Bill Bonner

The idea is to push slimy packages of derivative debt onto people who don’t know what they’re doing. Serving lumps to chumps, in other words. Like a high-school cafeteria.

Sometimes the victims are German banks. Sometimes they’re hedge funds. And sometimes…yes…the victims are all of us.

Here is how it works. The lowly householder can’t pay his mortgage, so the mortgage company takes the loss. The mortgage company goes broke so the banks take a loss. The bank takes a loss so another bank, the one that bought its derivative debt bomb, goes broke. And then, the feds step in and take the debt over. And then they add trillions more – claiming to protect everyone from everything…

…the guy who hasn’t saved for his retirement gets Social Security. The guy who hasn’t got health insurance gets Medicaid or Medicare or some sort of freeby medical help. The bankers get bailed out. GM gets bailed out. Farmers get subsidies. Poor people get food stamps. Lobbyists get contracts….

…and then the little government that is paying for all this can’t go on…so a bigger government bails it out…

…and then, investors buy the big government’s bonds…because they’re safer…even though they’re all in the same boat…

…and then the boat sinks! That’s Fab Finance. More about it below….

In the meantime, here’s a news item, from the Daily Press

Government workers out-earn private sector workers.

That is part of the reason why the state, cities, counties and school boards are agonizing over how to bring their budgets in line with reduced tax revenues. Those budgets bear the pressure of salary scales for government workers that exceed those of the average private-sector worker/taxpayer.

This month, the federal Bureau of Labor Statistics released its annual look at compensation by region, by employer, by occupation, by just about any way you want to slice or dice it. Here’s what it shows for Hampton Roads, as of July 2009:

The average full-time state and local government worker in our region earned $23.46 per hour. The average private sector worker made $18.87.

You might pass that off as an artifact of differences in the labor force of the two – that the private sector has, for example, more low-end service jobs. And there’s an element of that. But the BLS handily provides numbers by occupation, so you can line up apples with apples.

And when you look many of them, government workers have the advantage. Take secretaries and administrative assistants. In Hampton Roads, they make an average of $16.86 per hour in government offices, compared to $13.72 in the private sector. In our area, health workers get $29.63, on average, in government jobs and $23.80 in private industry. The one place government workers are at a disadvantage is in the top managerial ranks.

But wages don’t tell the whole story – about compensation, or about why governments are in financial distress.

It’s the benefits. The paid leave. The health insurance. And especially, the pensions.

The BLS estimates that nationally, private industry pays $8.03 per hour in benefits while state and local governments pay $13.65 per hour. Add together pay and benefits on that national scale, and government work earns a 45 percent premium over the private sector.

The private sector is de-leveraging…as near as we can tell. Private businesses cut their payrolls. They trimmed expenses. They protected their profit margins – generally.

But the public sector figures it has a different role to play…a countercyclical role. While the private sector eases off, the public sector puts the pedal to the metal.

That’s been the story for the last year and a half. The government pays more. Hires more. And floats deeper in the water.

Walter Wriston once commented that the “government can’t go broke.” But that just shows you why the banking sector is in such trouble; Wriston ran Citibank…

The trouble with most people in economics and finance these days is that they study too much math and not enough history. If they read more history they’d know that governments go broke all the time. They’d probably get a hint about why governments go broke too – they pay too much; hire too many people; give away too much money on bread and circuses; and they get involved in too many costly foreign wars.

What’s new?

Nothing really. But the fab finance is an innovation. Now, with the debt spread among so many unaware debtors…we can all go broke in a much bigger way.

Bill Bonner
for The Daily Reckoning

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily ReckoningDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

  • Thomas Paine

    The US government is a criminal enterprise run by Goldman Sachs. All 535 congressmen should be tried and executed for treason except Ron Paul.

  • RerunFromWhatsHappening

    Harry/James, we know the internet can be a frustrating place, but there is no need to play provocateur for the purported sake of studying perma-bears. Relax, have a Mai Tai, watch TVLand reruns.

  • Mike Scooter

    Thomas, I’d say a lower number for the treason thing. More for collusion. And quite a few of them for being the classic “useful idiot”.

    And then there are those of us (in the aggregate) that elected these buffoons.

    Cheers!

  • Jrod

    Haven’t seen the ol’ Steve Jobs fanboy around since the zerohedge beatdown.

  • Michael

    Regarding the pay-rate differences between public and private employees, I don’t see any accounting for the fact that government offices tend to concentrate in large cities (i.e., state capitols) with higher average costs-of-living while private employees are spread more evenly.
    Obviously not every government employee is working in a big city, but it would seem they are disproportionately concentrated in them compared to to private-sector workers.

  • http://www.debtchallenges.com Evelyn Guzman

    Hmm, this is scary thought but I see the point. If the government goes broke, we pick up the pieces because we are the government. We just elect the people who run it. But I am not going to worry about it that much because the story on the government going broke is an old one. I remember stories of it going broke two decades ago and it is still standing tall. The author is right though. If the government sinks, we all sink with it because we are in the same boat.

    Evelyn Guzman
    http://www.debtchallenges.com (If you want to visit, just click but if it doesn’t work, copy and paste it onto your browser.)

  • Lost & Found

    Well done article. Thanks.

  • Curly

    Congress should be held liable for spending. If the congress salary was lowered on years the budget went negative. If it continued they would loose all retirement. By the way there should be no retirement for ELECTED officials. They should be involved in industry and be making money before they are elected. That way they know what is faced by business.

  • http://www.truthsavvy.com Doug
  • Barry Marcus

    At a minimum, no incumbent should be reelected to Congress. Congress is primarily responsible for the financial mess we are in. It is directly responsible for our real public debt of over $100 trillion. At the rate we are piling on debt the carrying cost of this debt will soon exceed our total tax revenue. It is plainly obvious that, for a long time, the majority of Congress has been primarily interested in squandering taxpayer credit to buy their own reelection, self aggrandizement and personal wealth. Protection of the national interest, including the safety and well being of our children and grand children, has been and is the least of their concerns. At a minimum we should vote all incumbents out of office and force enactment of term limits for Congress.

  • http://none JOHN F SIVERTSEN

    OUR MONEY HAS IN GOD WE TRUST ON IT ? NO ONE ELSE HAS THAT . AND GOD IS BEING HIT ON ALL SIDES TO GET HIM OUT OF CONGRESS AND ALL OTHER PLACES ? IF THERE NO GOD ! THEN ALL THIS IN JUST THE SAME OLD , SAME OLD STUFF . BUT ! IF THERE IS A GOD OF OUR FATHERS OF THIS COUNTRY ? WE ARE IN DEEP AND HISTORY SAYS WE ARE GONE . SO IT’S ALL IN TRUTH NOW ! NO GOD, NO TRUTH AND ALL IS THE SAME . E-Z ? YOUR CHOISE !

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