“A national debt, if it is not excessive, will be to us a national blessing.” — Alexander Hamilton
“A man in debt is so far a slave.” — Ralph Waldo Emerson
Gold, virtually unchanged: $1,655 an ounce. Dow, virtually unchanged: 13,107 points. Oil, virtually unchanged: $95 a barrel.
Investors should have taken yesterday off…spent some time with the kids…worked on their swing…or whittled away the hours on Praia do Camilo with a good book. Markets aren’t going anywhere, Fellow Reckoner…not without the say-so from the Feds.
“Everyone is waiting,” writes Bill Bonner. “They want to know what will happen when the Fed gets together tomorrow. Will there be an open-ended commitment to QE — as much as you want, when you want it — or will there be nothing at all?”
The Powers that Be are hunkered down in Jackson Hole for their annual international central banking symposium, a jaw-gabbing event where the world’s “brightest” economists get together to come up with the world’s dumbest “solutions”…solutions to problems largely caused by their last round of “solutions.”
The Feds use a number of complicated instruments to determine which way the economic breeze is blowing, almost all of them baloney. Then they imagine that, after holding their windsocks out in the hurricane, they can command the gales to blow in any direction they so desire. And what’s more, people actually believe them!
Growth rates, ostensibly their primary focus, are slowing in the US, down from a limpish 2% rate for the first quarter to a decidedly flaccid 1.7% in the second. And that, after unprecedented amounts of economic “stimulus.” A more modest man might feel a twinge of embarrassment, perhaps even the onset of “performance anxiety.” But Bernanke is not that man. He has pledged, in the face of demonstrable impotence, to do “whatever it takes” to get the economy…“up.”
Alas, the employment situation, another Fed Fetish, has softened too, with official unemployment still above 8%. Factor in discouraged non-workers and those forced to take part-time jobs and we’re looking at closer to 15%. John Williams at ShadowStats, who computes the figures the “old way,” pre Clintonian fiddling, puts the rate at almost 23%…nearly 1 in 4.
But unemployment today is nothing compared to what it might be tomorrow. According to the August report from the US Bureau of Labor Statistics, “From April to July 2012, the number of employed youth 16 to 24 years old rose 2.1 million to 19.5 million.”
The BLS was quick to couch its statement, however, explaining that:
“The youth labor force (16- to 24-year-olds working or actively looking for work) grows sharply between April and July each year. During these months, large numbers of high school and college students search for or take summer jobs, and many graduates enter the labor market to look for or begin permanent employment.”
Even so, the number of unemployed youth increased by 90,000 from the same period in 2011. The generation unlucky enough to find itself graduating today is far worse off than its predecessors. Confirmed the BLS, “The labor force participation rate for all youth — the proportion of the population 16 to 24 years old working or looking for work — was 60.5 percent in July [...] 17.0 percentage points below the peak rate for that month in 1989 (77.5 percent).”
[_EMBED1]Politicians to Youth: You’re Screwed!
Today, one quarter of employed youths show up to work in the hospitality sector, which includes scraping coffee residue from Starbucks’ grinders and sweeping peanut shells from barroom floors. Another 20% work retail. It’s honest work, to be sure…but it’s not the kind of Mad Men-like middle-management positions promised to them at the beginning of their studies. More to the point, it’s not nearly enough to cover enormous and growing student loan repayments hanging around their necks.
According to a new research study published by the Young Invincibles, a national youth advocacy group, average debt held by students at time of graduation has increased by an astounding 46% since 2000. “Moreover,” the study reveals, “total outstanding debt held by the public has skyrocketed 511% over the past decade.”
And it’s not only the youth straining under this huge and expanding debt burden. Incredibly, people over 60 carry a total of $2.2 million in student loans that are more than 90 days in arrears, prompting the federal government to reduce benefit payments on Social Security checks for 115,000 retirees. Where will those dependent on Social Security find the spare change to repay these debts, you ask? Our guess is, they won’t. But these sexagenarians are merely the first zephyr of the coming tempest. Their $2.2 million overdue is tuppence when one considers the overall size of outstanding student loans, a debt bubble that has now, at more than $1 trillion and counting, come to eclipse even outstanding credit card debt in the US.
“The US Department of Education has become the Countrywide of student lending,” Dan Amoss, editor of Strategic Short Report, warned in these pages recently. “After a lending binge started in 2009, it now holds a massive $452 billion portfolio of student loan receivables, according to Federal Reserve data. This so-called ‘asset’ will become a liability by next year…
“Like Countrywide,” Dan continued, “the government is not honestly accounting for its portfolio risks. This $452 billion portfolio doesn’t even include a few hundred billion more in guaranteed student loans. The chief accountant of the Government Accountability Office (GAO) wrote a report dated December 2011 on the federal government’s accounting deficiencies: ‘The deficiencies, for the most part, involved credit subsidy estimation and related financial reporting processes.’ In other words, accounting for below-market loan interest rate subsidies is complex, and the government is not adequately disclosing the risks it is taking.”
Borrowers lured in by artificially manipulated rates? Government intervention distorting markets? Policies aimed at assisting people blowing up right in their faces?
We’re shocked, Fellow Reckoner. No, we’re FLABBERGASTED!
And now, all eyes are on the Fed Chairman to mend the situation. What is poor ol’ Ben “The Hurricane Whisperer” Bernanke to do?
“Destiny is demography,” Auguste Comte once declared. The French philosopher made another important observation too. “The dead governs the living,” he said.
Graduating students have zombie politicians to thank for their dismal lot. In their case, it’s the undead calling the shots.
Joel Bowmanfor The Daily Reckoning
Joel Bowman is managing editor of The Daily Reckoning. After completing his degree in media communications and journalism in his home country of Australia, Joel moved to Baltimore to join the Agora Financial team. His keen interest in travel and macroeconomics first took him to New York where he regularly reported from Wall Street, and he now writes from and lives all over the world.
I think it’s time to apply for a few more student loans to help finance my …er… education. Pay it back? Yeah, maybe…
gotta be 2.2 billion.
2.2 million / 115 k over sixty is ~20 bucks apiece.
more muddled thought by joel, imo
fact is, if you are under 18, you can not legally contract. after that birthday, you can!
young people make mistakes. we all do. my son refused to listen to me and charged right thru law school and then… didn’t like law like his mom thought he would
but, it COULDA worked, riiiight?
when i explained to him his best approach to college he came back to visit the next week-end and said: but dad! mom won’t let me!
a few years later my daughter was getting ready for college after not being able to visit me much for years b/c she was taking “honors courses” and had to meet in small groups to do extra work. EVERY weekend
when i had questioned what she was doing with her youth she patiently explained that i just didn’t understand: college had become so competitive, kids now had to do this to get in! chemistry with an A was frowned upon; honors chemistry with a B was “better”
when i tried to advise her about student debt, she just told me: don’t even bother; i don’t want to hear it!
honest! it wasn’t the FED! it was them! as individuals; making “proper ADULT choices” according to a clinically insane woman’s “values”
both in their 30′s they still have the debt, but do try to keep the interest payments current and whatever they need to “protect their credit”. of course
lotsa guys in ‘Nam were there b/c the judge told them: big mistake kiddo! prison or the armed forces? we’ll have a bailiff take you to the recruitment center, if you’d like… YOUR decision!
and many of them probably ended up thinking maybe 2-3 years of prison woulda been better, especially after they got their legs blown off
hindsight! ain’t it great!
why confuse people? if you are 19 and you murder someone, you are goin down and maybe to the chair
and, if you borrow MONEY you are expected to pay it back!
you can write all the checks you want, but if you do not put the money in the account to clear them, you might be in a jam;
and try getting your own checking account before your 18th birthday, too
my kids wouldn’t dare spew this nonsensical disinfo in my presence; you ever come close to me with noise like this, joel, you are gonna wonder what hit you!
A few things make me very bullish on America:
a.) Obama is President;
b.) Creative wars for the old imperial America are now a sad part of the past;
c.) The military budget is going to be slashed;
d.) Mexico, America and Canada are now becoming one country;
e.) The days of English-only in the U.S. are over;
f.) Medicare for everyone, regardless of age, is coming soon;
g.) The U.S. has so much oil that it is exporting oil to the world;
f.) Saskatchewan and North Dakota are floating on oil;
g.) Interest rates are zero, so we are beginning a managed deflation;
h.) Money is now being invested in companies that pay dividends;
i.) The environmental bunch are about to be given a well-deserved kick in their butts;
j.) Mexicans are dreaming of becoming ice-road truckers;
k.) The house price bubble is broken;
l.) The dollar is strong, and even with zero interest rates;
m.) There is no inflation;
n.) People are beginning to “Lean Forward”, and progressives are taking power in America;
o.) The world loves Obama and respects America again;
p.) Slightly negative interest rates may be coming next;
q.) The national debt may earn interest and be retired using income generated with a switch to negative interest rates;
r.)Twenty-five million Mexicans may move to California, and maybe more;
s.)The Republicans appear to be fossils, and a laugh;
t.) Atomic energy and fossil fuels may be about to replace windmills and solar, and push the cost of electricity down to under 3cents per kwh.
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