dailyreckoning.com.au / By Bill Bonner / March 13th, 2013
[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.
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