The Young Are Going to Get Screwed by Debt: Part One

[Ed Note: Bill’s lost power at his ranch in Argentina. We might not hear from him for a few days! Instead, here’s the first part of a premium report he wrote recently. Please enjoy…]

Thomas Jefferson was opposed to a ‘national debt‘. He thought it was immoral that one generation should spend on credit, forcing the next generation to pay the bill.

Jefferson knew what a burden debt could be – especially when it is debt for spending he didn’t enjoy himself. He had inherited debts from his father-in-law. You’ve heard of ‘something for nothing’? On the flip side is a second condition as disagreeable as the first is pleasant: nothing for something.

‘Nothing for something’ describes the financial situation of America’s youth. If things go according to plan, they will pay a large portion of their incomes (if they have incomes) to pay for social welfare ‘benefits’ that they will never enjoy themselves.

Professor Laurence Kotlikoff of Boston University puts the total of US government debt and unfunded pension and healthcare liabilities at $222 trillion. The biggest part of that money will be spent on the baby boomer generation…as it heads into retirement homes, nursing homes and hospitals. This is such a huge sum that it cannot be paid. But the burden of trying to pay it (and not succeeding) will fall heavily on younger generations.

Large debts also retard growth. This is the conclusion of professors Rogoff and Reinhart in ‘This Time it’s Different’ – their study of 800 years of financial folly. Much of current output must be used to pay for past consumption.

That is part of the reason that today’s growth rates are only about half of those in the 1960s and 1970s. Low growth means fewer new job opportunities. Those that do become available are generally at lower salaries. The real growth that doesn’t happen leads to the real jobs that will not be created and to the real careers your children and grandchildren may never have.

High debt levels also mean higher taxes. Taxes tend to be levied on earnings, not on pensions and healthcare consumption. An estimate for how high taxes on young people would have to go (if it were possible) to finance this debt: about 80%.

Today, I take up the cause of our children and grandchildren. In the modern vernacular: They’re screwed.

Our job is to unscrew them. First, by trying to understand how the system works. And second, by setting up parallel or alternative systems of our own that help them protect themselves.

Nothing for Something

Let’s begin with the big picture. The economies of the US and other modern, developed social welfare nations are based on several conceits and delusions.

Serious observers keep saying that if we continue doing what we’re doing bad things will happen ‘sooner or later’. We never know when sooner or later will get here. But it’s a fair bet that it will come during our children’s and grandchildren’s lives.

Remember Herb Stein’s law: Things we all know can’t last forever will come to a halt sometime. Most likely, it will be during the working careers of our children and grandchildren.

For example, the credit expansion that began after World War II had to end sooner or later. For the private sector, it ended in 2007. It almost ended, too, for many governments – such as Japan, Greece, Spain, California and others.

But large nations with their own printing presses are still going at it – with public debt-to-GDP ratios reaching up over 200% already. (If you included the aforementioned unfunded pension and health obligations, the ratio for the US is already at nearly 1,400% and growing 20 times faster.)

The system of indirectly funding deficits through money printing (QE), while holding interest rates at the zero bound, will also have to end sooner or later. More alarmingly, the current system of fiat money is one for the record books. None has ever lasted this long. But it, too, will go away sooner or later.

So too will the system of intergenerational wealth transfers to fund health and retirement benefits. This system, developed in the 19th century, and brought into wide service in the 20th, was an illusion from the get-go.

In a stable society, the contributors – in the aggregate – can never get out of the system what they put in. Bureaucratically managed programs are too wasteful and beset by too much fraud. And it doesn’t really make sense for people to go along with a system where they get less out of it than they put in.

Nevertheless, there was – and still is – wide support for these programs. Why? Because people still expect to get ‘something for nothing’ – or at least more than they put in. That has been the experience of the last 100 years.

Citizens were able to get more than they put in because the following generation was always bigger and richer – until now. Now, in the US, Japan and most of Europe, birthrates are so low that the native-born population is falling. And, for the first time in US history, the next generation may actually be poorer than we are.

In other words, our children and grandchildren are getting a bum deal in more ways than one.

The short version of this story is simple: Old people vote. Politicians found they could be bribed. Promise them something they couldn’t get by honest labour – someone else’s money – and you are a shoo-in for elective office.

Year after year, the promises got to be more and more costly. How high have the promises gone? The median retiree has a total of about $120,000 in net savings. But he’ll consume about $275,000 worth of healthcare services before he finally adjourns. Who will pay the difference? Who bears the burden of this unfunded liability?

The Social Security Fund – which was the source of the phony ‘surpluses’ of the Clinton era – is now in deficit. This year, it will pay out about $100 billion more than it takes in. That’s $100 billion more to retirees than working people contribute in Social Security tax payments. And the baby boomers have only just begun to retire!

Old people vote for higher Social Security payments. They vote for more healthcare. They vote for pills, wheelchair access and senior discounts. They vote for spending in the here and now…and a few brief tomorrows. As to the long term, it can take care of itself…


Bill Bonner
for Markets and Money

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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 MoneyDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

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11 Comments on "The Young Are Going to Get Screwed by Debt: Part One"

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slewie the pi-rat
isn’t there something in The Constitution about “pensions”? we don’t hafta genuflect, just read it… same bull twinkies as w/ the “housing debacle”, n’est pas? 1). we broke it b/c we were defrauding everyone on 3-4 different levels. 2). so :> just STFU and let us “fix” it now for ya, OK? 3). we can re-engineer all the “upcoming monetary & fiscal dissonance” and avert a crisis and possible D0^0M. 4). trust us! just Keynesianism, really. Debt = Money, type of stuff. routine criticism. select the data, and pretend the ability to control variables “assumed” while simultaneously ignoring possible unintended… Read more »
Is this guy for real? Re: people still expect to get ‘something for nothing’ – or at least more than they put in. That has been the experience of the last 100 years. After nearly five decades of productive work (unlike politicians, bureaucrats and newsletter writers), taking care of the next generation’s food, shelter, clothing, health, education, even entertainment and contributing into an income and health insurance plan and much of it with pre-inflation dollars, I suddenly find myself being accused of “getting something for nothing”. Something for nothing, indeed! In fact, after Nixon trashed Bretton Woods and the U.S.… Read more »
Edward Ulysses Cate
Nothing will change until the folks of a country are represented in the decisions of their government. Wall Street likes to say: “If you’re not at the table, you’re on the menu.” Well, if ordinary folks are not represented at the table, they’ll surely find themselves on the menu. Governments are currently of the sociopaths, for the sociopaths and by the sociopaths, with the word “sociopath” defined in the book “Snakes In Suits.” In the U.S., we have a House of Representatives, but the majority of these representatives do not represent the 99% of their district. They say they do,… Read more »
Blue Dog

No, the young aren’t going to be dealing with the debt. The Federal Reserve is in the process of destroying the dollar. Once it takes $1 million to buy a loaf of bread our $16 trillion dollar debt will be meaningless.

Unfortunately, Obama’s minions found out how to program the minds of the very prey that shall be milked, perpetually, into voting for him virtually uniformly, and that even includes those who wavered on the libertarian end of the spectrum, most of whom were guilted into voting for the Won, not once, but twice. I live in MD–worse yet, Montgomery County–and, as such, I do not vote, and I am far from the only one. Aside from the fact that at both county and state levels the vote is either rigged or genuinely blue, there is far too much disgust with… Read more »
“~let each come to her/his own awakening[s], if able. ~let each fight for the autonomy of what is between his/her OWN ears. ~let THEM discover the levels of the labyrinth of lies of their OWN educations, families, and skoolz–their “culture” and their world. ~allow each to suffer. to BE. and to BEcome. there is plenty of that stuff to go around. this is earth. it is what it is. the perfect hive is heavenly, and can’t happen here. especially now. too many pi-rats.” Ha ha, very good Slewie. Slewieosophical. Bill might be a lonely profit on a rock who’s voice… Read more »

Ie his words destined not to save what is, but destined to guide those who pick up the pieces. Just thinkin anyhow.


more healthcare?.. when rumor has it that the most privleged doctors working hospitals are those doing the most harm and selling more hospital stay days to patients being transfered out of hospital to die of healthcare recieved on other peoples time protecting the “success” records and enabling more healthcare harm to be able to be done, done to sell hospital rooms, higher expensive drugs and schooling or professorships given to the higher privledged doctors….something very wrong in the for profit medical system…long now system wide Mayo/Geisinger network. see.”they are killing us”


It is unjust for government to borrow and impose the the liability on the citizens with out the consent of each citizen. If there is no real consent to a contract there can be no valid contract. Therefore the citizens must repudiate their government and its debt and start over from scratch with a new political dispensation, no debt and no banks. Create gold, silver and base metal coinage to facilitate trade and outlaw paper and electronic currencies on pain of death. Political parties and secret societies should also be outlawed on pain of death.

Ulysses: You BELIEVE that benefits are OWED you based on monies paid. There is no such obligation on the part of the Congress. You were taxed, the money spent. You were robbed, with a promise that cannot be made-good. You look around and decide that “someone ought to pay”, but the people who got your money are old or dead. The young don’t owe you anything but sympathy for allowing yourself to be robbed. You plan to rob them, and they resist. First passively, working less, intentionally earning less “income”, then with with voices and guns. They know that you… Read more »
Dr. Harry
The young overwhelmingly voted for Obama in both elections, so whatever screwing they get down the pike is well deserved. If they are anything like my kids, they are a comsumption generation, that wants maximal returns for minimal effort. There is no free lunch in this world, and when a person is not willing to go into the words to hunt a deer for food on their own, they will soon go hungry. The one thing that I have learned is that in the end; everyone gets the government that they deserve. Stupid is what stupid does, and when we… Read more »
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