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In Crash Course Chapter 14 – Assets and Demographics I make these statements:

The boomers are the wealthiest generation ever, they hold nearly all of the assets, and they will need to dispose of those assets to fund their retirements.

In order to fund their retirement dreams, boomers are going to have to sell off their assets.
Who exactly are the boomers planning on selling their assets to? Even if [the smaller following] generation somehow could afford to buy all these assets, there simply aren’t enough people in this generation to buy them.

Figure 1

Figure 1: the Yellow and Red bars represent the US population broken out into age bands of five year increments for women and men, respectively. The green circle draws attention to a “hole” that exists in the population demographics with the Boomers represented as the “bulge” just a little higher up the chart from the hole. In red and yellow text to the right we see the six main sources of wealth for boomers (not ranked). Of the six, the five in red have to be sold in order to extract the wealth contained within them.

In response to yesterday’s post, titled The crisis explained in one chart: Debt-to-GDP, Lisa G did her homework and then asked a great question:

This debt/GDP % of 403% from 2+ years ago compares to the % in today’s post of "340 percent of total GDP. " 

Are these calculated differently or has the percentage actually dropped from 2006?

Any help here? I am getting lost.

Kudos for doing the research and resisting the call to become ‘a believer’!  Well done.  There’s a perfectly good explanation for all this….

Federal Debt could go to 400% of GDP

On January 7th the Congressional Budget Office (CBO), a non-partisan outfit, released projections that show the financial crash and the resulting recession are already wreaking havoc with America’s finances. It reckons that the budget deficit will soar from $455 billion in fiscal 2008 (which ended last September 30th) to an astonishing $1.2 trillion in the current year. At 8.3% that would be the most as a share of gross domestic product since the second world war.

But the underlying picture is worse for several reasons. First, it does not include any estimate of the cost of Mr Obama’s planned fiscal stimulus, which he will seek from Congress soon after being inaugurated. Second, the CBO assumes all of George Bush’s tax cuts will expire as scheduled at the end of next year and that the Alternative Minimum Tax, a parallel levy aimed at the wealthy, is allowed to ensnare a growing share of the middle class each year.

One thing to understand about even the horrendous sounding “8.3% of GDP deficit” is that it is vastly understated. First, as they note in the article, not everything is being counted, such as the cost of the stimulus plan.

But second, even if such excluded costs were counted, it’s important to note that the way the government reports its fiscal condition would be illegal for any public company.

Productive and Unproductive Capital
Honestly, it’s much easier to sit at a desk at home and gather long-term capital gains (which may or may not be productively invested) or tax-free earnings than put up with the guff of real business. And if this is the case, then who’s going to risk everything to hire people and "get America working again"?

This is why I predict 30 million formal jobs will be lost in this Depression; it’s no longer worth it in terms of risk/return to start businesses when everyone is sucking real businesses dry and leaving rentier capital lightly taxed and lightly regulated.

The above is the summary of an essay which points out that over time we’ve structured our economy and society such that non-productive capital (passive bond and financial investments) are treated with kid gloves by our rules sets and tax codes while using the same capital to run a real business exposes one to all sorts of headaches and additional taxes that do not apply to "rentier capital".

So why bother?

I can tell you from my experience, this rings true.  The amount of paperwork and forms and rules and taxes that my state of Massachusetts applies to my simple business are extraordinary compared to squaring up my investment and trading accounts at the end of the year.

Some of the rules are baffling and maddening as if designed to be cruel and arbitrary.