Class of 09: you're screwed!
By
Bill Bonner May 29, 2009
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Last weekend, we journeyed to Boston to attend a college graduation. Thousands of callow scholars were on display. Each was handed his papers and then marched out of the hockey stadium. To the tune of Pomp & Circumstance, wearing a long, red robe, he entered the outside world solemnly... like a patsy joining a card game.
So far, not a single major university has asked us to make the commencement address. Nor a minor college. Not even a school of cosmetology or taxidermy. But here on the back page, protected by a broad ocean and a narrow reading of the First Amendment, we'll give them, and UK graduates, advice no one asked for:
"Plastics" was the advice given to college graduates in Mike Nichols' 1967 film. But that was when there was still hope for American manufacturing. Even then, it was too late. The percentage of GDP from manufacturing fell from 20% when you were born, to barely 12% last year. Better advice would have been 'finance'. Manufacturing sank, but finance rose. While only 8% of GDP, by 2007, finance accounted for 40% of corporate profits.
But your elders are always giving you bum advice. "You cannot decline the burdens of empire and still expect to share its honors," said Pericles to the class of 430BC. He lived during a time not unlike your parents' in the USA – when Athens was on top of the world. But vanity got the better of him. He launched an attack on Sparta, which backfired badly. He soon died of plague and Athens was not only ruined, but enslaved. Young Athenians should have shrugged off Pericles' burden. Young Americans should do the same.
When you were born 21 years ago, the nation's total debt per person was less than $90,000 – adjusted to '09 dollars. While that was a lot of money, it was nothing compared to what was coming. Now it's $186,717 per person – more than twice as much, in real terms. Private debt is not inheritable, fortunately. But it comes to you as a lien against property. Instead of paying off their mortgages and leaving you a house, the baby-boomer generation spent the 'equity' in their houses even faster than they got it. House prices rose. But mortgage debt rose faster.
While your grandparents owned 80% of their houses, by 2007, the typical homeowner only really owned four rooms of an eight-room house. When house prices fell, so did their remaining equity, to the point where one in six US homeowners is now underwater. You could still eventually inherit a house, but you may have to scrape the barnacles off the porch.
But that's not even the half of it. While your parents had control of the US government, they allowed themselves a little larceny. Add the unfunded retirement and healthcare benefits they voted themselves to the official national debt and together they are scheduled to cost your generation four times the total annual output of the US. This is over and above the private debt they accumulated.
Some of this debt can be carried. Some will have to paid down. But as it stands, as much as $77trn of post-'09 earnings will have to be devoted merely to paying for the liquor your parents drank... the bombs they dropped on god-forsaken foreigners... and the interest on their debts. So, forget about saving for a European vacation or a house of your own. Even if every penny of your savings – and every other American's savings – are put to the task of paying your parents' expenses – past and future – you will still be paying for them all your life.
But wait, there's more! The burden is getting heavier. Federal budget projections show an extra $7trn in deficits over the next ten years. Described as the cost of fighting recession, this generation merely tries to cushion its own mistakes with cash the next generation hasn't even earned yet.
Today's bankers, businessmen and speculators are being bankrolled by you – tomorrow's bankers, businessmen and speculators. Today's homeowners get a helping hand from whom? Tomorrow's homeowners – you. Today's employees get a boost too. Same story. Where do you think the money came from to pay Wall Street bonuses this year? How do you think GM stays in business, and Fannie Mae, and AIG? Who pays those salaries? Who pays to keep troops all over the world and keep old people supplied with new drugs? Who pays for hundreds of billions' worth of 'shovel ready' boondoggles? You do. At least, that's the plan.
Like Pericles, your lucky parents took over the strongest, richest, most competitive economy in the world. And like Pericles they minded everyone's business but their own. They inherited a dollar from their parents; they leave you a peso. Not only does the US owe money all over town, its government puts out trillions more in IOUs every year – each one with your name on it. You're not even out in the real world yet, and you're getting the bill for 50 cents of every dollar the Feds spend. But that's the thing about the real world your teachers probably forgot to tell you about. It is more unreal and fantastical than anything you studied.
But this much is real: you've been dealt a bad hand. From the bottom of the deck, your parents have slipped you some nasty cards. My advice? Fold 'em. Leave the table before they clean you out.
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