Today's topic Labor Day Weekend Forecast: 30 Million Fewer Jobs hit upon something similar that has caused a lot of thought from me over the last two or so years. I am sure you remember all of the private equity buyouts. Almost all of these are heavily debt laden that made no economic sense. Some of these are starting to come home to roost.

The buyers received all the "payout" up front. There is going to be many jobs lost that may have never needed to go except for the heavy debt loads.

I don't have the time but it would be interesting to know how many companies that were bought out with how many employees they have. Wall Street may have had a party with all the LBO's but I hope it bites them in the ass.

wish I had the time to share my thoughts on the bureaucracy...

some day I will blow the whistle...

Short story is that our business function problems cannot be met by personnel or c urrent org structure solutions because the functions themselves have been sabotaged by a culture hostile to government. Certainly government deserves its share of criticism. But it must be appreciated that a hobbled government that still has a mandate to provide services. to meet that obligation it will use its authority to contract out its business functions. Private Industry likes the profits from using this approach but it is HUGELY WASTEFUL! Government should not contract out work...it is double overhead. Either have your government provide the services that private industry either will not do or cannot do efficiently or, DO WITHOUT THOSE SERVICES (not a good option, IMO). In the long run it is all about a nascent concept that our legal system has yet to fully establish: The Public Trust. That trust is the sum of resources upon which we are collectively dependent as a nation. The list starts with the obvious interconnected resources such as air, water, soil and wildlife and also includes other subsystems that directly impact the public welfare such as markets, healthcare and 'room to roam'.

The First American Revolution, and the Later Ones, Too (August 25, 2008)

Elderly Entitlements: Harvesting Dad

I was on my way home from burying my girlfriends's father in 2002 when I happened across the essay below in the Sunday SF Chronicle. Her father had died of Alzheimer's Disease, and lacking any other care system to deal with him in his last weeks of extreme terminal dementia, he was hospitalized. These weeks of intensive care for a dying man with no hope of recovery and beyond knowing who or where he was probably cost us taxpayers several hundred thousand dollars, for which this poor old man was tortured into living a little longer.

"Medical ethics" is an oxymoron. Until we separate treatment choices from profit, the medical-industrial complex will continue to milk taxpayers for all we're worth. BTW, I'm 59 and have a living will that clearly spells out "Do not resuscitate". It's up to our generation to make a cultural sea-change in how we view death. Or, you are absolutely correct, bankruptcy will make the change for us.

I just received an email from a friend in PA who just got a layoff notice from DHL on his 6th anniversary with the company.My girlfriend has been on reduced hour unemployment for the last month and the hotel I work for (owned by Blackstone private equity) has been out of basic guest items for over 2 weeks. Soap, shampoo, towels and coffee.I have had to go to Big Lots for some of these items myself.

I am also in my fifties and wonder how generations who have been told they can have everything they want, in any quantity they want even if they cannot afford will hold up in the coming downturn. Thanks for your work always excellent!!!!

Michael S.

"But we can't borrow a trillion dollars a year to fund our own retirement and sick-care spending, and then leave a crushing debt to our children and their children. That is simply wrong."

if you consider the mathematics, this sort of borrowing is sustainable:

Total Borrowed | Percent Debt Increase
---------------+---------------------------------------------------
$1 trillion | <= starting debt
$2 trillion | 100% = 1
$3 trillion | 50% = 1/2
$4 trillion | 33% = 1/3
$5 trillion | 25% = 1/4
$6 trillion | 20% = 1/5 <= percent borrowed getting smaller
$7 trillion | 17% = 1/6
$8 trillion | 14% = 1/7
$9 trillion | 12% = 1/8
$10 trillion | 11% = 1/9 <= this is where we are at now
$11 trillion | 10% = 1/10
$12 trillion | 9% = 1/11 <= bush's debt growht was 9%
$13 trillion | 8.3% = 1/12 <= debt growth below bush's
$14 trillion | 7.7% = 1/13 || $15 trillion | 7.1% = 1/14 \/

Thus, the scary part isn't about borrowing a trillion dollars a year since, under bush, the debt grew 9% each year; the scarey part is, however, having to borrow more than a trillion dollars a year after the debt ceiling reaches $12 trillion so economic growth stays on track!

another point: as countries get into "soverign funds," I think we'll get away from treasury bonds and the entire system will float with the market or at least our balance sheets will balance since inflated equity funds will prop up our debt.

i.e., I'm guessing that the money supply will be inflated again through the stock market and the sovereign funds will siphon off money to cover housing losses, pension obligations, etc...

hence, I think that the economic world will transform itself before our desperation (high interest rates on treasuries) would put us six feet under.

the big question is if the equity market will be capable of redistributing capital to cover losses, keep important parts of the economy alive and promote new pieces of it.

What a great post today…I had a great time in college studying early American history, and got honors and invitations to participate in special A+ student discussion groups, seminars, etc. not because I am brilliant, but because I was fascinated by history, especially objective history…it wasn't my major, but ought to have been…..I even met then Gov. Reagan at one honors seminar…he sure was charismatic, despite what one thinks of him politically...

at any rate, I always remember the stat we were taught, and today I think of how apt that stat is not only for history, but for our political beliefs today, and perhaps more broadly as a measure of the spectrum of humanity's political behavior in general: we were taught that 1/3 of the colonists were rabid in wanting independence from Britain, 1/3 were completely loyal to the crown, and 1/3 were in the middle, more concerned with how their personal circumstances would be affected by either outcome than by any overall belief….this is so similar to today, where we have right wingers, left wingers, and the middle of the road moderate Americans, although I suspect today the middle of the road is much larger than it has been for a while....

Perhaps, but only if our healthcare system is not reformed to eliminate waste, and taxes are not raised to pay the costs.

One of the quotes compared using healthcare wisely to keep a 40 something alive and working vs. wasting a bunch of money to keep a senile invalid alive for another week or two. That is a profound, "efficient" choice that we don't seem to be able to make yet, but will be forced on us eventually.

As for the true costs of US military adventurism, Chalmers Johnson and others estimate it closer to 1 trillion a year when ALL related expenditures are included. That makes it a much higher portion of the Federal budget than the 4% or so you mentioned.

At a bit over 15% of wages, up to the income ceiling near $100k per year, Social Security taxes are regressive for the median wage earner. At this stage, more Social Security taxes are taken in than paid out to beneficiaries, thus allowing continuing tax cuts for the wealthy and bloated spending -- just as Greenspan intended in the mid 80's when he proposed the Social Security tax increase.

I understand that the average recent Social Security beneficiary receives more than he/she paid in. My 96 year old grandmother certainly has!

At any rate, we will not have economic stability as long as we are in the grips of a fundamentalist free-market, perpetual-growth economy in the real world of limited resources and waste disposal sinks. This contradiction cannot continue indefinitely.

Today's (Aug. 27th) chart showing the explosion of US deficit spending since 1980 may give me a nightmare. By the way, I seem to recall that one of your articles compared the growth in total debt since 2000 to reported economic growth. Anyway, I recall the numbers were almost exactly the same! Government debt is a problem, but isn't most debt buildup occurring in the private sector? Related to my concerns about a perpetual growth economic system nested within the finite ecosystem, here is a 49 minute video interview with William R. Catton, Jr., author of the profound book "Overshoot: The Ecological Basis of Evolutionary Change." (1980)

Interview with William R. Catton, Jr.

"Our vision is going to become sacrificial: it is better to take correct care of a 40-year-old head of family who is profitable for society than take care of a 80-year-old person who no longer has all of his/her mind."

personally, I individualism is here to stay since a "40 year old" wouldn't be happy to see his/her parents murdered and, as far as I can tell, few people of any age have a functioning brain for, if they did, we wouldn't be wasting what we've got like we do.

moreover, who should be saved? the 40 year old who flies around consuming precious oil or the 80 year old who stays put? do we kill kids they're resource intensive? that's what happened in china due to the 1 child rule.

In the mid-80s, shortly after the US had become the greatest debtor nation in the world, I recall a commentator on a TV show asking the rhetorical question, "What can you say about a country whose citizens' main ambition is to grow up to be consumers?" I believe that question came from "The David Susskind Show," but it may have been from another show. The obvious answer is "not a lot."

Around the same time, I vividly recall a graduate economics seminar in which the professor used the following as an example of an economic equilibrium: "We import stuff and export IOUs." When I asked what would happen in 20 years if this "equilbrium" continued as is, the professor remarked: "We're not concerned with that in this course." Maybe we should have been concerned, because now, 20-odd years later, we are seeing the results as outlined in your article, and those results are not pretty.

Your article's conclusion notes that the typical individual's current goal is to "game the system to extract as much" as he or she can. This is obviously true, but perhaps you should carry the statement a step farther and add the phrase "without performing any substantive work." Many years ago Mahatma Gandhi listed 7 concepts that operate to destroy a society; my personal favorites are the concepts of "wealth without work" and "commerce without morality." Those two concepts perfectly illustrate the collective mentality of Americans today.

Year after year, for nearly a quarter of a century, America has imported more than it has exported. Over 70% of our economy is now driven by consumer spending, so we must necessarily conclude that we Americans consume far more than we produce. Worse still, we've borrowed staggering sums from the rest of the world to cover the difference between our consumption and our production. The magnitude of these debts has led America to a destiny of a long, slow, inexorable economic decline that is probably now irreversible.

America of the 21st century has become like a gigantic nationwide casino of debt, but with an interesting twist. "Casino America" operates much like a "roach motel." Borrowed money flows in, but it never comes back out, unless it accidentally finds and then falls off the unguarded 13th floor balcony.

Still, Americans have an amazing ability to ignore or deny the obvious. Despite increasing unemployment, millions of home foreclosures, collapsing credit markets and food and energy prices rocketing to the stratosphere, Americans respond with a collective yawn. So no, we likely will not have violent revolutions or upheavals in this country any time soon. The big unanswered question is whether there is any event or circumstance that would cause Americans to rise up from their stupor, or whether the process of stupidification has so stultified the average American's brain that arising from our collective stupor is now impossible.

Great series of posts lately, been meaning to write, but you did such a good job I had nothing to add so kept my mouth shut :)

I was wondering if you had put 2+2 together like I have this week :

1) US says it has the right to pre-emptively nuke anyone they want

2) Russia says it has the right to pre-emptively nuke anyone they want

3) US signs agreement to build anti-missile missile base in Poland - to be complete in 2012

4) Russia says they will take 'military' action to ensure said base never goes online

To me this screams WWIII - with a nice neat 2012 deadline. Granted one side or the other could back down in the next 4 years ? - but I also see the economy exponentially worse in 4 years, so I think there will be quite a surplus of angry 'citizens' screaming for someone's head on a platter - those 'evil' Russkies will probably fit the bill.

Not sure why I am writing this, mostly a head's up, I guess. The Fourth Turning says that while war can be expected on an 80 year cycle, it is also possible that it comes earlier than expected, and if so, the outcome is generally much worse because the alignment of generations is all wrong, e.g. you don't have hard-headed X-ers in most positions of power, ready to make the difficult compromises, but messianic Boomers instead.

I hope I am wrong.

Michael P.

"In point of fact I am preparing to receive none of the entitlements "I paid taxes for" and none of "what was promised to me." Reality has changed, so let's face it straight up instead of forcing insolvency on the nation."

Like you, I agree completely that to expect to receive “what was promised to me” is as much a pipe dream as it is a realistic night mare. I turned 50 years of age this year and have been paying into the Social Security system since the age of 14.

I had an interesting thought that I believe would be a fair and equitable resolution to the above injustice, however, the likelihood of it’s acceptance and enactment is as much of a pipe dream as is the scenario that inspired it.

What if… folks like us, as part of the “boomer generation” that have worked hard for numerous years and made our expected payments into the system as we have aged, raised families, and have earnestly contributed to our communities as we progressed to this stage of our lives, suddenly are faced with the realization, as you have suggested, that to demand and receive the entitlements as promised under the current system, would indeed force insolvency on our nation. That this group of citizens having met certain criteria, accept and acknowledge the magnitude of the situation, do whole heartedly and in good faith waive any payout of entitlement benefits form our government in our years after retirement. In return for our sacrifice, we henceforth are no longer required to pay any further taxes into the system. I don’t know about you, but I fully expect to be actively employed for at least the next 20 years before I can say I can afford to retire. It may not be a perfect solution, and I can anticipate a large number of folks that would perhaps sign up for the plan, only to have some unexpected medical disability throw their whole plan out of whack. But hey, Isn’t that just what we have now?

Obviously this would greatly impact the current revenue vs. expenditures balance of the system, and I’m not smart enough to find the “fix” for that minor problem, but this at least provides some sort of “consolation prize” if you will, to the real prospect of getting nothing at all in return for our contributions.

Thanks for all your compelling work Charles.

Dave E.

You accurately described what happened during this latest bubble and I completely agree with your assessment of where things are headed. I think it's a great thing for houses to be thought of as a utilitarian necessity of life rather than an investment.

But like almost all other articles on the subject, yours -and I'm not trying to be critical - glossed over the main reason why the housing bubble could not continue: houses became unaffordable except by means of financing schemes that became increasingly wacky as prices rose. You did finally mention to 2-3 times income ratio, but only in passing. In California houses were selling for 10 times income! That's why California is now the epicenter of failing exotic mortgages. There's no way that trend could continue even with all the exotic mortgages because eventually somebody has to pay for the cost of that house.

The exotic mortgages were little more than time-buying gimmicks that enabled people to "rent" the house long enough for it to appreciate. Once appreciation slows enough - prices don't even have to decline - that the house doesn't appreciate faster than the mortgage resets, it's game over. (By "appreciate" I mean the price has to rise enough that the buyer realizes a profit after the costs, such as broker fees, are subtracted.) It all boils down to the houses being fundamentally unaffordable to begin with.

Dave daveeriqat-wordpress blog

Chris S.

A Blockbuster store recently closed in the state next to me due to an increase in rent. A lot of local people thought it was just Netflix competition, but the owner flat out said his rent had been raised and that was the main reason he had to close. He didn't say how much it had been raised.

I don't use netflix. I buy used DVDs and we end up trading them around with friends who do the same thing. I use to rent when rental was available (my local blockbuster disappeared a couple years ago despite always looking extremely busy), but the trend seems to be for retail storefront dvd rental to disappear.

Just an emotional footnote here. As I watched the events of the last 2 weeks culminating in the Obama nomination last evening, I was awash in a froth of mixed emotions. First, a good feeling that comes when "unity" is stressed and played upon and I see a whole lotta folks of different backgrounds partying together, feeling optimistic and stimulated. We don't see enough of that these days. My other emotion is a pervading sadness as I watch and hear well-meaning "reformers" parrot the same litany of ideas for improvement in the lives of their constituents. Create jobs; raise incomes; reduce taxes; equalize wealth distribution; provide housing, health care, education for all; defend the nation in "smart" ways; save the environment. Is it inspirational? For many, I suppose so. Heads nod, smiles break out, people sing, and tears flow. Is much of it this "change" likely to take place? Hardly.

I find it distressing that when politicians harken to the "Roosevelt years" or the "Kennedy years" that little historical attention is paid to the incredible battles that took place for years as these Democratic Party icons worked to improve the lot of the nation and the people. FDR needed a major global war (and got one) to bring the USA out of a crippling economic catastrophe via force-feeding of the economy. Kennedy needed (and had, in spades) an aggressive Russia, China and other Soviet bloc powers to frighten conservative members of Congress into funding his initiatives, including space exploration. Obama will need (and probably get) crises of one sort or another to bring even the most modest of his "change" proposals from slogans to legislation. Even if we were to replace at one sitting all members of Congress with the new Administration, the same obstacles to consensus would eventually arise.

Does anyone REALLY see energy conglomerates rolling over as proposals multiply to take profits and redistribute them for government experiments in "alternative energy"? Staill, I submit that it would probably be easier to NATIONALIZE the entire private energy sector than to effectively diminish and control the power of public employee and other remaining private unions throughout the country. There has not been enough rhetoric (much less sound proposing) devoted to "reforms" that might penetrate "states rights" and other major barriers to effective national changes in the ownership and distribution of resources, including financial and geophysical.

Few minutes of speech-making during the last few weeks have been devoted to such fundamentals as campaign reform, term limits, oversight of the financial sector, political and government ethics and the linkages between federal and states operations and financing. But Obama says we will all get the health care "now available to members of Congress". Get that alone for the rest of us, Mr. Nominee, and I will truly believe that "change" is believeable and might actually take place.

The government is getting more aggressive about transaction data collection. they are invading more and more of our lives since they have basically convinced the american public that they run the economy, not private interprise.

it's pretty clear they have too much data and are trying to be a corporation so they can manage our retirment accounts through fed policy.

alabama county bankruptcy

"BIRMINGHAM, Ala. (AP) -- Gov. Bob Riley negotiated with creditors Friday over whether Alabama's largest county should seek a deal on its $3.2 billion sewer debt or file the largest bankruptcy in U.S. history."

"Jefferson County got into trouble after it was forced by the courts to undertake a huge upgrade of its sewage system to meet federal water standards and stop raw and partially treated waste from being dumped into streams.

Acting at the suggestion of outside advisers, the county borrowed money for the project on the bond market in a complex and risky series of transactions. When the mortgage crisis hit and banks began tightening up on their lending, the interest rates on the debt ballooned.

The nearly completed sewer project has been under construction since 1996. "

The last sentence is especially troubling. The nearly completed? they spent 3.2 billion on the project without finishing it working for the past 12+ years??? Thats some great management right there. Unless its hard to replace the sewer system I don't know but generally great dams are built in 12 years along with metro systems and other nice goodies. Maybe they didn't even start the upgrades yet but just paid for the design scheme or something.

Jefferson_County_sewer_construction_scandal

I think the banks whom arranged those wonderful swaps and debt agrements should pay a price as well. If the original improvements were supposed to cost 1.2 billion than the other 2 billion + went someplace else.