Private Sector Debt Burden About to Get More Burdensome

Guess what happened yesterday?

Nothing. The Dow rose 6 points. Gold fell $7.

Investors are holding their breath. Why? Because Ben Bernanke is scheduled to make history on Wednesday. Everyone sits on the edge of his chair and wants to know what kind of history he’ll make.

“Some Enchanted Easing,” is how The Financial Times describes it.

The FT thinks the latest quarterly growth figures – 2% – are simply too low for the nation to live with.

“US recovery remains sluggish,” was their headline. “Case for fresh quantitative easing cemented.”

The problem with 2% growth is that it is not enough to lift employment rates. The economy needs to create about 50,000 jobs per month just to keep up with population growth. That’s about what you can do at 2% GDP growth.

But when you’re at nearly 10% unemployment, you need to do better than that. It’s not enough to stay even. Otherwise, you have to live with the drag caused by millions of people without work. These jobless people need to be housed, and fed, and medicated. So you end up with an economy that actually gets poorer.

Yes, that’s part of the problem. The way the economy is rigged up, the private sector has to support a big public section…one that gets heavier every day. If growth is sluggish, the whole economy slips, even with positive GDP numbers. Without powerful growth the feds don’t collect much in taxes…and run huge deficits. This increases the debt burden on the few people who are carrying all the load – people working in the private sector at non-zombie, wealth-producing activities.

And here’s a shocker… The debt level per private sector worker – the people who have to pay the bills – will nearly double between 2007 and 2015. Yes, a new study done by a former IMF economist found that government debt levels are soaring – in the “rich” nations. They are soaring at a particularly fast rate in the USA, which will go from the 11th heaviest debt per private sector employee in 2007 to the third heaviest by 2015.

What’s going on? The Baby Boomers are retiring. They’re making a big transition from being a source of financing to becoming a source of spending. Instead of paying the bills, in other words, they’re becoming the people for whom the bills are paid.

And that will leave the typical private sector worker in 2015 with $68,500 as his share of the government debt. We’re not talking fiscal gap here. This is debt…interest bearing debt.

It doesn’t include, for example, state level pension liabilities…which now tote to over $5 trillion alone. Nor does it include all the other unfunded liabilities and promises of state, local and federal governments – which, according to Laurence Kotlikoff – come to more than $200 trillion.

Without robust “growth”…those liabilities too are going to come crashing down on the heads of the feds…and everyone else.

Which brings us back to poor Ben Bernanke. His seat must be so hot it scorches his derriere.

“Fed poised for biggest decisions in decades,” says another FT headline.

“Given the committee’s objectives, there would appear, all else being equal to be a case for further action,” Ben Bernanke said himself a few weeks ago.

And so, he’s going to go for it. How much? Probably open-ended. How soon? Probably right away. How effective? Whew…you’re asking too much, dear reader.

But what the heck, we’ll take the bait. How effective will the Fed’s new money-printing be?

It will be a total failure. A disaster.

And more thoughts…

A movie review: The Social Network

We don’t go to see many movies. Unless they have a lot of nudity or violence, they bore us.

But The Social Network is not a boring movie. We went to see it because our daughter, Maria, has a small role. It is her major motion picture debut. We went to see her. But what we discovered was an unusually engaging film.

The movie tells the story of the founding of Facebook. It is a “social network,” designed by students at Harvard to make it easy for people to keep up with each other.

“You mean, it will help us get laid,” says one of the characters in the movie…or words to that effect.

Occasionally, we get an email that tells us “so and so invites you to be a friend…” Once, we tried to follow up…we went to Facebook. There, we found a page of questions. We quickly lost interest and gave up. Henceforth, when asked to be a friend, we respond in the negative.

“Dad, you’re making a big mistake,” Jules, 22, opined. “I know a lot of people who don’t even check their email anymore. They communicate exclusively through Facebook. This is a big, big thing. And it’s not going away. E-mail could disappear.”

Maybe he is right. Maybe, in the future, we will publish Markets and Money only on Facebook. But we hope not. We don’t like the concept. We don’t like the company. And we don’t like its shareholders.

“Now, Dad, you’re getting ridiculous. Zuckerberg revolutionized how people communicate. There are half a billion people on Facebook. This is like the invention of the printing press. I guess you don’t like Guttenberg either. You’re just being silly. That’s the point of the movie, by the way.

“Zuckerberg and Parker aren’t exactly nice guys. But that’s the point. You don’t have to be nice to do something great. And doing something great is what is important.”

The movie shows how Mark Zuckerberg and Sean Parker squeezed out – cheated, really – Zuckerberg’s original partner, Eduardo Saverin. Eduardo seems like a decent fellow. He provided a crucial formula early on. Then, he put up the seed money. But he did not see the potential of Facebook in the megalomaniacal terms of Zuckerberg and Parker. Being “cool” was not enough for him; he wanted it to be profitable too. Instead, he approached it more modestly and more conventionally. (Even today, it is not clear how profitable Facebook is.)

In the early days, Eduardo tried to sell ad space on the system in New York, while the other two were going wild signing up customers and getting venture capital backing in California. Once they got big backing, Zuckerberg and Parker had no further use for Saverin, so they cut him out.

“Eduardo was useless,” said Jules, sounding a bit Nietzschean. “He was not adding value. He was a loser. They were right to get rid of him. Eduardo was operating according to the wrong code. An antiquated code. Zuckerberg and Parker knew better. They understood something he didn’t.”

“No. They didn’t really. They were lucky. The project could just as well have failed. Most do. If it had failed, then those two would look like what they really are – a pair of conniving jerks.

“That’s really the lesson. Eduardo did the right thing. He was the winner. The Winklevoss brothers, too.

“And if I had the choice of doing business with Eduardo or with Sean Parker, I’d do business with Eduardo. You don’t know which projects will succeed or fail. You don’t know which ideas will win. But you know you never want to do business with nasty people. Even if you make a lot of money, it’s not worth it.”

“Are you kidding? At the end of the day, Zuckerberg and Parker were billionaires. Now they can be nice if they want to be. Being nice is not everything.”

“No, now they can’t be nice. You can’t undo nastiness. You can confess. You can repent. You can beg forgiveness and give a $100 million to the New Jersey schools. Maybe you’ll be redeemed. Or maybe you’ll be a miserable billionaire all your life.”


Bill Bonner
for Markets and Money

Bill Bonner

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 Markets and Money.
Bill Bonner

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2 Comments on "Private Sector Debt Burden About to Get More Burdensome"

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I don’t have much to contribute except to say that this was a fantastically written article Bill. The problem people have with understanding how things work is that they look at an outcome based mechanism and then ignore every other event which was the same but was a failure. The narrative based approach is a very common way in which people assimilate their reality and construct a way in which to rationalize successful and positive interactions. The market moves in a very basic way and that is at any given moment a forcing will push it in a direction based… Read more »

Correction – won’t stop paying *

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