- By Bill Bonner
Yesterday, we began our high-minded discourse to the Class of 2015. We explained how the young graduates were not only the most heavily indebted alumni in history, but also the least likely to be able to pay their debts. Incomes have been going down since they were about 5 years old. So have GDP growth rates. Today, we continue the speech no one wants us to give:
Congratulations, Class of 2015.
You are heirs to claptrap, nonsense, bogus theories and trillions in debts.
The systems, programs and institutions your parents set up are mostly worthless scams; worse, they are also produce outcomes contrary to the stated goals. Welfare programs do not help people escape poverty; they guarantee it. Health care programs do not make them healthy; they make them dependent on the drug industry. Defence industry spending doesn't make us safer; it funds drones, bumbling interventions and assassinations and turns foreigners into enemies. We end up not only poorer less secure. All of those assertions take more time to explain and prove than we have time for now, but here's a little example that you will appreciate.
The government set up the student loan program, supposedly, so that you will be able to afford more education and earn more money. With these increased earnings you will be able to pay off the loan. But the student loan program already has the highest non-payment rate in history. And it will probably go much higher, as the total of outstanding student debt is expected to bubble up to $3.3 trillion by 2025.
What do you do if you can't pay? Well, the feds have a solution for you. The trouble is, it forces you to turn you into the very thing the program was meant to avoid.
Here's how it works. As long as your income is very low, you are allowed to make small token payments every month. Keep this up for 300 payments and your debt is considered satisfied, no matter how little you actually paid. In other words, the student loan program encourages you to live in poverty for a quarter of a century in order to get rid of your student debt.
Most likely, this will be easy for you to do anyway. First, because you learned little in college that will make you valuable to employers. Second, because your parents have so rigged up the economy that it will be very difficult to make any financial progress anyway. Household incomes have been going down for the last 15 years, that is, over the entire 21st century. And real, hourly earnings for men have been virtually flat for 40 years.
Good jobs are hard to get. There are fewer 'breadwinner' jobs in America than there were in 1999. And you can forget about starting your own business too. The rate of new start-ups is collapsing. You can thank your parents for that too. The whole system is designed to protect them, their Social Security, their health care, their stocks and their businesses.
Protect them against what? Against you. You are the future. You are the competition. You are the ones who should want to shake things up and tear down the walls of bureaucracy, taxes, paperwork and regulation that prevent you from starting new businesses, getting good jobs, and building real wealth. You should be talking revolution...overthrowing trillions of dollars' worth of your parents' debts and pulling out of their wars on poverty, illiteracy, Iraqis, Afghanis ... you name it. You need to stop these silly, pointless and expensive programs so you will have some resources to pay for your own programs and launch your own stupid wars.
You need to cut off your parents' zombies - the millions and millions of unproductive people who get money from the government - so you can afford your own families...your own pet projects... and some zombies of your own.
You need to stop your parent's suicidal credit-based money system, too. You don't know about this, do you? Your professors of government, politics, economics and finance didn't mention it, did they? Well, the system is corrupt and self-destructive. It only works by increasing the amount of debt in the society, including your own student debt. And it only works at all until the debt bubble gets so big it blows up.
But there's a logic to it...a sinister logic that turns you into chumps for older generations. Spending on credit favors the existing owners of capital...and people who have existing claims on the government money. Let me explain. When the government borrows money, it gives the money to a zombie to spend, or spends it directly. Usually, the money goes to an older person - your parents or grandparents - in some form of social welfare subsidy, pension, job, contract or support program. Then, when they spend the money, it goes into the coffers of corporations. This increases profits...and share prices. Who owns those corporations? Do you? You don't? Then who does?
Your parents and grandparents benefit again. They are the owners of the nation's capital assets. By increasing credit, they shift real wealth from the future to the present...and from you to themselves.
This is the money you haven't earned yet.
I'll spell it out for you: The government borrows a dollar. It gives the dollar to one of its pet zombies - it could be a health researcher, a drug addict, or somebody who makes bombs. The money goes, one way or another, to a corporation that registers it a sale. If it has a 10% profit margin, 10 cents is recorded as a profit. And if it sells at a price-to-earnings ratio of 20 times, its stock price goes up $2. So, the person...who could be your parent ...who owns the stock is $2 richer.
But the government now owes $1 more. And who's going to pay it? You are. Your parents and grandparents are retiring...collecting Social Security and health care benefits. And they think they will be able to sell that stock too...and their house...and have even more money to spend.
And now, it's up to you. You need to get a job so you can pay for their health care benefits. You need to pay your taxes so they can keep their wars going. You need to buy a house too, so they can move to Florida and retire.
You need to vote for their candidates...work for their companies...and pay their bills.
This is the test you face. You are arriving in the economy at the tail end of a 60-year credit expansion. Debt has boomed. The economy has boomed. We -- your parents -- enjoyed an economic expansion that began when we were born and continued, with only short interruptions, until we retired. We got out of school with little or no student debt. We could start businesses with generally few impediments. We could borrow money to fund our businesses and our lives. We could hire, fire, switch jobs...buy and sell houses...move from place to place... We were freer...and richer...than you will be...
...unless you can wipe the slate clean of our debts, our foolish wars and dumbbell programs, and our attempts to hold back the future and prevent you from living rich, full, free lives of your own.
If you don't rise to this challenge, you will inherit our bills, our regulations, our restrictions, our obligations, our delusions, our prejudices and our vanities. You will also inherit a financial crisis - worse than the crisis of '08-'09 - and a long, draggy period of economic slum The debt expansion of the last 60 years will turn into a dreary debt contraction, possibly dragging the economy into another Great Depression.
Either you find a way to shuck off....default on...or inflate away your parents' debts, or you'll stagger under the weight of then for many, many years.
Either you break free from the jackass things your parents have done to you...or you deserve what you get.
Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.