Yesterday, we began our high-minded graduation speech to the Class of 2015.
We explained how the young graduates were not only the most heavily indebted in history, but also the least likely to be able to pay their debts.
Median wages have been going down since these graduates were about five years old…So have economic growth rates.
Today, we continue the speech no one wants us to give…
You are heirs to claptrap, nonsense, bogus theories, and trillions of dollars in debt.
The systems, programs, and institutions your parents set up are mostly worthless scams. Worse, they produce outcomes contrary to their stated goals.
Welfare programs do not help people escape poverty; they keep them mired in 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 it creates more foreign enemies.
We end up not only poorer, but also 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…
Private lenders make the loans, but they receive the full backing of the feds.
The idea was to help you afford higher education…and earn larger salaries as a result. And with your increased earnings you were supposed to be able to pay off the loan.
But at over 11% of outstanding debt, the Student Loan Program now has the highest delinquency rate of all forms of household debt (mortgage loans, auto loans, credit cards).
And it will probably go much higher…as students take on more debt. Total 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 turns you into the very thing the program was meant to avoid.
Here’s how it works…
As long as your income is 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 paid.
In other words, the Student Loan Program encourages you to live in poverty for a quarter of a century to get rid of your student debt.
Most likely, this will be easy for you to do anyway.
First, because most college degrees do little to make you more valuable to employers.
Second, because your parents’ rigging of the economy will make it difficult to make any financial progress anyway.
The median household income — after you account for inflation — has been falling since the late 1990s. And good jobs are hard to get. There are fewer ‘breadwinner’ jobs today in America than there were in 1999.
And you can forget about starting your own business. The rate of new start-ups is collapsing. (Remember from last week that the U.S. ranks 46th on the World Bank’s list of the easiest countries in which to start a business.)
You can thank your parents for that, too. The system is designed to protect them, their Social Security benefits, their health care, their stock market portfolios, and their businesses.
Protect them against what?
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 make it so difficult for you to start new businesses, get good jobs and build real wealth.
You should be talking revolution — overthrowing your parents’ multitrillion-dollar debts and pulling out of their wars on poverty, illiteracy, Iraqis, Afghans…you name it.
You need to stop these silly, pointless, and expensive programs so you can have the resources to pay for your own programs and launch your own stupid wars.
You need to get rid of your parents’ zombies — the millions of unproductive people who get money from the government — so you can afford your own families…your own pet projects…and zombies of your own.
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 works only by increasing the amount of debt in the society — including student debt.
And it works only 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 favours 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 it 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.
When they spend the money, it goes into the coffers of corporations. This increases profits…and share prices.
Who owns those corporations?
Then who does?
Your parents and grandparents benefit again. They are the owners of the nation’s financial assets. By increasing credit, they shift real wealth from the future to the present…and from you to them.
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, which registers it as a sale.
If it has a 10% profit margin, 10 cents is recorded as a profit. If it sells at a price-to-earnings ratio of 20 times, its stock price goes up $2. This makes the owner of the stock — it could be one of your parents — $2 richer. (I’m oversimplifying…but you get the point.)
But the government now owes $1 more. And who’s going to pay it?
Your parents and grandparents are retiring…and collecting their Social Security and health care benefits. They think they will be able to sell their stocks, too…and their houses…and have even more money to spend.
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 fewer 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 2008 — and a long and grinding economic slump.
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 them for the rest of your lives.
Either you break free from the jackass things your parents have done to you…or you deserve what you get.
For the Markets and Money Australia