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The Daily Reckoning | Monday, May 7, 2012 Readers weigh in on the student loan debt debate... Life in the emerging American police-state... Plus, Bill Bonner on the difficulty of finding real jobs in a surreal economy, and plenty more... ------------------------------------------------------ Special Offer Ends at Midnight Tonight! The Smartest Investing Expert I Know Doesn’t Work Anywhere Near Wall Street In fact, he just released a report on THREE bombshell events set to explode in 2012. He’s also ready to share his research on TWO unusual and lucrative investment opportunities. Today you can get ONE year of free access to some of the greatest investment minds around. You can’t afford to miss this shocking forecast. Click here before the first bombshell hits. Generational Warfare How the Government Pits the Young and the Old Against Each Other Joel Bowman Reckoning today from Buenos Aires, Argentina... The year was 2012... The beginning of an epic, inter-generational struggle that was to last for many years. It was a time of economic hardship, when young fought old and old fought young, each laying the blame for the overarching troubles squarely, unconditionally at the feet of the other side. Neither was willing to concede an inch... Fathers, looking to the left and to the right, toward their own helpless future and to the fading nostalgia of their past, languished in a restless limbo, unsure as to which blood relative, new or old, they owed their allegiance... And, as is often the case in times of blinding social upheaval, the real villain, the very root cause of these terrible times, walked along the battle lines, hidden in plain view, pitting friend against friend, grandfather against grandson, and never for a moment in danger of attracting the attention of either side, focused as they were on the great and useless conflict at hand... What will they come to write about our strange times, Fellow Reckoner? Will tomorrow’s puzzled historians look back on this age of ours with the same sinking feeling we get when we survey the now- obvious errors of bygone spectacles? Will they scratch their heads and wonder, “Why were these people fighting against each other? What about the state that pitted them as enemies, that crushed their spirits, propagandized their children and plundered their property? Did this strange and popular institution of violence deserve no blame, no anger? Why did these people not rebel against their governments, but choose instead to hire the guns of the state to loot their fellow citizens? Things could have been so very different...” Of the many conflicts brewing in the world today, one of the most disturbing may well be the nascent but growing intergenerational schism only now beginning to yawn. With Social Security benefits under threat at one end of the spectrum, and student debt now surpassing total outstanding credit card debt in the US at the other end, something’s gotta give... In today’s edition of the Monday Mailbag, we take a look at a couple of different perspectives on the same debate, one from a student, the other from a parent. We do this not to pit them against each other, but to show how, in many ways, they are both victims of the same state-sponsored, market distortions. First up, this one, from Cynical Student... The most recent email I read from the DR requested the student perspective on Bill’s recent article about student loan debt and the generational wealth gap that has been created. I am writing this to oblige. I read with great interest the responses from the older generation. One gentleman claims the statistics fail to take into account the differences in societal values between generations and props up his niece as an example of graduating with no skills, a mountain of debt and a desire to live the high life with designer clothes and electronics... [Another] gentleman blames student loans (easy credit) and students’ lack of forethought in frugal living, choosing schools they can’t afford as the source of the problem. In response to the first gentleman, your attempt to stereotype all students into the category of your niece is not only unfair but disingenuous. The core of the argument as I understand it to be is that education is much more expensive today than it was for your generation and to have a chance to succeed as an employee you need to have the degree just to get your foot in the door, regardless of how useless it actually is. While I applaud your frugality during your college years, even if you account for differences in lifestyle choices for today’s students, you will still find a big disconnect from what we are being asked to pay and can potentially make versus how much you had to pay and have been able to make. I too graduated with $60,000 in student loan debt and very little in the way of useful skills. It turns out hiring companies value experience in addition to the degree. I had a part-time job working evenings and weekends (internships mostly didn’t pay anything, so there goes my opportunity to gain experience) and found my paycheck barely covered the gas money to get me too and from work, the grocery bills, and the rent. Do not misread my statements. I am not placing blame. I accept full responsibility for the financial decisions I made and I do not expect the government to bail me out. People make decisions based on their life experiences and what they have been taught... As for the comments from the [other] gentleman, I agree, easy access to federally supplied student loan money is part of the problem. In fact, the government’s involvement in the monetary system is most likely the largest culprit of all. In closing, life is a very steep learning curve. Based on my limited experience thus far, I can only assume that conventional wisdom regarding retirement planning is incorrect, whatever the Greatest Generation wants passed into law is probably going to hurt me, and everything the government tells me is most likely some form of lie veiled in the shadow of truth. And now, a different perspective. This one from Reckoner “Irish”... I have been reading the comments about education debt and the up and coming young adults. Not ALL twenty-somethings are oblivious to real life. Neither my husband nor I had the opportunity to attend college. We were too busy trying to support ourselves. We both came from poor beginnings. We wanted our children to have a better life, and not have to work a 12 to 14 hour work day for the next 40 years, as my husband and I have done, with no hope of an early retirement. We were between a rock and a hard place at trying to get scholarships and grants for our two sons. We made too much money, (Ha! That is laughable) for grants and we didn’t make enough to be able to squirrel away the needed amount for their college. Hence the debt. Both of my children worked all through high school, college and law school while attending full time. My youngest son graduated from law school during the downturn, and was lucky to land a job. Many of his fellow students did not. He isn’t making at all what he should be making, even though he worked his butt off and graduated at the top of his class. He should have had his pick of jobs, yet he is struggling to be on his own because of the massive debt. Both my sons are doing just what my husband and I did not want to happen to them. Both are working 12 to 14 hours, sometimes seven days a week, with no other life than work. This is not living; it’s just surviving. And this while politicians jet around on taxpayer money, have top-of-the-line medical care, unrealistic pensions that just go through the roof, all the while telling the taxpayer that we need to tighten our belts and kill ourselves working to pay for their waste! We all bought into the “need an education” hype. Now we are hearing, college is a major “rip off” and really not needed at all. NICE, after my husband and I forfeited amenities so that we could help our kids have a better life. I’m sick of the political posturing that does nothing but line the pockets of the politicians. Try HELPING people who really NEED help. There are plenty of hard working young Americans who aren’t deadbeats, but are beat from working themselves to death, with no real hope for a secure future. We expect both of these emails to rouse some strong opinions among our Fellow Reckoners. As always, feel free to send them our way... Speaking of strong opinions on controversial topics, Addison Wiggin has today’s feature column, below. In it, he addresses all the usual stuff...you know, the repeal of Habeas Corpus, the bull market in SWAT raids across the US and how inside (beltway) traders are making off with all your hard-earned. Enjoy! Breaking News: “Are gold prices manipulated?” Are governments, banks, and traders secretly pushing gold prices... down? Controversial new sources say they could be. They could be using the manipulation to get very rich, at the expense of anybody who owns gold or silver. But our head resource expert says the charade “can’t last much longer.” Click here now for details. The Daily Reckoning Presents “America Has Become a Piñata...” AddisonWiggin “America’s national government has moved way beyond a political spoils system,” wrote Charles Goyette in his book The Dollar Meltdown. “A spoils system leaves the host alive so that a politician’s occasional ne’er-do-well brother-in-law can be put on the payroll.” In contrast, Goyette suggested, “America has become a piñata: Everybody gets a crack at it. Presidents and other elected officials pass the big stick around as a reward to those who help keep them in charge of the piñata party.” Goyette’s book came out in 2009. Since then, we have learned that the party is even more debauched, nay demented, than he ever imagined. And you, dear reader, were not invited... It turns out Federal Reserve officials hold regular meetings with well-connected insiders, tipping them off to future Fed moves. On Aug. 15, 2011, Chairman Ben Bernanke clued in an economist named Nancy Lazar about “Operation Twist” — the Fed’s attempt to bring down long-term interest rates. Ms. Lazar’s clients, according to The Wall Street Journal, pulled down double-digit returns on 10-year Treasuries between the time of that meeting and the time Operation Twist was unveiled to the public on Sept. 21. Sorry you missed out. Treasury Secretary Hank Paulson sat down for lunch with hedge fund managers on July 21, 2008, and informed them a federal takeover of Fannie Mae and Freddie Mac was imminent. Ten days earlier, he swore up and down to Congress no such takeover was in the works. The takeover, in fact, occurred on Sept. 6 — giving the hedge fund managers their own handsome payday in a six-week span. Again, you were excluded. Before you object too loudly, we daresay you might wish to consider the consequences. The Repeal of Habeas Corpus? When Free Speech No Longer Matters On December 31, 2011, President Obama signed the Department of Defense Authorization Act into law. This is normally the routine annual budget for the Pentagon. But inserted into this year’s bill is language giving the president the authority to use the military to imprison terrorism suspects — including US citizens — indefinitely, and without charges. In other words, the “great writ” of habeas corpus is in danger of repeal. No longer would the government have to justify to a judge why it holds someone in custody. “Take away this great writ,” writes The Future of Freedom Foundation’s Jacob Hornberger, “and all other rights — such as freedom of speech, freedom of religion, freedom of the press, gun ownership, due process, trial by jury and protection from unreasonable searches and seizures and cruel and unusual punishments — become meaningless.” Without habeas corpus, you could be thrown in prison for the “terrorist” act of criticizing the government and the government would never have to declare the precise reason it hauled you away. And in theory at least, the First Amendment would still be in force! “This defense bill,” says The Rutherford Institute’s John Whitehead, “not only decimates the due process of law and habeas corpus for anyone perceived to be an enemy of the United States, but it radically expands the definition of who may be considered the legitimate target of military action.” “This bill will not only ensure that we remain in a perpetual state of war — with this being a war against the American people — but it will also institute de facto martial law in the United States.” 135 SWAT Raids per Day: “Life Goes on, But It Is Debased...” Rampant corruption and the apparatus for wide-scale repression: These are the hallmarks of what military theorist John Robb calls “the hollow state.” “The hollow state has the trappings of a modern nation-state (‘leaders,’ membership in international organizations, regulations, laws and a bureaucracy), but it lacks any of the legitimacy, services and control of its historical counterpart,” Robb wrote in 2008. It is merely a shell that has some influence over the spoils of the economy. “The real power,” Robb continues, “rests in the hands of corporations and criminal/guerrilla groups that vie with each other for control of sectors of wealth production. For the individual living within this state, life goes on, but it is debased in a myriad of ways. The shift from a marginally functional nation-state in manageable decline to a hollow state often comes suddenly, through a financial crisis.” It is in this context that the growing “militarization” of police looks even more ominous than it does on the surface. The Pentagon has distributed $2.6 billion in military surplus to local police agencies since 1997. Thus do towns of only a few thousand people have their own SWAT teams. Time was their use was limited to hostage-takings and other high-stakes situations. SWAT raids nationwide numbered only 3,000 per year in the early 1980s, according to University of Eastern Kentucky criminologist Peter Kraska. Nowadays, SWAT teams are used to serve routine warrants. By the time Kraska stopped counting in the mid-2000s, the annual number had exploded to 50,000 — an average of more than 135 per day. What happens when the tinder-dry combination of piñata-party corruption and a police-state structure meet the spark of violence? We don’t know where all this is going... but we know it makes us uneasy...which is why we are increasingly interested in casting our gaze for investment opportunity far, far away from US shores. The US remains a land of (some) opportunity, but it has lost its monopoly. Regards, Addison Wiggin, for The Daily Reckoning Joel’s Note: For most people, the answer to Addison’s question, “What happens when the tinder-dry combination of piñata-party corruption and a police-state structure meet the spark of violence?” is a resounding, “We don’t wanna be around to find out!” If that sounds like you, may we suggest preparing yourself for what’s coming down the pipes with a subscription to Addison’s Apogee Advisory. It’s Agora Financial’s primary research tool dedicated to analysing the bilious corruption of the state, the political and economic fallout likely to result from it...and specific ways you can protect your wealth and independence. Check it out here. Addison Wiggin’s Apogee Advisory Presents... Why the warning behind this image could... — Forever change the way you think about the stock market... — Open your eyes to what you can and can’t expect from the United States government... — And even change the ease with which you’re able to buy and sell things... Click the image play button to first learn the warning...and some simple ways to prepare for the uncertain times ahead. And now over to Bill Bonner who has the rest of today’s reckoning from Baltimore, Maryland... Where Do Real Jobs Come From? Bill Bonner The pentagon goes rogue... “Jobs engine sputters again in April,” reports the weekend Wall Street Journal. What kind of humbug recovery is this? Bloomberg adds: Estimates for the jobless rate, derived from a separate survey of households, ranged from 8.1 percent to 8.3 percent. Unemployment has exceeded 8 percent since February 2009, the longest such stretch since monthly records began in 1948. Of course, it’s much worse than that. John Williams puts the real unemployment rate — the people who want jobs and can’t find them — at 22%...the same as the unemployment rate in Spain. And just 3% points lower than in the Great Depression. And what kind of humbug response is this? Reuters: (Reuters) — The White House pledged on Wednesday to help lower- income youth find summer jobs in a move likely to appeal to younger voters crucial to President Barack Obama’s re-election campaign. The initiative is in partnership with the cities of Philadelphia, Chicago and San Francisco and is meant to add 110,000 jobs, internships and mentorships to the 180,000 summer work opportunities for 16-24 year olds that Obama has promised to create for 2012. Under the new program, companies such as Blue Cross and Blue Shield Association, Johnson & Johnson, and UBS, as well as non-profits and federal agencies such as the Department of Education will offer paying jobs as well as mentorships and other training programs. Every year from April to July, the size of the youth labor force swells as high school and college students nationwide look for summer jobs. But summer employment for young job seekers has hit record lows in recent years as more of them are unable to find work, according to data from the US Bureau of Labor Statistics. “There’s no replacement for the dignity that comes with earning your first paycheck,” said Secretary of Labor Hilda Solis in a statement. Yes, dear reader, now the feds are turning young people into zombies too...with make-believe jobs, many of them in zombie industries. The report went on to tell us that the initiative does not require congressional approval. Which leads us to another question: What kind of crackpot system do we have...where the president can create jobs...like the Fed creates money...out of thin air? Of course, we know the answer, the new jobs are just like the new money; they’re not real. The program, phony as it is, will not be examined carefully by anyone. Instead, it will “feel good” to the voters. Obama is doing something. His heart is in the right place. Don’t think about it anymore. His initiative is right out of Franklin Roosevelt’s playbook. Back in the ’30s, our own father participated in something called the CCC, the Civilian Conservation Corps. He was a poor boy. His father was dead. He needed a way to support himself. So he joined the CCC. “It was like the army,” he recalled years later. “It was like a junior version of the Army Corps of Engineers. And it was hard work. I helped dig irrigation ditches in New Mexico.” Make work, perhaps. It may not have been a real job, but at least it was real work. A whole lot less phony than hanging out with mid- level bureaucrats in an air-conditioned office at the Department of Education. And more views... Did you see our rant about education last week? Education, along with health care, finance, and the military are the big zombie industries of the late, degenerate imperial period (as future historians will describe it). They drain resources out of the productive economy...and waste them. To give you an idea of the scale of the waste, the 2009 Program for International Student Assessment gave tests to 15-year-olds in 65 different countries. The US spends far more than most countries on education, so you’d expect that it would come out on top, right? But nooo. Instead, China-Shanghai came in first. China-Hong Kong second. Finland was third. In terms of educational “investment” per student, the US spends 15 times as much as China. Even at the state level, educational “investment” has little to do with educational return. Idaho spends only about $10,000 per student. Washington, DC spends nearly 4 times as much. Which has better test results? Idaho, of course. So, what do the zombies say? We need to “invest” more in education! *** We’re always trying to connect the dots. Unfortunately, the dots won’t stand still! Last week, we were thinking about how democracy...or any government...operates on the basis of shared emotions, or feelings, rather than real ideas. We explored the public’s contemporary narrative on the financial crisis. What we saw is that a common view of what is going on — in order to be commonly shared — has to be stripped so bare of nuance and paradox that it ceases to be an idea at all. It is just a feeling. And sometimes, it becomes a grotesque, simpleminded fantasy that it is actually the opposite of the original thought or desire behind it. It becomes a zombie thought...actually harmful to the group that holds it. If you follow the popular media, for example, you would think that the US is engaged in a war against “terrorists”...bad people, who for a reason never explained, aim to do harm to Americans. These terrorists are so evil they must be stopped...at all costs. “It’s a war,” says US Attorney General, Eric Holder. So, he explains, we can set aside the Constitution and the Bill of Rights — the very things we’re supposed to be defending — to fight it. Thus is the US military industry set to the task of protecting against “terrorists”...with the solid support of the American people. An announcement at the Ft. Lauderdale airport on Friday told us that “military personnel can board at their leisure.” They got the treatment normally given to paying business class passengers! On one plane, a stewardess invited military personnel to take the vacant seats in the business class section. And it was reported last week that of all America’s public and private institutions only the military retains the confidence of the general population. But if you bother to study the situation at all you quickly realize that it is not terrorists who pose a threat to the US, it is the US military itself. The Pentagon has gone rogue...now it is a danger to the nation. Terrorists are insignificant. Trivial. You could fit all of them in a mid-sized movie theatre. And half of them — like Osama bin Laden himself — are so infirm, insane or incompetent that they are completely incapable of doing any real damage to the world’s only super-power. The US military — along with its suppliers, security agencies and all the rest of the lethal establishment meant to protect America — is big. And very expensive. Like a parasite, it drains energy and resources from its host — the productive US economy. The total cost, fully loaded, is about 8% of GDP. America is, of course, no normal nation. It is an empire. The cost of running an empire is high. But empire is supposed to be a paying enterprise. An empire takes tribute from its vassal states in exchange for providing protection. That’s how all empires worked. The US empire, on the other hand, loses money. It conquers foreign nations...but it fails to make money at it. Instead of sucking resources from its vassal states, it takes resources from the American public. It is no longer protecting the nation; it is endangering it. More to come... Regards, Bill Bonner for The Daily Reckoning ---------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com