps you do gain easy access to a whole world of simplified knowledge and politically correct opinions. But you also cut yourself off from a larger world of real knowledge…the kind you get by doing and observing.

In your course on Business Ethics, for example, you are no-doubt exposed to a number of ideas and theories on the subject. You’d be better off learning it on the job. First, instead of paying someone to teach you, you would get paid for learning. Besides, you can get the ideas and information in the course materials by reading a few $29 books…or read them online for even less. That is true for almost all the coursework in the arts and social sciences. It is all available to you at much less expense. So, in a sense, you have been a sap to pay so much for it.

But you would do even better to combine your reading with real life experience. And in real life you would quickly discover that things are much more complex, much more nuanced, and much less clear than you thought. That’s true in business ethics as it is in everything else. As the Jewish philosopher Hillel explained, the core idea of the Torah, the Bible, the Sermon on the Mount, and business ethics is as simple as this: if you wouldn’t want someone to do it to you, don’t do it to someone else. The rest is detail. And the details depend on the situation, which you only encounter in its full complexity, when you are face to face with it. You don’t encounter it in a book…or in your lecture halls…or in your seminars on campus. So, the time you spend on campus actually prevents and delays you from coming to grips with the real problems you will face in real life…and thus retards your education.

So, you’ve spent — or your parents…or the taxpayers have spent — $150,000 on your education. And you’re retarded.

And now you enter the job market. And don’t think you’ll have an easy time of it. Because previous graduates of this university and others have applied the lessons they learned in school and made a god-awful mess of the economy. There are 14 million people without jobs. About one in 20 young people is jobless. You’re just another one. Frankly, I’m surprised the unemployment rate for young people isn’t higher…given how worthless most young people are.

Why so many unemployed? Because economics professors have taught 3 generations of economists that a command and control economy — to a point — will work. It won’t. But a command and control economy is good for economists and do-gooders, who get jobs commanding.

Economists convinced policymakers…who have their own corrupt reasons for wanting to twist up the economy — to control the price of labor…and prevent it from falling, using a variety of tools and subterfuges. By the way, a ‘subterfuge’ is defined in the dictionary as “an artifice or expedient used to evade a rule, escape a consequence, hide something, etc.”

I mention that because I know that half of you are functionally illiterate. MSNBC recently reported that:

More than 50 percent of students at four-year schools and more than 75 percent at two-year colleges lacked the skills to perform complex literacy tasks.

The results cut across three types of literacy: analyzing news stories and other prose, understanding documents and having math skills needed for checkbooks or restaurant tips.

But one of the subterfuges used by the feds that makes it so hard for you to get a job is student loans. They’ve lent out more than $1 trillion — some of it to you. Rather than work for lower wages, students borrow money at low teaser rates…and go to school. On average, you have about $20,000 worth of debt when you leave this university. And I’ll bet that a lot of you won’t pay up.

But I’ll give you some advice. String your lenders out as long as possible. Eventually, the same college-educated dimbulbs who perverted the employment market will destroy the dollar. Avoid paying your loan long enough and it will probably go away…

Of course, the outlook is not all bad. Some of you will find good jobs — those who have used your time wisely, by studying science and engineering. It’s only the rest of you who are screwed.

The feds keep the price of labor too high. Employers would have to pay you more than you are worth. So, they are reluctant to hire you.

Employers know damned well too that you’ve been retarded by your education. So, they’re leery of hiring you. Especially if they see you’ve taken a class in business ethics. They think you’ll stab them in the back the first chance you get.

And they’re probably right. Because you’ve been told to go forth and create a better world. I’ve seen the surveys. Two out of three of you want to work for non-profit organizations. Why is that? Because your whole weltanschauung…well, I mean, your worldview…has been corroded by your education. You think business is greedy…selfish…and stupid. But where they hell do you think non-profits get their money? Where does the government get its money? How can our society afford to let you waste so many years in college?

All of this money has to come from the productive sector of the economy.

You think you can do good by working for the government or a non-profit organization? Well, I’ve got news. You’ll be a parasite, just like the rest of them. A leech, sucking the life out of the real, productive economy. That’s another reason it’s so hard for you to find a job. The more people who fantasize about getting paid for doing good…for trying to make a better world…the worse the real world gets. Because that leaves fewer people actually doing the kind of real world work that makes the world richer and more prosperous…and better organized…safer and healthier.

So, forget about making the world a better place. Forget about leading anybody anywhere. Forget about thinking you know something. You don’t know enough to lead yourself, let alone anyone else. And most of what you think you know is worthless claptrap. Pseudo-knowledge, in other words.

Finally, don’t try to be a leader. The world doesn’t need any more leaders. It’s got too many already.

Instead, try to find a real job in the real world. Do it well. And mind your own business.

Thank you. And good luck.

Regards,

Bill Bonner
for The Daily Reckoning

To the Class of 2012 originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

…and his head stuck firmly in his computer screen.

But we will soldier on, Fellow Reckoner. We will ignore the blissful and beckoning distractions of one of the world’s most famous esplanades just across the way. We will pretend the little cabanas down by Ipanema’s Post 10 have exhausted their supplies of frosted, cachaça-based refreshments and that the hot bods tanning on the sand and frolicking in the water are really just figments of our imagination. We will turn away from this little heaven on earth and cast our gaze, instead, upon its equal and opposing force…

…but not just yet.

We’re here in South America’s largest economy to scope out opportunities in the local business scene. The country is booming, as you’ve no doubt heard. And as far as the BRIC countries go, Brazil might just be our favorite. Well, at least it’s our favorite to visit. Unlike China, Brazil’s demographics are favorable. Unlike India, its social mobility is flexible. And Unlike Russia, the weather is agreeable. Also, the South American nation didn’t just “re-elect” Vladimir Putin. Then again, many would argue, neither did Russia.

All of which is not to say the place is without its “fair share” of problems. It has many. Official growth here has slowed. Considerably. The parasite class — politicians in Brasília — had forecast a growth rate of 4.5% for the year 2012. Now they figure it will be closer to 2.7%. Policy makers are “under pressure,” say the papers, to “do something.”

A standard quote from The Financial Times:

With the world economy slowing, many argue Brazil needs a fresh spark to keep it growing. Policy makers are under pressure to consider a second generation of reforms in areas such as taxation, infrastructure and education to make the country globally competitive.

Hmm… Maybe policy makers do have a role to play. But we’d bet that role is best served by getting out of the way and allowing the magic of the market to work its wonders.

Fortunately, there is a growing contingent of young entrepreneurs who are advocating just that. Your editor was delighted to meet a handful of them at the III Conferência de Escola Austríaca hosted by the Instituto Ludwig von Mises Brazil, this past weekend. A crowd of young and excited attendees sat glued to their seats while absorbing presentations from a host of Austrian School superstars, including Laissez Faire Book’s own Jeffrey Tucker…the only man to inspire a standing ovation after his spectacular speech on Intellectual Property in the Digital Age.

Imagining what a country like Brazil could do if the ideas of liberty and freedom were to take hold here is, in itself, an inspiring thought experiment. And the blossoming trend of independent young thinkers and innovative entrepreneurs is one we hope to be a part of in the very near future. As, it seems, do many others.

Tellingly, attendees at the conference hailed not only from around Brazil, but also from Europe and the US, both struggling markets that promise little or no future for the generation currently graduating from universities there. And these fugitive career seekers are not alone.

Portugal’s official unemployment rate — not atypical for the PIIGS economies — stands above 14%. The reality on the ground, however, is likely much worse than that. Among youths, the figure is closer to 40% and, as one Reuters journalist writing from Lisbon put it recently, the former colonial power offers “little hope for a sharp, job-generating recovery any time soon.”

Conversely, Brazil’s official unemployment rate hovers around multi-decade lows (between 5-6%). Given the common language, it’s hardly surprising therefore to find youth flocking to the opportunity rich South American powerhouse. Continued the Reuters piece:

Emigrating is fast becoming a preferred option for many seeking a decent living as their bailed-out economy suffers under debt, low growth and poor competitiveness. Portugal’s booming ex-colonies in Africa and Brazil are a natural choice.

Similarly, the employment situation in the US is inspiring many fresh-faced college grads…inspiring them to learn a new language and to seek jobs abroad, in healthier, more promising markets. And why not?

While student loan debt in the US recently surpassed outstanding credit card debt, unemployment data for the youth demographic suggests the cost of education might not have been worth it. Data from 2011 reveal that more than half of all US graduates with a bachelor’s degree were either unemployed or underemployed at the end of last year. What does underemployed mean? From a recent CNBC article:

In the last year, [students with bachelor’s degrees] were more likely to be employed as waiters, waitresses, bartenders and food-service helpers than as engineers, physicists, chemists and mathematicians combined (100,000 versus 90,000). There were more working in office-related jobs such as receptionist or payroll clerk than in all computer professional jobs (163,000 versus 100,000). More also were employed as cashiers, retail clerks and customer representatives than engineers (125,000 versus 80,000).

Why flip burgers in Alabama, Kentucky, Mississippi or Tennessee (states with the highest rates of youth unemployment, along with the Mountain West region) when you could move to Rio de Janeiro and start an online business of your own? Why hang around waiting for government handouts on the streets of Lisbon when you could be flashing your skills in São Paulo’s bustling professional scene?

For many, the “service and protection” of the US government is no longer an adequate response…in fact, it’s becoming the very reason to leave. More on that, tomorrow…

Joel Bowman
for The Daily Reckoning

Why the World’s Unemployed Youth are Flocking to Brazil originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

But watch out. Our hunch is that when people come to their senses…they will run for the exits.

Europe’s shifting from austerity to “growth”…which really means more debt.

America’s growth is phony — with fewer jobs today than when the ’08 recession began.

More people are below the poverty line. More people on food stamps. And more people so broke they can’t even go broke. CNN Money reports:

This year, hundreds of thousands of Americans are expected to be too broke to file for bankruptcy.

The average cost to file for Chapter 7 bankruptcy protection, the most common form of consumer bankruptcy, is more than $1,500, according to recent research submitted to the National Bureau of Economic Research.

As a result, anywhere between 200,000 and one million consumers are estimated to be unable to afford that steep cost this year.

The research, conducted by a group of professors from Columbia University, the University of Chicago and Washington University in St. Louis, examined how bankruptcy filings spiked after people received their tax rebates in previous years. They estimate that another 200,000 consumers, who would otherwise not have enough money to file, will use their tax refunds to pay for bankruptcy this year.

“For lots of people, bankruptcy has been taken off the table as an option because of the severe fees involved,” said Jialan Wang, co-author of the report.

And here comes the critical insight:

“It becomes harder and harder to pay off the debt as interest payments get higher, so your debt grows larger and larger,” she said.

Hey, somebody should mention this to the world’s central banks. And to Paul Krugman. And Larry Summers. And Ben Bernanke himself.

They think the key to solving the world’s financial problems is more spending…more debt and more “growth.” But you know they can’t really give the world more growth. Real growth requires real investment, real output, real risk, skills…customers with money…and all the rest. All they can really give the world for sure is more debt. Which is exactly what the plan is.

More debt is certain. Growth is unlikely…except in the ersatz version.

Thanks to LTRO, QE and the Twist the feds are really not borrowing money at all. They’re printing it. So, you might say that printing money is a debt-free approach to growth. Except that even dollar bills are debt instruments. They are “notes” from a bank of zero maturity. You can cash them in at any time. Of course, all you’ll get are more paper notes. Which just goes to show how silly the whole system is.

The trouble with the folks who are too broke to go broke is that they don’t have enough of those paper notes. If they were a major bank…or a national government…they could get more of them, just by asking. The Fed would print them up “out of thin air.”

They might as well do the same for the small deadbeats too. Why not? The paper money doesn’t cost them anything.

But today we’ve got more important things on our mind that the problems of America’s poor people. We’re thinking about growth itself…

The guy who drives out to the neighborhood bar, spends all night drinking, and then drives back home…stimulates GDP. Better yet, he crashes his car on the way home. Then, he is a real hero to the economy. He has to buy another car.

The poor sap who stays at home is a drag on growth.

The fellow who goes to McDonald’s night after night rather than cooking his own burgers…the fellow who leaves his window open with the air-conditioning running…the fellow who hires a lawn service company rather than cutting his own grass…the man who borrows money to finance a house or a vacation — all of them add to the GDP.

Want to increase GDP? Want growth? Let’s cut each other’s lawns. Let’s get others to wash our clothes…and clean our houses. Let’s make gadgets, geegaws and other worthless paraphernalia and sell them to each other! Get the housewives into the labor force. Give jobs to teenagers. Don’t do anything for yourself.

The guy who plants his own garden…who cuts his own firewood…who fixes his own roof — he is a traitor to the economy. He needs to get another job…borrow money…burn more gasoline…to buy more stuff…!

Doesn’t he know the US needs growth?

The trouble with GDP growth is that it only tells you how fast the wheels are spinning. It doesn’t tell you if you’re getting anywhere.

Turns out, more and more people are shirking their patriotic duty to waste money; they’re betraying the economy that supports them.

A report a few weeks ago told us that young people have fallen out of love with the automobile. They buy fewer of them. They drive less. They consume less fuel, less oil, less gasoline.

That certainly won’t help growth. And neither will people without jobs. There are, officially, 13.3 million of them. And 29% of them have been unemployed for a year or more. Can’t get much growth that way.

And what happens after you’ve been jobless for a year or more?

The Washington Post calls it the “incredible shrinking labor force.” People in the work pool are drowning before they are rescued.

If the same percentage of adults were in the workforce today as when Barack Obama took office, the unemployment rate would be 11.1 percent. If the percentage was where it was when George W. Bush took office, the unemployment rate would be 13.1 percent.

That helps explain a seeming contradiction in the unemployment numbers — the rate keeps dropping even though job creation has been soft.

In April, the US economy added a mere 115,000 jobs, according to Bureau of Labor Statistics data released Friday. In a normal month, that would not even be enough to keep up with new entrants into the labor market. But in this economy, it was enough to drive unemployment from 8.2 percent down to 8.1 percent, the lowest point since January 2009.

The explanation is a little-watched measure known as the “labor force participation rate.” That tracks the number of working-age Americans who are holding a job or looking for one. Between March and April, it dropped by 342,000. But because the official unemployment rate counts only those workers who are actively seeking work, that actually made the unemployment rate go down.

In February, the Republican National Committee released a research note on “The Missing Worker,” arguing that “over 3 million unemployed workers have called it quits due to Obamanomics.”

Economists say the story is considerably more complicated. For one thing, the trend predates President Obama. And while part of the story is clearly that the labor force is shrinking because the bad economy is driving workers out, another significant factor is that baby boomers are beginning to retire early — a trend that has worrying implications for future growth.

A smaller workforce means less growth!

We added the exclamation point. Less growth. The wheels are slowing down. This could be a disaster, right?

So, fewer people working means less GDP…less growth. So what?

More tomorrow…and more on the Pentagon going rogue, too.

Regards,

Bill Bonner
for The Daily Reckoning

GDP Growth: The Civic Duty of Every US Consumer originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

“Jobs engine sputters again in April,” reports the weekend Wall Street Journal.

What kind of humbug recovery is this? Bloomberg adds:

Estimates for the jobless rate, derived from a separate survey of households, ranged from 8.1 percent to 8.3 percent. Unemployment has exceeded 8 percent since February 2009, the longest such stretch since monthly records began in 1948.

Of course, it’s much worse than that. John Williams puts the real unemployment rate — the people who want jobs and can’t find them — at 22%…the same as the unemployment rate in Spain. And just 3% points lower than in the Great Depression.

And what kind of humbug response is this? Reuters:

(Reuters) — The White House pledged on Wednesday to help lower-income youth find summer jobs in a move likely to appeal to younger voters crucial to President Barack Obama’s re-election campaign.

The initiative is in partnership with the cities of Philadelphia, Chicago and San Francisco and is meant to add 110,000 jobs, internships and mentorships to the 180,000 summer work opportunities for 16-24 year olds that Obama has promised to create for 2012.

Under the new program, companies such as Blue Cross and Blue Shield Association, Johnson & Johnson, and UBS, as well as non-profits and federal agencies such as the Department of Education will offer paying jobs as well as mentorships and other training programs.

Every year from April to July, the size of the youth labor force swells as high school and college students nationwide look for summer jobs. But summer employment for young job seekers has hit record lows in recent years as more of them are unable to find work, according to data from the US Bureau of Labor Statistics.

“There’s no replacement for the dignity that comes with earning your first paycheck,” said Secretary of Labor Hilda Solis in a statement.

Yes, dear reader, now the feds are turning young people into zombies too…with make-believe jobs, many of them in zombie industries.

The report went on to tell us that the initiative does not require congressional approval. Which leads us to another question:

What kind of crackpot system do we have…where the president can create jobs…like the Fed creates money…out of thin air? Of course, we know the answer, the new jobs are just like the new money; they’re not real.

The program, phony as it is, will not be examined carefully by anyone. Instead, it will “feel good” to the voters. Obama is doing something. His heart is in the right place. Don’t think about it anymore.

His initiative is right out of Franklin Roosevelt’s playbook. Back in the ’30s, our own father participated in something called the CCC, the Civilian Conservation Corps. He was a poor boy. His father was dead. He needed a way to support himself. So he joined the CCC.

“It was like the army,” he recalled years later. “It was like a junior version of the Army Corps of Engineers. And it was hard work. I helped dig irrigation ditches in New Mexico.”

Make work, perhaps. It may not have been a real job, but at least it was real work. A whole lot less phony that hanging our mid-level bureaucrats in an air-conditioned office at the Department of Education.

Did you see our rant about education last week? Education, along with health care, finance, and the military are the big zombie industries of the late, degenerate imperial period (as future historians will describe it). They drain resources out of the productive economy…and waste them. To give you an idea of the scale of the waste, the 2009 Program for International Student Assessment gave tests to 15-year-olds in 65 different countries. The US spends far more than most countries on education, so you’d expect that it would come out on top, right? But nooo.

Instead, China-Shanghai came in first. China-Hong Kong second. Finland was third. In terms of educational “investment” per student, the US spends 15 times as much as China. Even at the state level, educational “investment” has little to do with educational return. Idaho spends only about $10,000 per student. Washington, DC spends nearly 4 times as much. Which has better test results? Idaho, of course.

So, what do the zombies say? We need to “invest” more in education!

*** We’re always trying to connect the dots. Unfortunately, the dots won’t stand still!

Last week, we were thinking about how democracy…or any government…operates on the basis of shared emotions, or feelings, rather than real ideas. We explored the public’s contemporary narrative on the financial crisis. What we saw is that a common view of what is going on — in order to be commonly shared — has to be stripped so bare of nuance and paradox that it ceases to be an idea at all. It is just a feeling.

And sometimes, it becomes a grotesque, simpleminded fantasy that it is actually the opposite of the original thought or desire behind it. It becomes a zombie thought…actually harmful to the group that holds it.

If you follow the popular media, for example, you would think that the US is engaged in a war against “terrorists”…bad people, who for a reason never explained, aim to do harm to Americans. These terrorists are so evil they must be stopped…at all costs.

“It’s a war,” says US Attorney General, Eric Holder. So, he explains, we can set aside the Constitution and the Bill of Rights — the very things we’re supposed to be defending — to fight it.

Thus is the US military industry set to the task of protecting against “terrorists”…with the solid support of the American people. An announcement at the Ft. Lauderdale airport on Friday told us that “military personnel can board at their leisure.” They got the treatment normally given to paying business class passengers! On one plane, a stewardess invited military personnel to take the vacant seats in the business class section. And it was reported last week that of all America’s public and private institutions only the military retains the confidence of the general population.

But if you bother to study the situation at all you quickly realize that it is not terrorists who pose a threat to the US, it is the US military itself. The Pentagon has gone rogue…now it is a danger to the nation.

Terrorists are insignificant. Trivial. You could fit all of them in a mid-sized movie theatre. And half of them — like Osama bin Laden himself — are so infirm, insane or incompetent that they are completely incapable of doing any real damage to the world’s only super-power.

The US military — along with its suppliers, security agencies and all the rest of the lethal establishment meant to protect America — is big. And very expensive. Like a parasite, it drains energy and resources from its host — the productive US economy. The total cost, fully loaded, is about 8% of GDP.

America is, of course, no normal nation. It is an empire. The cost of running an empire is high. But empire is supposed to be a paying enterprise. An empire takes tribute from its vassal states in exchange for providing protection. That’s how all empires worked.

The US empire, on the other hand, loses money. It conquers foreign nations…but it fails to make money at it. Instead of sucking resources from its vassal states, it takes resources from the American public. It is no longer protecting the nation; it is endangering it.

More to come…

Regards,

Bill Bonner
for The Daily Reckoning

Where Do Real Jobs Come From? originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

Currency investors weren’t feeling too good either Friday, as a weak jobs number here in the U.S. was a lot like bad shrimp for nondollar investors. The traditional “safe haven” currencies of the Japanese yen (JPY) and U.S. dollar moved up Friday after U.S. payrolls added just 115,000 workers, the smallest increase in six months. As Chuck informed us all on Friday, the median estimate of economists was for a 160,000 increase. In a bit of an odd twist, the jobless rate actually fell to a three-year low of 8.1%.

Chuck sent me this note after reading about the jobs numbers last Friday:

“We sure did see a prime example of a risk-off day on Friday, with all the risk assets getting taken to the woodshed after the jobs report. You may recall me saying on Friday that in recent times, the markets had treated the jobs report outcome like it should, and that if the number of jobs created in April were weaker than forecast (they were 115,000 versus 160,000 forecast), the markets would view this as a primer for QE3, which would be dollar negative

“However, after the knee-jerk reaction to the report had the dollar on the run, the currencies’ fortunes turned on a dime, and it was back to the old trading theme of “bad data in the U.S. equals buy dollar bias.” Who knew? Would someone that has some influence over the markets tell them that investors want to know ahead of time which curtain they should choose!

“The thing that kept creeping into my mind about this whole report, and it making two consecutive reports, was that thing I’ve tried to put into your minds about the financial storm, and how we had looked pretty good for a short time, but we were in the eye of the storm. It appears to me that we’re entering the other side of the storm, and it could very well be worse than the front of the storm that hit in 2008, for we didn’t correct anything!

“Oh, and in keeping with my usual “dig deeper than journalists routine” with the jobs data, the BLS added 206,000 jobs to the 115,000 total — which, without the adjustment, job creation would have been negative!”

Back to Chris now. Thanks to Chuck for his intuitive analysis of the currency markets’ reactions to the jobs numbers.

One thing that I noticed when I was going over the jobs reports this weekend was the “participation rate,” which fell to the lowest in over 30 years. The participation rate indicates the share of working-age people who are in the labor force. This percentage fell to 63.6%, from a reading of 63.8%, last month. I highlight this number because it shows why the jobless rate can be falling in spite of lower hiring.

People who are working age are simply leaving the work force, too aggravated in their hopeless attempts to find a job. While their exit from the available work force currently has a positive impact on the unemployment rate, as the U.S. economy starts to recover, we could see these workers move back into the work force. This would have a drag on the recovery of the jobless rate, with a deluge of new workers entering the market, offsetting those leaving the unemployed ranks due to new hiring.

Investors will need to keep an eye on this participation rate in the coming months, as the Federal Reserve is certainly keying on the jobs side of the economy.

Federal Reserve Chairman Ben Bernanke said last week that the central bank is “prepared to do more” to boost the economy if it appears necessary. U.S. policymakers have repeated their plan to hold borrowing costs low through 2014 as the U.S. economy slowly recovers. “The unemployment rate has declined but remains elevated,” Fed policymakers said in an April 25 statement. The FOMC “expects economic growth to remain moderate over coming quarters, and then to pick up gradually” and “anticipates that the unemployment rate will decline gradually.”

Uncertainty regarding the elections in Europe also weighed on investor confidence on Friday, causing many of the speculators to move money back into the U.S. dollar. There were no surprises in France, as the French booted out President Nicolas Sarkozy and voted instead for Monsieur Francois Hollande, the Socialist candidate.

Chuck pointed out last week that this result was expected (Hollande even appeared on last week’s cover of The Economist magazine). But while the election results were expected, the direction he will take France is not so clear. German Chancellor Angela Merkel invited Hollande to Germany to discuss the eurozone’s growth policies.

President-elect Hollande campaigned on a ‘balanced’ approach to the euro (EUR), offsetting austerity measures favored by Germany with efforts to stimulate growth. It will be interesting to see if Hollande can be persuaded by Angela Merkel, who has mostly had her way in guiding the eurozone recovery efforts.

Even more uncertainty resulted from the other big election over the weekend. Greek voters picked anti-bailout parties, but none of these minor parties garnered enough votes to form a government straight away. New Democracy leader Antonis Samaras is trying to piece together a government, and was given three days to make it happen.

Members of the Greek government are split down the middle on whether to renege on the terms of the bailout agreements. If Samaras is not able to put together a government, the second-place winner will get three days to try, and if they can’t, then it falls to the third-place party, who will get another three days. If no government can be formed in the next nine days, President Karolos Papoulias will get a chance to broker a government of national unity, with another round of elections a possibility.

The major risk is that no government is formed and there is no one able to continue the austerity measures necessary for Greece to continue to receive the euro bailout funds. European leaders could shut the flow of funds off, fearing they are throwing good money after bad (there seems to be some truth to that statement). Eventually, we could see Greece be forced out of the euro, causing another round of fear over what will happen if one of the members exits. In my mind, it is pretty simple: The euro is much stronger without Greece, but the Greek exit probably won’t be a smooth and painless event. A report I read over the weekend agrees with my thought that a Euro ex-Greece would actually appreciate. According to the report, the euro would rise to $1.36 “the second they say Greece is out.”

Economic data out of Europe today showed German factory orders rose more than economists forecast in March as global demand helped offset a slowdown in the eurozone. Factory orders jumped 2.2% from February, topping economists’ projections of a 0.5% increase. Today’s numbers were a positive surprise following Friday’s data, which showed a euro-area composite index dropped. April’s index, based on a survey of purchasing managers in both services and manufacturing industries dropped to 46.7 from 49.1 in March. A reading below 50 indicates contraction.

Chuck spoke about the slippery slope oil was starting down on Friday morning, and it continued to lose throughout the day to close below $100 for the first time since February. The drop in crude prices was the result of the combination of poor jobs data here in the U.S. and investor worries over the elections in Europe. The commodity currencies dependent on oil sold off, with the Canadian dollar dropping for a third day in a row. The loonie lost over 1.6% vs. the dollar last week as reports indicated both the U.S. and Canadian economies would not recover as quickly as some thought. Many had predicted the Bank of Canada would be increasing rates this summer, but the probability of a rate rise by September now stands at less than half, down from two-thirds at the start of the week, according to Bloomberg.

The drop in oil prices will also weigh on the Norwegian krone (NOK), but the impact may not be as great as you may expect. A story I read yesterday showed that higher oil prices have actually helped Norway’s government hold the value of the krone down. Yes, it sounds counterintuitive, but high oil prices have actually given Norway’s leaders the ability to sell more of the Norwegian krone back into the market in an effort to hold down the krone’s value. Norway is the seventh-largest oil exporter, and the recent higher prices have caused a surge in the government’s oil revenues. Norway’s central bank is predicted to sell an average of 727 million Norwegian kroner a day for the rest of the year, up from 350 million in May. The bank has cut rates twice since December, in part to weaken the currency, and the oil revenues have given them the ability to keep a lid on the Norwegian krone.

Investors have shown an interest in the Norwegian krone in spite of the government’s efforts to cap its appreciation. Norway’s economy will expand 3.25% this year according to central bank estimates, and the unemployment rate was just 2.6% in April, Europe’s lowest level. The oil revenues have made Norway the world’s second richest nation per capita according to The Economist magazine. This has caused many to look toward Norway as a safe haven, seeking shelter from Europe’s debt crisis.

The other commodity currencies of Australia (AUD), New Zealand (NZD), South Africa (ZAR) and Brazil (BRL) all sold off as risk was taken off. As Chuck informed readers last week, the RBA surprised many in the markets with a 50 basis point rate cut. Many investors now believe the RBA will reduce its benchmark rate even further, to an all-time low after officials cut forecasts for growth and inflation. Gov. Glenn Stevens cited economic conditions that were somewhat weaker than expected as a reason for the cut. The RBA is now predicting average growth of 3% in 2012, down from a February estimate of 3.5%. Consumer prices are predicted to rise 2.5% in the year, down a bit from a previous prediction of 3%. Lower inflation expectations combined with slower growth will probably cause further rate cuts by the RBA in the coming months.

It will be a relatively slow week for data here in the U.S., with consumer credit today followed by a couple of “optimism” measures tomorrow (NFIB Small Business Optimism and IBD/TIPP Economic Optimism). Wednesday, we will get the wholesale inventories and MBA mortgage application numbers. Thursday will be the busiest day, with the weekly jobs numbers along with the trade balance, monthly budget statement and import price index. Friday will close out the week with the PPI numbers along with the University of Michigan confidence index.

To recap: It was a risk-off day on Friday after the jobs data in the U.S. came in a surprisingly weak 115,000. Bad data in the U.S. combined with uncertainty over in Europe to push investors back into the “safe havens” of the U.S. dollar and Japanese yen. French voters elected a new president from the Socialist Party, and Greek voters threw their government back into disarray. Neither is positive news for the euro, which sold off a bit. But if the Greeks exit, we could see the euro rally to $1.36. Oil fell below $100 a barrel, pushing the CAD$ down. Norway’s oil revenues have been used to keep a lid on the value of the NOK. And the commodity currencies of Aussie, kiwi and rand were all lower.

Chris Gaffney
for The Daily Reckoning

Jobs Data Push Speculators Out of the Market originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

I’m going to get back to the price of oil in a bit here, but first, the currencies. They are still stuck in that rut we talked about yesterday — the underlying bias remains to buy dollars right now, but the bias is very weak folks, very weak.

It is a Jobs Jamboree Friday, and right now, the “experts” are saying that the Bureau of Labor Statistics (BLS) will show that 160,000 jobs were created in April. That’s quite a bit more than the ADP report showed us the day before (117,000), and looks pretty suspect when you also factor in the Challenger job cuts that printed yesterday and showed an 11% gain year on year for April.

The markets have recently kind of gone back to the old way of valuing the dollar with outcome of the jobs jamboree, which would mean 160,000 jobs created is not that good. Sure, it’s better than the 120,000 jobs that were allegedly created in March. But at this rate, jobs aren’t even keeping up with the population. Remember, I told you long ago that about 250,000 jobs need to be created on a monthly basis to fuel a recovering economy — 160,000 is not 250,000.

But the markets will get lathered up a bit, should the report print around 160,000, and the knuckleheads that see it as good will mark up the dollar. The calmer heads that see it for what it is will not mark up the dollar. At the end of the day, we’ll see who won.

Basically, I see it like this. We all know the BLS “adjusts” the numbers to look better than they are, but take the BLS number as it is — for that’s what the markets do — and look at it this morning with this in mind: A strong number for April would wipe out the negativity that surrounded the March weak number of 120,000 and prove that it was only a bump in the road, thus removing thoughts about QE3.

But if the number is weak, making two consecutive months of weak reports, the calls for QE3 will be deafening, and that would be dollar negative, and gold positive.

Of course, if the number of jobs created per the BLS is strong, that would be dollar positive.

The euro (EUR) is also being held hostage this morning, as Europe heads into the weekend with two major elections to take place. France will choose a new president, probably Hollande, who is not Sarkozy and not a fan of the great plan for the eurozone. Greece will vote in a new government. Then in minor elections, both Germany and Italy will have regional elections.

Everyone knows what to expect from Hollande, so his win, while not good for the euro, won’t hurt it too much, as a Hollande victory has already been priced into the euro. The Greece government election is a real wild card, and is putting the most pressure on the euro this morning. My thought is that this will turn out to be a tempest in a teapot.

The fun just keeps coming for the Australian dollar (AUD)… NOT! First, the Reserve Bank of Australia (RBA) delivered a powerful blow to the midsection of the A$ by cutting rates 50 basis points, when 25 basis points were expected, and now the RBA has moved up the A$’s body and is slapping it in the face. The RBA lowered its growth forecasts across the forecast horizon, which is central bank parlance for as far as we can see, economic growth will be weaker…

So make a notation right here, right now, that the RBA is going to cut rates another 50 basis points (1/2%) later this year…

Gold is selling off again. This morning, the shiny metal is down $5. I did an interview with Dow Jones yesterday and I talked a lot about gold and how I truly believe that the push down that we’ve seen in the price of gold has been government orchestrated, going back to the WikiLeaks cable I told you about. The U.S. can’t have everyone replacing dollars with gold. It’s that simple, folks. And one day, sons and daughters, you will find out the truth, and you’ll be able to tell your grandkids that you knew the guy that first talked about that.

And the price of oil might have slipped some this week, but it hasn’t stopped Norway from posting some very impressive profit numbers this year. Norway, the world’s seventh-largest oil exporter, will probably raise its oil price estimate by 13% when it publishes its budget on May 15.

I promised that I would get back to the price of oil. Let me set this up. Twice this week, I talked about the call that was made at the Casey conference for $40 oil in the next year. And while I believe as a country we should be able to achieve that, I believed that the government, the EPA and other things would be stumbling blocks.

I saw this last night in The Wall Street Journal: “The Obama administration will soon issue new environmental-safety rules hydraulic fracturing on federal land, setting a new standard that natural gas wells on all lands eventually could follow.

“The rules, which are likely to be unveiled by the Interior Department within days, are designed to address concerns that the method of extracting natural gas known as ‘fracking’ can contaminate groundwater. Among other things, they create new guidelines for constructing wells and treating waste water, according to a draft of the proposed rules reviewed by The Wall Street Journal.”

Chuck again. So see, the government’s hand is already entering the oil cookie jar.

Then from The Daily Reckoning, my friend, the one and only Bill Bonner:

“In Europe, the following countries are now in recession:

Slovenia
Italy
Czech Republic
Ireland
Greece
Denmark
Portugal
Netherlands
Belgium
U.K.
Spain

“In America, the last reported GDP results were positive. But take out inventory buildups and the growth rate was only 1.6%. Not very exciting. Almost every report in the financial press said the results were ‘disappointing.’ But why would they be disappointed? Don’t they know we’re in a Great Correction? They’re lucky there was any growth at all. And if you took out all the stimulus spending, ZIRP, LTRO, TARP, QE 1, QE 2, Operation Twist and all the increases in disability…and other transfer payments…

“…what do you have?

“Most likely, you’d be in the same situation as the U.K., Spain and all the other recessed economies.”

Chuck again… no one can say it like Bill does…

To recap: It’s a Jobs Jamboree Friday, and the currencies’ near-term direction could very well come from the outcome of the jobs data. The currencies this morning remain in a rut, with a weak bias to buy dollars. The euro is being held hostage by elections that will take place this weekend in the eurozone. And gold continues to be pushed down, but by whom?

Chuck Butler
for The Daily Reckoning

Euro Held Hostage By Elections originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

I find this news very encouraging, in that the European Central Bank’s (ECB) 1 trillion-euro LTRO (three-year loan) is fading, and therefore, the demand you see for these bonds from Spain and France is “real demand” — not the kind in which yields were held low because they were previously artificially held down by EB buying.

But the euro is being hung out on a line this morning, waiting to hear what ECB President Mario Draghi is going to say in the press conference following the meeting in which he will announce no change in rates. Euro traders are waiting to see if Draghi pulls a rabbit out of his hat of central bank tricks.

For the euro today, it’s a case of you can’t do anything right as far as the markets are concerned. I am concerned about what Draghi has to say, for he has really thrown the euro under the bus, to promote growth, which is exactly what we all expected when a Club Med president (Italian central bank) was put in the position of ECB president!

In a case of “this should have been better for us than that,” the New Zealand dollar/kiwi (NZD) was the worst performer of the night, moving downward versus the U.S. dollar and the Aussie dollar (AUD), in response to a very weak labor report.

New Zealand’s first-quarter unemployment rate jumped to 6.7%, from the previous quarter’s 6.4% figure. That was not so good for kiwi, but in reality, I think it was a knee-jerk reaction to the number, for New Zealand unemployment has remained in a range of 6-7% for over two years now.

On the side of “this should have been better for the kiwi than the labor report,” the Reserve Bank of New Zealand (RBNZ) — who used to be what I would call a “prudent central bank,” but kind of lost their way — brought some of that prudence back last night when they introduced a number of prudential policy changes, based on lessons from the global financial meltdown, in order to further strengthen the New Zealand financial system.

For instance, the RBNZ — seeing that financial institutions are more vulnerable than previously thought regarding contagion effects from financial shocks, due to the likelihood of liquidity contraction — decided to “up the game on bank liquidity requirements,” including their Core Funding Ratio, and they also addressed the capital requirements under the new Basel III framework.

Another thing the RBNZ announced was a framework to remove the taxpayer-funded bailouts when banks fail, and there were more responses.

See? Now, isn’t insuring that their financial system will remain viable during the next financial meltdown better for the kiwi than a labor report? Or at least it’s a tie!

This is the kind of stuff that I really gets the hair on the back of my neck to stand up — central banks doing what they should be doing, and not financing 61% of Treasury auctions in one year or running the printing press 24/7 or implementing stimulus packages that have been shown to not really work in the long run (see Japan, circa 1995-2012).

The sun is rising on the ocean this morning. I’m sitting on a deck overlooking the ocean while I write the Pfennig. Now, this is the way to write! I have my iPod playing. I’m even drinking coffee while I write today. Normally, I wait until I’m finished writing before I partake in a cup of coffee, as I want what I write to be pure Chuck! But not today — I’m actually having a good time writing this morning!

Don’t you just love it when someone always has a better way to do something than what you’ve chosen? Or a better idea, or a better anything? Well, I do… and that is why I dislike any U.S. official that goes to China and tells them “how to do things better.” For instance, yesterday, U.S. Treasury Secretary Tim Geithner told the Chinese that “a stronger, more market-determined currency would”… blah, blah, blah. The thing that catches my eye is that Geithner tells the Chinese they need a stronger currency, when the one he is somewhat responsible for is worth about 3 cents and will someday trade to its intrinsic value.

If having a strong currency is so important, then why doesn’t the Treasury secretary go back to Washington and sit down with the president, “Big Ben” Bernanke and Congress. He’ll get about as much reaction to that thought as he did in China!

On sidebar, I participated in a CFA poll this week: 926 people responded, and 60% of them said that hedge funds’ impact on the financial system can best be characterized as destabilizing, 21% said immaterial and 19% said stabilizing. I voted destabilizing, as their use of shorting, leverage and derivatives cause an outsized impact on the financial markets. Size matters, and when large amounts of money come into a market, the market moves. That can be good or bad, depending on what side of the trade you reside!

Yesterday we saw another regional manufacturing index print weaker, and the New York ISM index printed at 61.2, falling from 67.4 in March. So once again I ask how can the national ISM print an increase when all the regionals have printed weaker?

The ADP employment change data that are supposed to give us an indication of the Jobs Jamboree, which will print tomorrow, showed that in April, the country added 119,000 jobs. That was much weaker than the forecast of 170,000. Today, we’ll see another labor report called the Challenger job cuts. Of course, none of this really gives us an indication of the Jobs Jamboree, because of all the “adjustments” the Bureau of Labor Statistics makes before printing.

And of course, with it being a “Tub Thumpin’ Thursday,” we’ll see the latest weekly initial jobless claims for last week. Look for 380,000

Gold and silver have traded down this week. I shake my head in disgust at the things going on behind the curtain with these two. The demand for the two metals remains strong. Last week at the Casey conference, every person that stopped by our table, eventually wanted to know about our gold and silver offerings. Eventually, the demand will win out over the price manipulators.

In the category of central banks that have deep-sixed their currencies besides the Fed and the dollar, we see the Brazilian real (BRL) and the Indian rupee (INR). Nasty moves these two have made in recent weeks, and it all comes back to the central bank’s moves to get their currency weaker. I told you a few weeks ago that it appeared to me that the markets had given up on the Brazilian real, and that has really played out since.

I had a Casey conference attendee stop by the table on numerous occasions last week and keep asking me if I was sure about the Swiss franc being pushed lower by the central bank. Seems the attendee only wanted to buy francs. I said, “That’s fine, but you need to be aware that the central bank did a de facto devaluation of 10% last September and is talking about more.” I probably said that about a dozen times last weekend!

Then yesterday, I talked about the future price of oil and said that well-respected analyst Porter Stansberry had forecast a $40 price of oil in the next year. I then went on to talk about what a great country we are and why that shouldn’t be something we can’t get to. I then talked about the CPA… what a dork! I meant the EPA!

A lot of you thought I was agreeing the Mr. Stansberry. Well, I wasn’t agreeing. I asked, “Why can’t we do that?” and then gave a few examples of why it will be difficult to get to. Marin Katusa over at the Casey Research team wrote a long article about how this will be difficult. You should to go to www.caseyresearh.com and find that report. Marin does a great job!

To recap: The currencies are stuck in a rut. The euro is being hung out on a line by the ECB meeting today, after seeing some very good results from bond auctions in Spain and France this morning. The New Zealand dollar/kiwi is the worst performer overnight, as their unemployment rate gained in the first quarter, and that has put the kibosh on the hopes of reversing the emergency rate cuts from last year. U.S. data continue to be weaker, except the national manufacturing data, which still is puzzling to Chuck.

Chuck Butler
for The Daily Reckoning

Central Banks Get Weaker Currencies originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

Nothing much happened last week. Except that Ben Bernanke told investors that the fix was in…and the stock market went up. The chief of America’s central bank told the world that he was prepared for more QE whenever it was needed.

When will it be needed? When the stock market goes down!

So, why not? Why not buy stocks? What can you lose? If they go up, you keep the gains. If they go down…ol’ Benny will be there with wads of cash to buck them up.

Cash…cash…cash… How much do you need?

A million? A billion? A trillion? Hey, the sky’s the limit. Bernanke is ready. As much as you need…when you need it.

After so many years of fixes (it’s been 5 years since the subprime crisis began) we’re getting to know how the fixes work.

Let’s start with the money. When a fix is needed, the feds come up with money. But everyone knows the feds are broke. So where does the money come from?

“Out of thin air,” was an expression used by John Maynard Keynes. But how could that be? How can you get cash…money…out of nowhere? And what kind of money could it be…if you could get it at no expense? It must be a “funny” money…a zombie money…

It must be worthless, right? But it’s not. That’s the crazy thing…the Fed plucks this money out of the air…gives it to banks…and they can use it to pay for a pizza. Or an automobile. Or a sovereign bond.

The problem — especially now in Europe — is that the money that comes from nowhere goes nowhere. The ECB lent it to the banks. The banks lent it to the government. And pfhhht! It was back to where it came from — nowhere.

Now, The Financial Times reports that the banks are down to their last few billion. Snniff. Sniffle. Poor bankers. They better save their last billions to pay bonuses.

That’s what they’re thinking too. They’re not buying government bonds the way they used to. Trouble is, the governments of Spain, Italy and others need the money. So, they go to the European central bank and ask for more of that ‘nowhere money’:

“You gotta give these banks more money so they can give us more money… Otherwise, we’re going to default…and you can say goodbye to Europe…”

Whether that would be good or bad, we don’t know… We’re still wondering where that money came from. Where, exactly, is nowhere?

How could there be a place…like…nowhere? We mean, if it is nowhere…it can’t be somewhere. So there can’t be a place that is also nowhere. So, if money really does come from nowhere it is…like…really not there.

Can someone help us with this?

Lately, we’ve come to the conclusion that this whole thing is a scam. The money is a scam. The economics behind it is a scam. The way it is lent out…is also a scam.

Let’s look again at where the ‘nowhere’ money goes…

In short, it is used by the insiders to scam the outsiders. Those who control the government scam those who don’t. It goes to zombie industries — finance, health, education and the military.

In the news lately is the plight of the students. Everybody tells them they should go to college. But college is expensive. And since nobody has any money in America, they have to borrow. They end up with a worthless college degree and, on average, about $25,000 in debt.

The scam takes place on several levels. The whole nation gets scammed into thinking that “education” is a good thing.

Here’s a typical newspaper article, this one from The Wall Street Journal:

“Education Slowdown Threatens US”

“Throughout American history,” the article begins, “almost every generation has had substantially more education than that of its parents. That is no long true. When baby boomers born in 1955 reached age 30, they had about two more years more schooling than their parents, according to Harvard University economists Claudia Goldin and Lawrence Katz… But in 2010 they averaged only about 8 months more schooling than their parents.”

The article goes on to tell us that college graduates have less trouble getting a job than those who only graduated from high school. But so what? Suppose everyone had a Ph.D. Would jobs suddenly appear for them?

“The wealth of nations is no longer in resources. It’s no longer in physical capital. It’s in human capital,” says an expert quoted by the paper.

Elsewhere in the blahblahsphere, Larry Summers, former secretary of the Treasury, challenged Mitt Romney to present a budget plan, which among other things, included more “investment” in…yes…you guess it…education!

But “investments” in education have been increasing for the last 40 years…and for the last 40 years…there has been not one penny of return.

So, let’s follow the money. The feds give students money…or give it to the universities directly. Either way, it ends up in the pockets of the education industry. Unemployment has gone up and down…with no relation to the supposed investments in education. Employees — including those with college degrees — have not earned a penny more in real hourly wages. And test scores show they don’t know anything more than they did, at far lower investment, 4 decades ago.

Investments in education are losers. Why invest more?

Because the money comes out of nowhere. It’s nowhere money. Might as well bailout the financial industry. And “invest” in healthcare too.

But the nowhere money is not with no cost. It looks just like other money. And it buys the same things. So, the guy who has it is able to use it to take away resources from other people.

Follow the money. From the Fed to the feds…to the favored, no-return industries — health, education, finance and the military.

The zombies get more money. The rest of the economy ends up with less.

And now, much of the cost rests on the shoulders and backs of young people in the form of unpaid student loans, from MSNBC:

Here’s what we do know about student loan debt: it’s roughly $1 trillion in size, greater than either auto or credit-card debt and second only to mortgage debt in the US.

Borrowers in their 30s today owe $28,500, on average. The debt burden has soared just as — and partly because — the recession hit, so younger graduates carrying the highest balances are hit with the double whammy of a weak job market (that still isn’t showing any sign of rapid improvement).

And this all comes as globalization and technological change have upended once-reliable career paths, wiped out many mid-level professional jobs and leave low-paying fields in health, food and beverage services, and retail as among the fastest growing job markets over the next decade.

Oh, and consider that student loan debt remains one of the most difficult types to forgive or discharge in bankruptcy, in part because the federal government (i.e. taxpayers) made or guaranteed 80 percent of all outstanding student loan debt as of last year. And finally, that once loans in deferral or forbearance are excluded, the delinquency rate on student loan debt was an estimated 27 percent as of the third quarter of 2011, according to a study by the New York Fed.

Esquire magazine has another angle. Here’s a question for you. How come the feds give old people drugs — free…but when it comes to college education, it forces the young folks to borrow? Simple, the young don’t have as much voting power. They’re outsiders. Here’s what has happened to them.

Twenty-five years ago young Americans had a chance.

In 1984, American breadwinners who were sixty-five and over made ten times as much as those under thirty-five. The year Obama took office, older Americans made almost forty-seven times as much as the younger generation.

This bleeding up of the national wealth is no accounting glitch, no anomalous negative bounce from the recent unemployment and mortgage crises, but rather the predictable outcome of thirty years of economic and social policy that has been rigged to serve the comfort and largesse of the old at the expense of the young.

Since the beginning of the Industrial Revolution, human potential has been consistently growing, generating greater material wealth, more education, wider opportunities — a vast and glorious liberation of human potential. In all that time, everyone, even followers of the most corrupt or most evil of ideologies, believed they were working for a better tomorrow. Not now. The angel of progress has suddenly vanished from the scene. Or rather, the angel of progress has been sent away.

Nobody ever talks about generational conflict. Who wants to bring up that the old are eating the young at the dinner table? How are you going to mention that to your boss? If you’re a politician, how are you going to tell your donors? Even the Occupy Wall Street crowd, while rejecting the modes and rhetoric and institutional support of Boomer progressives, shied away from articulating the fundamental distinction that fills their spaces with crowds: young against old.

The gerontocracy begins at the top. The 111th Congress was the oldest since the end of the Second World War, and the average age of its members has been rising steadily since 1981. The graying of Congress has obvious political ramifications, although generalizations can be deceiving. The Republican representatives tend to be younger than the Democrats, but that doesn’t mean they represent the interests of the young. The youngest senators are Tea Party members, Mike Lee from Utah and Marco Rubio from Florida (both forty). Here’s Rubio: “Americans chose a free-enterprise system designed to provide a quality of opportunity, not compel a quality of results. And that is why this is the only place in the world where you can open up a business in the spare bedroom of your home.” He is speaking to people who own homes that have empty spare bedrooms. He will not or cannot understand that the spare bedrooms of America are filling up with returning adult children, like the estimated 85 percent of college graduates who returned to their childhood beds in 2010, toting along $25,250 of debt.

David Frum, former George W. Bush speechwriter, had the guts to acknowledge that the Tea Party’s combination of expensive entitlement programs and tax cuts is something entirely different from a traditional political program: “This isn’t conservatism: It’s a going-out-of-business sale for the Baby Boom generation.” The economic motive is growing ever more naked, and has nothing to do with any principle that could be articulated by Goldwater or Reagan, or indeed with any principle at all. The political imperative is to preserve the economic cloak of unreality that the Boomers have wrapped themselves in.

Democrats may not be actively hostile to the interests of young voters, but they are too scared and weak to speak up for them. So when the Boomers and swing voters scream for fiscal discipline and the hard decisions have to be made, youth is collateral damage. Medicare and Social Security were mostly untouched in Obama’s 2012 budget. But to show he was really serious about belt tightening, relatively cheap programs that help young people like the Adolescent Family Life Program and the Career Pathways Innovation Fund were killed.

His intentions may be good — he may want to increase support for AmeriCorps — but the program shrunk last year. Three quarters of the applicants were turned away. He resisted Republican efforts to slash Pell grants by $845 per student, but then made other changes to the program that will save the government — or cost students, depending on your perspective — a projected $100 billion over ten years.

The youth vote still supports Obama, but in a chastened, conditional way. In hindsight, Obama’s 2008 campaign looks like an indulgent fantasy in which the major conflicts in life simply don’t exist. There may be no white America and no black America, no blue-state America and no red-state America, but one thing is clear: There is a young America and there is an old America, and they don’t form a community of interest. One takes from the other. The federal government spends $480 billion on Medicare and $68 billion on education. Prescription drugs: $62 billion. Head Start: $8 billion. Across the board, the money flows not to helping the young grow up, but helping the old die comfortably. According to a 2009 Brookings Institution study, “The United States spends 2.4 times as much on the elderly as on children, measured on a per capita basis, with the ratio rising to 7 to 1 if looking just at the federal budget.”

The biggest boondoggle of all is Social Security. The management of entitlement programs, already weighted heavily in favor of the older population, has a very specific terminal point that coincides neatly with the Boomers’ deaths. The 2011 report by the Social Security trustees estimates that, under its current administration, the fund will run out in 2036, so there’s just enough to get the oldest Boomers to age ninety.

Only 58 percent of Boomers have more than $25,000 put aside for retirement, so the rest will either starve or the government will have to pay for them. But the government’s future ability to pay is decreasing rapidly precisely because the Boomers splurged so heavily during the Bush and Clinton years. Public debt per person in the United States currently stands at $33,777. George W. Bush inherited a public-debt-to-GDP ratio of 32.5 percent and brought it up to 54.1 percent during a period of economic growth. (The money borrowed from the future paid for massive tax cuts, with no serious reductions in domestic spending, two expensive wars, and a prescription-drug benefit added to Medicare.) Under Obama, the debt-to-GDP ratio has risen to 67.7 percent and is projected to rise to 74.2 percent this year.

This is no conspiracy; no nefarious backroom deal by political and corporate overlords. The impasse of the moment is, tragically, the result of the best aspects of the Boomers’ spirit. The native optimism that emerged out of the explosively creative postwar world led them to believe that growth would go on forever; that peace and prosperity were the natural state of things. Their good intentions seem like willful naiveté today, but the intentions were genuine. Clinton actually believed that globalization would export the First World rather than bring the Third World home; it did both. The prescription-drug benefit was the “compassion” in compassionate conservatism. All those tax cuts were intended to liberate opportunities, not destroy them.

Cynicism rises to fill the emptied space of exaggerated and failed hope. It’s all simple math. If you follow the money rather than the blather, it’s clear that the American system is a bipartisan fusion of economic models broken down along generational lines: unaffordable Greek-style socialism for the old, virulently purified capitalism for the young. Both political parties have agreed to this arrangement: The Boomers and older will be taken care of. Everybody younger will be on their own. The German philosopher Hermann Lotze wrote in the 1870s: “One of the most remarkable characteristics of human nature is, alongside so much selfishness in specific instances, the freedom from envy which the present displays toward the future.” It is exactly that envy toward the future that is new in our own time.

And we will not talk about any of it. We will keep mum. We will hold our tongues lest we seem ageist, lest we seem bitter, lest we seem out of touch, lest we seem pessimistic, lest we seem divisive.

Regards,

Bill Bonner
for The Daily Reckoning

Interesting Facts About the Student Loan Debt Bubble originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".