http://bullnotbull.com/archive/dow13k-1.html
> Inflation, Dow 13K and the Second Great Depression
> April 26, 2007
> Michael Nystrom, MBA
>
> When I was about 9 years old, my father took my elder sister and I to
> see a performance by a famous magician called Blackstone
> <http://www.amdest.com/stars/harryb.html>. What I remember most
> about the show is when Blackstone, with a flourish of his cape, made
> an elephant appear onstage out of thin air. It was an astonishing
> feat, and the crowd - including me - went wild with applause. I had
> no idea how he did it. After the show however, as we were exiting the
> theater, my elder sister said, "I didn't see what was so great about
> that elephant. It just walked onto the stage and everyone started
> clapping."
>
> My sister's revelation was just as amazing as the trick itself, which
> suddenly made perfect sense. Blackstone had used some kind of sleight
> of hand, distracting the audience over here while he got the elephant
> to walk on stage over there. With this simple, well-known magician's
> tactic, he managed to fool just about everyone.
>
> Yesterday, as the Dow "smashed its all time high," closing above
> 13,000 for the first time in history, I was strangely reminded of
> Blackstone's performance that day some thirty years ago. The Dow's
> current levitating act is the result of another well-known sleight of
> hand trick used by central bankers. It's called inflation. Even so,
> most everyone is mesmerized by the performance. Everyone seems
> transfixed, clapping in amazement at this spectacular feat.
>
>
> But at the margins of society, far from the action on Wall Street, a
> silent depression has already begun – one that is affecting the most
> vulnerable members of our society. This depression is documented in
> two books that I recently finished reading: Tamara Draut's /Strapped:
> Why America's 20- and 30-Somethings Can't Get Ahead/
> <http://www.amazon.com/exec/obidos/ASIN/1400079977/bullnotbull-20>,
> and Anya Kamenetz's /Generation Debt: Why Now is a Terrible Time to be
> Young/
> <http://www.amazon.com/exec/obidos/ASIN/1594489076/bullnotbull-20>.
> Both were recently released in paperback, and I was able to find the
> hardcopy editions at the local library.
>
> What both of these books confirm, though painstaking research and in
> painful detail, is what today's younger generation has already long
> known: Simply surviving in this hyper competitive world is harder
> than ever, to say nothing of getting ahead. As Draut points out, a
> college degree is the new high school diploma; to be considered for
> any kind of a "good job," you've got to have one. The problem is that
> college tuition costs have been rising three to four times as fast as
> inflation for the past few decades, and financial aid hasn't kept up.
> Whereas the Baby Boom generation had the hat-trick advantage of cheap
> tuition, ample grants and scholarships, and a booming economy
> providing well paying jobs upon graduation, the younger generation has
> had none of these advantages.
>
> Financial aid has shifted increasingly towards loans instead of
> grants. Because of higher tuition costs and generalized chronic
> inflation (in spite of official Federal government statistics),
> housing and food are more expensive too. Many kids who want to go to
> college simply can't because they just can't afford it. Of those who
> can cobble together enough money – and here I'm talking about working
> class families, not the privileged minority whose families can college
> without much pain - many have to work full time to make ends meet.
> And even then, in this inflation-ravaged world, it still isn't
> enough. So they turn to credit cards, which are amply peddled on
> college campuses to bright-eyed, green newbies who don't know a thing
> about debt or personal finance.
>
> Welcome to higher education - at the school of hard knocks.
>
> Today it is not uncommon for young adults to graduate with
> unmanageable thousands of dollars in combined student loans and credit
> card debt. "The next generation is starting their economic race 50
> yards behind the starting line," says Elizabeth Warren, co-author of
> /The Two Income Trap/
> <http://www.amazon.com/exec/obidos/ASIN/0465090907/bullnotbull-20>.
> The debt is unmanageable because good jobs are hard to find. This is
> not your father's economy. Sure, there are plenty of jobs available.
> How does $8 per hour sound, no benefits? As Kamenets, a recent Yale
> grad points out:
>
> …when the Boomers were entering the workforce in 1970, the
> nation's largest private employer was General Motors. They paid
> an average wage of $17.50 an hour in today's dollars. The largest
> employer in the post-industrial economy is Wal-Mart. Their
> average wage? Eight dollars an hour. The service-driven economy
> is also a youth-driven economy, burning young people's energy and
> potential over a deep-fat fryer…The entire labor market is
> downgrading toward what was once entry level.
>
> In case you missed it, this week GM was dethroned by Toyota as the
> world's top automobile producer
> <http://www.iht.com/articles/2007/04/25/business/25auto.php>. Earlier
> this year, in an effort to shore up American manufacturing, the Bush
> Administration proposed reclassifying hamburger flipping as
> "manufacturing."
> <http://www.cbsnews.com/stories/2004/02/20/politics/main601336.shtml>
> The times indeed are changing, and the experiences of the younger
> generation shine a light on the terrifying leading edge of that change.
>
> *The Second Great Depression is Here*
> For the past five years I've been saying 'The second great depression
> will not be televised <http://www.depression2.tv>.' In addition to
> paying homage to the 60's civil rights activist and poet Gil Scott
> Heron <http://en.wikipedia.org/wiki/Gil_Scott-Heron> (/The Revolution
> Will Not Be Televised/), it is a jab at the inadequacy of the
> mainstream news to actually report the news. The composition of the
> American economy is changing in fundamental ways -- ways that will
> not, in the long run, be favorable to most Americans if current trends
> continue. The younger generation is simply the first to bear the
> brunt of these changes, and as a result, is the first to grow up
> poorer than the generation preceding it. This, ladies and gentlemen,
> is known as national economic decline.
>
> This is unpleasant news, and is therefore completely unacceptable to
> the mainstream media. It's easier to sell the idea that the younger
> generation is just plain lazy, stupid and hopelessly screwed up. After
> all, didn't you hear? The Dow just hit 13K! How can the economy be bad?
>
> As a result, Draut and Kamenetz take the brunt of Boomer criticism
> from elders who dismiss their claims and only hear what they believe
> to be whining. But all these authors are doing is telling the story
> of their generation, pointing out how times have changed, and just how
> difficult it is to be young, broke, in debt and with little hope for
> the future. To me, it is the story of a second great depression.
> College, housing and food are more expensive, taxes, debt and interest
> rates are higher, (In spite of the fact that official rates hover near
> historic lows, one late or missed payment by a financially strapped
> young person sends credit card interest rates soaring across the board
> -- 29% or higher), wages are lower, competition is fiercer and most of
> the good jobs have moved away. Given the facts, it is amazing there
> is not /more/ complaining or real demands for change. Draut points
> out that this younger generation was thoroughly "Reaganized" – raised
> under a steady diet of conservative rhetoric which they have fully
> internalized: The government is the problem, the free market is the
> solution – if you fail, it is your own fault, so don't complain and
> don't ask for help. Even though youths 18 – 24 are the most likely to
> hold minimum wage jobs, giving them a poverty rate of 30% in 2000,
> we've heard pitifully little about this in the MSM.
>
> But poverty is a big impediment to getting higher education. Kamenetz
> points out that the nationwide high school graduation rate peaked in
> 1970 at 77%. It was around 67% in 2004….For every 100 young people
> who begin their freshman year of high school, just 38 eventually
> enroll in college, and only 18 graduate in a timely manner. This is
> especially worrisome as the world continues its march towards a
> knowledge-based economy <http://www.madeintaiwan.tv/blog/?p=10>.
> America is clearly falling behind.
>
> The question of particular interest to readers of all ages should be
> whether the current decline in living standards is a one-generation
> anomaly, or the start of a new American trend. The problems
> afflicting the young – the outsourced jobs, the low wages and high
> levels of debt – are increasingly moving up the generational ladder.
> Just ask the entire city of Detroit, where a house can now be
> purchased for less than the price of a new car
>
<http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2007/04/06/wdetroit06.xml>.
> This year also marks the first time in history that the median
> American home price is likely to decline
>
<http://www.economicpolicymonitor.com/2007/04/ranieri-first-time-in-history-median.html>.
>
>
> *Transition Ahead*
> What these two important books demonstrate clearly is that at the
> margins – where all the interesting economic (and other) activity
> takes place – the US economy is no longer able to provide its citizens
> with an increasing standard of living. Having read Jeremy Rifkin's
> 1992 classic /The End of Work/
> <http://www.amazon.com/exec/obidos/ASIN/1585423130/bullnotbull-20> a
> few years ago, the only surprise to me is that his scary predictions
> of the disappearing jobs are actually coming true. And with
> "Outsourcing 2.0 <http://www.outsourcing.com/roadshow2007/>," things
> are only bound to get worse. Yet as Boomers retire – the first crop
> starts retiring next year – it is young people that they will be
> relying on (i.e. taxing) in order to maintain their disproportionately
> wealthy lifestyle. A /Generational Storm/
> <http://www.amazon.com/exec/obidos/ASIN/0262612089/bullnotbull-20> indeed
> looms on the horizon.
>
> What will this mean for the future? Neither Draut nor Kamenetz offer
> a comprehensive view, but James Fallows had an excellent piece in the
> /Atlantic Monthly/ a few years ago that remains relevant today:
> Countdown to a Meltdown
> <http://www.theatlantic.com/doc/200507/fallows>, a look back from the
> year 2016.
>
> *Lack of Awareness*
> To my disappointment, neither author goes deep enough into the root
> causes of the inflation that makes life for young people so difficult:
> The Federal Reserve System. We all know by now that the Fed has a
> "printing press
> <http://www.federalreserve.gov/boardDocs/speeches/2002/20021121/default.htm>"
> with which it can mint money, but like the 70% of Americans who don't
> know that plastic is made from oil
> <http://biz.yahoo.com/bw/070420/20070420005536.html?.v=1>, the
> majority of Americans don't realize that a fiat money printing press
> is the cause of currency inflation. The result of this inflation is
> more expensive food, housing, college tuition, and (surprise!) Dow
> 13K. You certainly won't read about /that/ in the /New York Times/.
> The information is, however, widely and freely available on the
> internet, as my friend Charles Zentay
> <http://thinkinvest.blogspot.com/2007/04/our-community.html> points
> out. All it takes is some thinking to figure out what is really going
> on.
>
> <Image snipped>
>
> [Thank you to BlueWire Studio <http://bluewirestudio.com/> for the
> above image, which was originally published in the Trendsman's
> <http://www.trendsman.com/> excellent report /The American Inflation:
> Where we are, How we got here and Where we are going/
>
<http://www.trendsman.com/v1/members/archive/pdf/269852696_AmericanInflation2.pdf>]
>
> Not surprisingly, many of Kamenetz's interviewees regret ever having
> gone to college in the first place. They're saddled with debt and
> working in jobs that are completely unrelated to what they studied –
> if they even graduated at all. As a result, she makes the daring
> recommendation that kids think hard about whether college is right for
> them or not. Before deciding to become an indentured servant to the
> bank in exchange for a college diploma, she recommends investigating
> this book: /300 Best Jobs Without a Four-Year Degree. /
> <http://www.amazon.com/exec/obidos/ASIN/1593572425/bullnotbull-20>The
> key point, which I wholeheartedly agree with is to look at the
> landscape of the world, see it with clear eyes and think! Don't go to
> college just because everyone is doing it and because your parents
> want you to. The world is changing and navigating it will require a
> new set skills and street smarts – smarts you're likely not going to
> get in school. More on this in future installments. Sign up here to
> be notified. <http://bullnotbull.com/subscribe/subscribe.html>
>
> I urge everyone to go to the library or the bookstore and take a look
> at the books. For young people, I give the nod to Kamenetz's book.
> Her writing is more urgent, more suited, I think to the younger crowd.
>
> Each generation reshapes the country in its own image. The Boomer
> generation is the current cultural center, but its cultural power will
> soon be in decline, and as they fade from the national spotlight, a
> new generation is rising. Based on Strauss & Howe's generational
> analysis in /The Fourth Turning/
> <http://www.amazon.com/exec/obidos/ASIN/0767900464/bullnotbull-20>,
> the current young generation will likely be shaped by an extreme
> crisis – brought on by the exiting Boomer generation - sometime quite
> soon. It is from this crisis that a new America will be born –
> perhaps it will be the Golden Age that Ravi Batra
> <http://bullnotbull.com/archive/batra-2.html> writes of, or the
> complete reorganization that Peter Drucker predicted in 1993
> <http://www.amazon.com/exec/obidos/ASIN/0887306616/bullnotbull-20>.
>
> Every few hundred years in Western Civilization, there occurs a
> sharp transformation . . . Within a few short decades, society
> rearranges itself - its worldview; its basic values; its social
> and political structure; its arts; its key institutions. Fifty
> years later, there is a new world, and the people born can't even
> imagine the world in which their grandparents live and into which
> their own parents were born.
>
> We are currently living through just such a transformation.
>
> *Conclusion*
> Thirteen is considered an unlucky number in American culture.
> Strangely, most American buildings don't have a thirteenth floor.
> Both the income tax and the Federal Reserve were established in 1913.
> The much-maligned Generation X is the thirteenth born on American
> soil. It makes me wonder just what Dow 13K will bring.
>
> Getting back to the theme with which I began this piece, Dow 13K is a
> kind of sleight of hand, brought about by inflation, and distracting
> the majority of people from the true condition of the economy.
> Inflation makes the economy less prosperous, not more. If the younger
> generation is any indication, prepare yourselves, for the times indeed
> they are a changin'.
>
> /The way that is bright seems dull;
> The way that leads forward seems to lead backward;
> The way that is even seems rough.
> The highest virtue is like the valley;
> The sheerest whiteness seems sullied;
> Ample virtue seems defective; /
>
> - Tao Te Ching 41
