Work Harder!

Interesting news from the financial front…From the Daily Reckoning.

"According to the Congressional Budget Office, the federal government spent nearly $2.5 trillion during the 2005 fiscal year. This means that, on average, the federal government spent nearly $6.8 billion each day, or $78,418 per second. The Census Bureau estimates that in 2004 (the latest year for which data are available), median household income in the U.S. was $44,389.

"In short, the federal government spends almost twice as much money in only one second as a typical American household earns in an entire year."

"Yes, but American businesses are becoming more profitable than ever," say the Feds. "That's why so many people want a piece of this economy...that's why foreigners are willing to lend...and that's why we don't have to worry. The economy is in great shape."

At least in theory, American businesses are able to trim payroll costs - either by directly outsourcing to lower-cost areas, or benefiting indirectly from the globalization of the labor markets that has kept real U.S. hourly wages from rising for the last 30 years.

The problem is obvious. Unless U.S. businesses are able to sell overseas as well as buy overseas, their main market is still right here at home.
How then can they sell more and more product to people who don't earn more money? There is only one way: by expanding credit. The buyers have to go further and further into debt.

"Well, why can't they just keep going into debt? After all, the value of their assets (presumably, value of the nation's ever-more profitable
businesses) is rising."

But rising asset values are a feint and a fraud. You can't really sell off your house one room at a time in order to improve your lifestyle. Nor are companies that sell more products to more people who can't afford them really worth more. At the end of the day, the apparent strength and solidity of the economy just evaporates.”



And from the Wall Street Journal:

"Over the last five years, total annual borrowing through student loans has soared 85%, easily outpacing the 41% rise in public-college costs and the 28% increase at private schools." So, kids are following the example their parents set: borrow like there's no tomorrow. And they're not only borrowing for school, they're borrowing to buy beer and pizza, too.

Perhaps that's why McDonald's decided recently to accept credit cards.

"Even amongst the most well-to-do, borrowing a lot of money at a very young age seems to be vogue...among kids graduating last year from private non-profit four year colleges, 73% had taken out loans, typically borrowing $19,400, according to the College Board. These kids have credit cards, too - 91% carry at least one card and have $2,864 average balances."