The Real USA is in deep trouble - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 7 December 2011
PRINTER FRIENDLY | ARCHIVES
The Real USA is in deep trouble A  A  A

Baltimore, Maryland

Americans are poorer than they think...

Dow up again yesterday. Gold still bouncing around...

The press is still focused on Europe. A "deal over eurozone fiscal rules," was announced earlier in the week. Every day brings more speculation about what form the final deal will take...and whether the European Central Bank will lend a hand.

Nobody really wants to sell stocks. Because a real deal might send stock prices shooting up in a giant Christmas rally.

They don't want to buy either. Because a failed deal might send them collapsing. So investors watch...and wait.

In America and Europe investors are playing it cool. Congress has to extend the payroll tax cut by December 16th or the economy is probably going to bite the dust. But no one seems particularly concerned about it.

The automatic cuts probably aren't going to happen - at least, not the way they were supposed to happen. The pols are negotiating now. Their challenge is how to scam the voters and investors by pretending to cut spending, without really cutting much of anything.

They're pretty good at it; we're pretty sure they'll get the job done.

But despite all this backdrop of chicanery and tomfoolery, the real USA is in deep trouble. The number of people living with the help of US government food handouts has risen to 46 million - a new record.

And figures from Credit Suisse's World Wealth Report show that the typical American is a lot poorer than generally believed. The report compares average wealth to the median wealth. For the benefit of Dear Readers who have forgotten the distinction, average is what you get when you add all the wealth together and divide by the number of people. Put in a few super-billionaires and everyone looks rich. The median, on the other hand, is what you get when you separate the people into two groups...those above and those below. At the center is the "median"...or what we usually refer to as the "typical" American.

In Britain, for example, the average wealth is $258,000. Not bad. But it's not what most people have. It's just what you get when you average all those rich people - with their very expensive houses in London -- along with everyone else. Few people in Britain actually have $258,000 net worth.

The median net worth is not even half that amount -- $121,000. That's what the typical fellow has. And even that amount depends heavily on real estate prices that have still not come down in Britain.

But get this. In the US, the average wealth figure is a little less than in Britain -- $248,000. But the median figure - what most people actually have - is much less, only $53,000.

What this means, says our Bonner Family Office chief economist, Rob Marstrand, is that "wealth in America is heavily skewed to the rich, with a lot of adults with very little net worth."

Compared to the typical Japanese or European, the typical American is only half as rich. Half the people in the US have less than $53,000 net worth. You can imagine what the bottom 20% have.

This is a devastating and grim insight. It explains why so much of America seems, well, so poor. Because it is poor. People don't have any money. They dress poorly. Eat poorly. Live poorly.

Compared to Britain and Europe, much of the difference can be explained by the housing bubble, and subsequent housing crash in America. If we remember correctly, the US housing stock was valued at about $20 trillion in '07. It lost 33% of its value, putting a quarter of mortgaged houses underwater and wiping out about $7 trillion of "wealth."

This explains why there are so many reports of people living in motels...and, according to according to a recent CNBC report...in automobiles. Yes, families have taken to living in trucks and cars.

We recently rented an RV for Thanksgiving. The idea was to give our son and his family somewhere to stay when they came for the holidays. It was a nice as a small apartment, with three TVs and sophisticated electronic gizmos we couldn't quite figure out. But the poor aren't living in Class A motor-homes. They're living in panel trucks and old vans.

In this regard, it is probably worth pointing out that the recent news of a decline in unemployment was a fraud. The news reports told us that 120,000 jobs were added last month. Unfortunately, 150,000 are needed just to keep up with population growth...and 500,000 to convincingly claim to have a 'recovery.'

And the only reason the jobless figure improved was because the statisticians knocked 300,000 job seekers off the list. Never in history have so many people been unemployed for so long. So, the quants figured that if they hadn't found a job by now, they might as well give up. Which flatters the figures, but it doesn't do much for people looking for work...or for people who are trying to understand what is really going on.

What we take from these figures is that America has a huge and growing class of very poor people...who are bound to be getting more desperate...and more angry...as time goes by. Unless there is genuine growth, they have no way to expand their spending, no way to get good jobs, and no hope of ever getting ahead.

When you put the unemployed together with the under-employed...those with pick up work but no fulltime, stable jobs...the total rises to one of five people in the labor pool.

---------------- Revised And Updated Edition Of "Multibagger Stock Ideas" ----------------

You are only a step away from getting your hands on to this exclusive 16 page stock market report by Equitymaster - Multibagger Stock Ideas.

To claim your Free copy of this report, all you need to do is reconfirm your FREE subscription to our daily e-letter, The 5 Minute WrapUp.

Quick! Sign Up Now! Click here...

-----------------------------------------------------------------------------------------------------------

*** More on a new theory of government...

You'll remember from yesterday that we have some question as to the actual divinity of the Egyptian dynastic rulers. Certainly, either the Egyptians had some doubts themselves, or they were among the most impious people who ever lived. Pharaoh was supposed to be a god. He was supposed to be in charge of everything, even the annual flooding of the Nile, the weather...life, death, you name it. But that didn't stop him from getting the old heave-ho from time to time. Rival groups didn't wait for God to decide who would sit on the throne. Men fought it out.

We don't have any way of knowing about the pharaohs' divine bone fides. We just note that as a theory of government, it does the job. Government claims the right to tell you what to do. Using the blunt instrument of 'government' some people are able to categorize, regulate, tax, inspect, dragoon, conscript, enslave, bully, incarcerate, murder and push around other people. Why do the other people stand for it? That's the general subject of these little reflections.

There must be at least 10,000 commandments we Americans are expected to obey. The IRS code probably has that many alone. We cannot build a house or cash a check without fulfilling hundreds of (often invisible) requirements. We pass through an airport and we submit to indignities, usually without question. We know the TSA agent is a moron. But 'dress'd in a little brief authority,' as Shakespeare put it, "most ignorant of what he's most assur d, glassy essence, like an angry ape, plays such fantastic tricks before high heaven, as make the angels weep."

Whence cometh that authority is our our question.

If it comes from God, who are we to question it? We accept God's authority, at least when He's looking. And if Pharaoh were divine, we would have certainly buckled to his power too. How could we do anything else?

And yet, many people did not. For the two thousand years of the 30 dynasties, men killed each other to determine who would hold the pharaonic power. The last of them was clearly an interloper. The Ptolemies weren't even Egyptian. They were Greeks, who conquered Egypt with Alexander. Then, finally, Julius Caesar and his nephew Octavian put an end to the divine tradition in Egypt forever. God either abandoned His man on the Nile, or he is playing tricks with us.

Caesar took the role of emperor of the whole Roman world. He did not seem to be too concerned about the theory of it. People bowed to him and paid tribute. That was how an empire worked. And he never had too much time to think about it anyway. He was cut down on the Ides of March in the year at the age of 55 in 44 BC.

But the appeal of divinity did not die with the Ptolemies. Four score years after Cleopatra's death the emperor Caligula declared that he was a god. This didn't seem to take him very far. Romans came to the conclusion that he was not divine at all, but insane. He was murdered soon after by his own guards.

Rome struggled on for another 4 centuries. If there was a theory to dignify one man's bending to another we aren't aware of it. It was considered normal and natural. Those who got control of the government of Rome were able to exercise the rights of governors. They were victors on the field of battle...and in the halls and assemblies of Roman government.

What did they do with this power? "Ad victorem spolias." Simple enough. You defeat someone. You take his stuff. His land. His wife. His children. At least there was no humbug about it. And the rules were simple. Government operated its naked form. As Mao described it two millennia later, political power came "from the barrel of a gun," not from the Rights of Man or the Social Contract.

In the exploits of Genghis Khan and Tamerlane, too, we find a very pure form of government at work...and a very clear theory about it. Genghis announced his theory of government as follows:

"Man's greatest good fortune is to chase and defeat his enemy, seize his total possessions, leave his married women weeping and wailing, ride his gelding, use his women as a nightshirt and support, gazing upon and kissing their rosy breasts, sucking their lips which are as sweet as the berries of their breasts."

Tamerlane was no less direct. He saw government as a legitimate enterprise. He raised troops with the intention of conquering other peoples and replacing their governments with his own. His warriors were paid in booty - jewels, coins, horses, women, and furs. He was paid in loot, tribute and taxes.

This is not to say that there was anything wrong with running a government in such a way. We are not giving advice or making suggestions. We are just trying to understand the essence of what government is.

In the case of Egypt, people listened and obeyed - at least, as much as they did - because Pharaoh was, in theory, a god. In the case of Rome - with the exception of Caligula's claims - and the Mongol empires, the theory was similarly simple, though different. Tamerlane made no claim to divinity. He merely made it clear what he would do to you if you resisted him. Towns that submitted were generally governed passably, according to the standards of the day...and taxed, but not razed to the ground. Those that contested his authority were destroyed, often with all the inhabitants killed.

In Rome and out on the steppes, those who controlled the 'government' were in the favored position. They could reach out and impose their will on those where were not favored. Which is exactly what they did. As long as they were able, the insiders took from the outsiders. In both cases, the outsiders were literally outside the ruling group and its homeland.

This is perhaps a good point to introduce our new theory about what government really is. It is a phenomenon, not a system. It is best understood as a fight between the outsiders and the insiders. The insiders always control the government...and use it to conquer and control the outsiders. Why do they want to do so? The usual reasons. Wealth. Power. Status.

Everybody - or everyone who isn't either feebleminded or a saint - wants wealth, power and status. And the easiest, fastest way to get it usually is to take it away from someone. That is government's role. Only government can take something away from someone else lawfully. Why? Because governments make the laws.

More to come...on the Divine Right of Kings...the Social Contract...and the Greatest Good for the Greatest Number....

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

Disclaimer:
The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Get The Daily Reckoning directly
in your mail box.
Just enter your e-mail address » 

Read our Privacy Policy and Terms Of Use.

Equitymaster requests your view! Post a comment on "The Real USA is in deep trouble". Click here!

2 Responses to "The Real USA is in deep trouble"

Sumit K Basu

Dec 7, 2011

Out of the 1,20,000 jobs added perhaps about 30000 or so are temporary jobs created by retailers to handle the holiday season rush which will disappear as soon as the holiday season is over.

Like 

Abhay Kumar Shrivastava

Dec 7, 2011

I am reading the article on Government with great interest.

Like 
  
Equitymaster requests your view! Post a comment on "The Real USA is in deep trouble". Click here!

Recent Articles:
Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working
August 21, 2017
Most Indians who cannot find jobs, look at becoming self-employed.
Trump Takes a Beating
August 18, 2017
Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.
Which Gods Will Bring Down the US Empire?
August 17, 2017
Mr Trump is in the White House and the gods are in their heavens; what's not to like?
Will They Haul Off Trump's Statue, Too?
August 16, 2017
All across the country, the old gods become devils. New, gluten-free gods take their places...