Reading Part I of this two part series - A Solution For Creating Stable Economic Growth And Why We Will Never Implement It - Part 1 Defining The Problem - seems a necessary prerequisite to reading this second part so if you missed Part 1 you might want to check it out before reading Part 2.
I concluded Part 1 with this statement and it seems a good starting point for Part 2:
The second part of this two part series has to do with one issue - restoring a balance of power to the middle class. The ideas presented will be perceived by some as radical. In fact I find them very radical myself and will readily admit that I have been very slow in coming to these conclusions - especially the one that relates to our system of fractional reserve banking.
The truth of the matter is this - we are so heavily burdened with debt today that we simply can't overcome it by growing the economy. The magnitude of unfunded liabilities is so extreme and the demographic structure that these unfunded liabilities are dependent on are so out of kilter that there is no way we can continue to kick the can without dire consequences. The situation calls for radical change and that is what I would like to see happen. Will anybody listen? Probably not - at least not until all other measures have proven futile.
This problem is not unique to the United States though. It is global in scope but with that caveat properly explained I would still suggest that the following comment from Winston Churchill states the course we will follow:
You can always count on Americans to do the right thing - after they've tried everything else.
The solution as I see it is multi-faceted but the primary focus is on the nature of the fractional reserve bank system that we are so dependent on today and the courts interpretation of the Sherman Antitrust Act that presumes corporations will be allowed to grow unfettered so long as the consumer gets a good price on goods and services. I readily admit that the solutions proposed here are merely a framework or foundation but I am not at all convinced that the solutions are not in fact very simple. As one close associate of mine stated:
"The ideas are so simple and so logical that they will never be implemented."
What's wrong with a fractional bank system?
There are many pundits and politicians who are highly critical of the Fed and think we should do away with the central bank altogether. There are others who attribute way to much power to the Fed in the first place. Many are convinced that QE is either a magic elixir for all our economic ills or a tool that is certain to lead to massive inflation and economic destruction at some point.
For the most part these views are formed more as a result of the esoteric and abstruse nature of our banking system that leaves most in the dark rather than any substantive proof of either position. The Fed's QE program has done almost nothing except keep a lid on interest rates. The empirical support for that view is substantial but only if you really understand QE and the fractional bank system in the first place.
I cringe when I hear pundits say the Fed is flooding the system with money. As with all conspiracy theories - and the idea that the Fed is printing money and destroying the dollar is in fact a conspiracy theory - there is an element of truth to it but the fact remains the Fed can't just create money out of thin air as many think. They can however, initiate the process whereby the banks do create money out of thin air but it is the banks - not the Fed - that are creating the new money.
I have to qualify that statement by first defining the term money. For purposes of this discussion money shall mean M2. M2 is substantially comprised of bank deposits and represents a liability to the bank. M2 is also what feeds inflation and inflation - up to a point - is a good thing.
Some readers understand what happens with QE but others don't so for those who do my apology but I think the best way to explain this is to use a simple T-account presentation of the process. The graphic below starts with a simple transaction - a customer of a bank makes a deposit.
As with any transaction in a double entry accounting system a debit and a credit is required. When a customer makes a bank deposit the debit side of the entry is bank cash and the credit side is customer deposits. The debit is to a bank asset account and the credit is to a bank liability account. Understand this - your deposits in the bank are a general and unsecured liability in most instances and the bank is free to do what it wants with your money within the limits of the law.
Some assume that banks lend that money to other bank customers but that is not really true in a fractional bank system. The banks don't need your money to create a loan. I will get to that transaction in a minute but first let's move to the next step. The bank can't make much money simply sitting on your cash so they decide to invest it. If they leave it in cash the Fed will pay them .25% on the cash but a quarter of a percent is not a good deal. Let's say the bank decides to buy a 10 year US Treasury bond with that money.
The above transaction is a simple one. The bank doesn't want to sit on the cash as they can earn no income on cash so they buy a US Treasury bond - maybe a 10 year that is currently earning roughly 2.9% - a lot better than .25%. The accounting entry is a simple credit to bank cash and a debit to the banks Securities account.
What's important here is that M2 did not increase on the banks books but M2 did increase and here is why. The money the bank spent was from their cash reserves and not part of M2 but once they pay for the bond and remit the cash to a third party then that third party will deposit those funds in a bank account and that then becomes new money - new M2.
The above statement is true but with one caveat - if the bank buys a new issue bond from the Fed or a bond from another bank that does not increase M2. It is only when the money the bank spends for the bond ends up in a bank checking account that M2 increases.
More to the point though is if M2 increased it had absolutely nothing to do with the Fed or QE at all. Now what happens when the Fed buys the bond from a bank under QE.
The entry to record QE is nothing more than an asset exchange on the books of the bank. The debit account is bank cash bringing the bank's total cash right back to the starting point at $100,000. And the bank's Securities account goes right back to the starting point at zero. The only accounts that have balances in them under this simplistic example are the bank's cash account - an asset - and the banks customer deposit account - a liability. QE itself did nothing to increase M2 money supply.
However if the bank then buys another bond from a 3rd party then M2 will once again be increased by the amount of the bond purchase as the recipient of that cash will deposit it in a bank somewhere and the aggregate amount of customer deposits will go higher. The point is the bank can do this over and over and the Fed is not a necessary part of this expansion in M2. It is just the way the system works and it is in no way dependent on the Fed's QE.
Now to the matter of lending. The bank also has the right to make loans but they don't lend the money that they have in their cash account. Here is the entry if a bank makes a loan for $100,000.
Here is the really cool part if you are a bank. The entries to record the loan are a debit to an asset account - Loans - and a credit to a liability account - Customer deposits. The banks cash account was not affected at all in this transaction and that is the beauty of the fractional bank system if you are the bank.
When we started out the bank had $100,000 in assets and $100,000 in liabilities. Then the bank bought a bond with bank cash. We still had $100,000 in assets and $100,000 in liabilities. Then the Fed bought a bond from the bank. Still $100,000 in assets and $100,000 in liabilities. Then the bank made a loan to a customer. Now the bank has $200,000 in assets and $200,000 in liabilities.
What is particularly advantageous in this scenario is that the liabilities in this instance earn the bank a small service fee while the loan earns an interest rate - perhaps 3.5% if it's a prime rate loan. The bank can do this over and over again and the only limit is that the bank maintain a cash (reserve) balance of at least 10% of customer deposits. Under the example above the bank has $100,000 in cash and $200,000 in deposits so they have excess cash reserves of $80,000. If they make another loan then the banks interest earning assets jump to $300,000 and their excess reserves go to $70,000. The next time the banks interest earning assets go to $400,000 and their excess reserves drop to $60,000.
That is how the fractional reserve system works and the truth is the Fed can facilitate an expansion in M2 but cannot actually create money (M2) but the banks can create money and they don't need the Fed's assistance through QE to do so. All the Fed has done with QE is put massive downward pressure on rates as they have been aggressive buyers of US Treasuries. It is a supply/demand function and impacts interest rates but has nothing to do with expanding money supply. That is a function of the banks - not the Fed - and the banks don't need the Fed to expand money supply.
One more distinction that seems particularly relevant here is what happens to the new money under these scenarios. If a bank buys a bond from a non-bank 3rd party that third party is likely to buy another investment - stocks or bonds for instance. In that situation the newly created money does almost nothing to stimulate economic growth as it is never spent on goods and services and therefore has no impact on demand and therefore no impact on unemployment.
That is distinctly different from the more traditional approach to money creation that involves a loan to a consumer or a business. In that instance the money created is spent to drive economic growth. In the QE fueled money creation scheme the money is simply reinvested in risk assets and inflates the price of these assets.
That is a very flawed business plan if one's goal is as the Fed states which is to improve employment levels and stimulate economic growth. What's most disturbing to me in this situation is that the Fed knows this and yet they have continued the process. In fairness to the Fed it can be argued that they were simply keeping a lid on interest rates and providing a very big market for US Treasuries which has allowed the government to engage in massive deficit spending which has been a positive for GDP growth.
So back to the question - what's wrong with a fractional reserve bank system? Nothing in an environment where fiscal stimulus is not needed and the banking system is focused on economic growth. Everything if the banking system is used to exploit the middle class by creating boom/bust cycles as they have done pretty much from the beginning.
Going back to the creation of the Fed 100 years ago we've had 18 recessions - one recession every 5.5 years. That means that most of the time over that 100 year period fiscal stimulus has been needed to keep the economy in positive territory and that stimulus was only possible through the government's deficit spending. We know that because we can look at a debt to GDP chart and see it.
The chart above shows both metrics as opposed to the single line ratio that we usually see and demonstrates that we have driven GDP at an ever accelerating rate beginning in the early 80's by debt financed fiscal stimulus. That is a problem in that the debt burden must fall on the taxpayer and it is that taxpayer that fuels 70% of GDP growth.
So back to the question of what's wrong with a fractional reserve bank system. The answer is simple enough - the United States delegated their constitutional right to print money to the fractional reserve banks meaning that rather than the government simply creating money out of thin air and spending it we allow the banking system to create the money out of thin air and loan it to the government who then spends it.
The debt burden that the government incurs falls on the taxpayer and requires at some point an increase in tax revenues which shrinks disposable income and dampens GDP growth resulting in more lay offs and a smaller tax payer base to absorb the payment obligations of an ever increasing debt. The math doesn't work and the winners in this process are the banks who get bigger as their interest bearing assets grow.
The following graphic illustrates how this all works - just follow the money. We start with the bank lending the government money by buying a bond. As the government spends the money it moves into the hands of the consumers and they deposit the money moving it back into the banks. At this point the bank has the cash back that it spent to buy the bond and they still have the bond. Then the consumer spends the money but it still remains in the banking system in the aggregate and the process is repeated.
A solution to the problem
The solution to the problem is simple - the US government creates the money out of thin air instead of allowing the fractional bank system to do so. Who benefits - the consumer/tax payer. Who loses - the banks.
Some might suggest this could lead to high inflation but not if the M2 creation was formulaic and dependent on a combination of GDP and M2 velocity. Here is the formula:
M2 = (GDP/M2 velocity) x 1.05
Using the 3rd quarter of 2013 to arrive at the M2 cap the calculation would be as follows:
(16.9 trillion/1.57) x 1.05 = $11.3 trillion
As of the end of the 3rd quarter of 2013 the actual M2 level was $10.709 trillion meaning that the cap on M2 allowed for an increase of $600 billion.
Keep in mind we are talking fiscal stimulus here so the idea would be to get the extra $600 billion in the hands of consumers in order to increase aggregate disposable income. The distribution could be treated as a direct tax credit with each taxpayer receiving a pro-rata share of the disbursement. In 2012 the numbers of taxpayers was 239 million meaning the payout would be $2510 per taxpayer.
The banking system would undergo a major transformation under this scenario in that the fractional reserve provision would go away. Banks would still be required to maintain reserves equal to a percentage of deposit liabilities but they would no longer be able to create money through a bookkeeping entry.
Assuming a bank had $10 billion in deposits and the reserve requirement was 10% the bank would be allowed to loan $900 million. That would mean the banking system could not expand or contract money supply and that would be a necessary provision of the system for the simple reason that the private sector banking system could effectively expand or contract money supply at will under the fractional reserve arrangement bringing us right back into the boom/bust cycle of the last 100 years.
The check valve would be controlled by the US Treasury and total money supply would be regulated through the tax system with tax credits issued periodically when M2 needed to be increased and tax increases being imposed when M2 needed to be reduced.
The overall tax burden would fall appreciably over time as fiscal stimulus would no longer be funded by credit and the national debt would in time disappear as US Treasuries were very, very slowly phased out. The reason I say very slowly is that retirement of Treasury debt would push M2 higher and would necessarily produce unwanted inflation - not in consumer prices but in investment assets.
One way to deal with outstanding Treasury debt is to convert all short term debt to 30 year terms as the short term debt matures. The new issues would be 30 year duration and set to fully amortize over the term with say a 6% interest rate. Annual payments to fully amortize $17 trillion in debt over 30 years would be roughly $100 billion a year.
To insure that this additional M2 expansion would be used to drive GDP the denominations could be very small - perhaps in the $5,000 to $10,000 range. That would attract small investors looking for income rather than large investors looking for capital appreciation. The income would be spent and work as a driver of GDP whereas those who currently hold Treasuries simply re-invest the cash in other investment assets and the increased M2 inflates and drives investment assets higher - not GDP.
A progressive tax structure would need to be implemented. The goal would be focused on one thing - increasing demand for goods and services. Since lower income households spend a much higher portion of their income than the higher income group the greatest good in a tax structure arrangement would be to leave as much income as possible in the hands of those in the lower income strata.
That arrangement may seem to punish success and perhaps there is some truth to that but it is still the best arrangement provided it isn't to excessive. Some have floated the idea of a national sales tax or a flat tax as a good solution but from a macro economic perspective such an arrangement would work to inhibit GDP growth.
Consider one household earning $250,000 after tax income and spending 65% of that income compared to 5 households earning $50,000 and spending 90% of their income. The $250,000 household is adding $162,500 to GDP whereas the 5 households earning $50,000 each are adding $225,000 to GDP.
To fully appreciate the magnitude of the problem we are faced with today one need only look at the gap between government expenditures and government tax receipts. The blue line is the expense side and the red line the receipts side.
Here's a novel idea though - what happens if a tax holiday were put in place for those in the lower income strata. The goal would be to reduce tax receipts by $1 trillion. The impact to GDP assuming M2 velocity of 1.5 is that the added disposable income would increase GDP by $1.5 trillion.
Applying the M2 expansion formula to GDP the new GDP would be $16.9 trillion + $1.5 trillion = $18.4 trillion. So the new M2 cap would be calculated as follows:
($18.4 trillion/1.5) x 1.05 = $12.9 trillion
The old M2 cap was $11.3 trillion so that would allow the government to add an additional $1.6 trillion into the system through tax credits. One could argue that the gap isn't being closed between government expenditures and government receipts with this strategy and that is true but does it really matter? After all the government debt level remained flat and we are seeing more disposable income in the hands of those in the lower income strata that will spend most of that money and in so doing push demand higher.
Admittedly this is a hard leap to make for most people but keep this in mind - personal income tax in a situation where the government doesn't borrow money takes on an entirely new role. Taxes in this paradigm are increased or decreased as needed to speed up or slow down GDP growth and to keep inflation in check - not fund an ever growing government spending machine.
Here is the elegance of such a scheme - the overall tax burden would fall for everyone and debt levels would still fall. Under the scenario above our debt to GDP ratio would drop by about 8% merely as a result of the $1 trillion tax holiday in the first year and about 10% in the second year.
Keep in mind the tax credits in no way impact government spending levels - they just impact government receipt levels and some provision would be needed in this new paradigm to define the appropriate level of government contribution to total GDP. Ideally we would set a ratio of public/private employment that expanded the private sector rate from current levels and contracted the government sector rate. Again a formulaic relationship would be established between public and private sector just as the M2 formula would establish the level of M2 expansion based on GDP levels.
The arguments of those who would oppose this arrangement
The primary argument against those who would oppose restoring the right to print money to the government and taking it away from the fractional reserve banks is that it would remove the checks and balances of the current system and produce massive inflation. My response to that is why would things be any different if the government held the reins of control instead of the banks?
The fact is the banks can and do produce periods of inflation and disinflation with an occasional period of deflation. The chart below demonstrates that fact:
The most important element of the proposal offered here is the idea that M2 would be set at a level that is formulaic and printing of money in excess of the cap would be prohibited. My own view is that M2 adjusted by M2 velocity needs to be a little larger than the previous years GDP to produce growth; a little smaller than the previous years GDP to contract growth; and ideally M2 left unchanged from the previous year would produce a flat line on GDP.
The 1.05 multiplier allows for an increase of just 5% and no more which should produce the desired GDP growth that would support an increasing population adequately. That said the tools would exist - and in a much simpler and direct form than is currently in place - to suppress inflation if it were to become problematic by simply raising the tax rate on income and in so doing reduce M2 and disposable income.
It is an incredibly simple concept and there is simply no reason to assume inflation would become more prevalent under this arrangement than under the current system. More importantly the almost immediate impact to M2 and GDP would be preferable to the system that is currently in place. Under the present system the only way to contract M2 and put the brakes on inflation is to deleverage. Deleverage in this sense means the banks must reduce the numbers of outstanding loans.
The banks typically have no appetite for deleveraging as it impacts their bottom line. There is a definite conflict of interest at work here between the banks desiring profits and the need to keep economic growth on a stable path without significant swings in inflation or disinflation.
The second argument would be from the gold backed/real money advocates. Those in that camp think currency should be fixed and based on a ratio of units of currency to ounces of gold. One must ask how does such a money system accommodate population growth and the need for GDP growth.
The US operated under a gold fix to the US dollar of $35 an ounce for about 27 years from 1944 to 1971. The problem was readily apparent - the amount of gold is relatively stable and the idea that total money supply would only increase as more gold was acquired presented a wholly untenable situation. Technically it lasted for about 27 years before we reneged on our pledge but if the truth be known our inability to honor that promise occurred many years prior to the time we acknowledged it publicly.
If we were able to maintain GDP in positive growth territory which would be crucial to maintaining full employment and we were to do that without expanding the money supply as the population grew it would be an amazing feat indeed. Such an arrangement would have an incredibly deflationary effect as the price of everything began to drop and just kept falling. It was a bad idea when we actually tried it in the years following WWII and nothings changed - it is still a bad idea.
The problem's not just big banks - it's also really big international corporations
Judge Robert Bork's book - The Antitrust Paradox - led to case law precedent that overlooks the tendency of corporations to attempt to create monopolistic environments that work to the detriment of the populace in the area of wages in favor of low prices that work to the favor of the populace in terms of cost of goods. Here is how Wikipedia explains Bork's views:
Bork argued that the original intent of antitrust laws as well as economic efficiency make consumer welfare and the protection of competition, rather than competitors, the only goals of antitrust law. Thus, while it was appropriate to prohibit cartels that fix prices and divide markets and mergers that create monopolies, practices that are allegedly exclusionary, such as vertical agreements and price discrimination, did not harm consumers and so should not be prohibited. The paradox of antitrust enforcement was that legal intervention artificially raised prices by protecting inefficient competitors from competition.
Bork was right of course on the price side argument but there is more to the argument than just price. The break up of AT&T in the early 80's was perhaps the last major initiative enacted under the Sherman Antitrust Act. AT&T had a virtual monopoly at the time.
The break up of AT&T had both bad and good consequences. On the bad side some rates did indeed increase but on the good side a number of companies eventually sprung up and now compete with AT&T and those companies employ people.
Bork's focus was on price and at the exclusion of competition. On the surface it is hard to argue against the efficiencies of scale that allow mega corporations to offer goods and services at low rates but there is - as with most things - an unintended consequence that surfaces. In this case the unintended consequence is the impact on jobs and wages.
Redundancy it seems has some benefits in that if several companies are delevering the same dollar level of services that one company could deliver each of those companies needs to staff up in a way that is redundant and would not be necessary were those services being provided by just one company.
There was a purpose behind the enactment of the Sherman Antitrust Act and yet we have fully ignored that purpose for about 30 years now. To sustain economic growth in the coming years we are going to be faced with a dilemma and it is this - should we fully exploit the technological advancements that we have achieved that produce significant efficiencies and major productivity gains?
Perhaps the best answer is that we should in fact fully exploit those technological advances but move back to a more vigorous enforcement of the antitrust provisions of the Sherman Antitrust Act that allow for the smaller players to compete more effectively with the larger players. The redundancy produced by enforcement of the antitrust provisions would do a lot to improve the employment climate in the US - perhaps as much as an increase in consumer demand resulting from a revamping of the banking system.
What I find troubling is the degree of control large banks and large companies have assumed in recent decades. As I noted in Part 1 of this series a comparison of large companies and sovereign countries where total sales for the companies and total GDP for the countries are compared the large international companies hold 51 spots and the countries hold 49 spots. In other words of the top 100 economies of the world 51 of them are actually companies - not countries.
One can only ask - where will we be in another 20 years if this trend continues. As I noted in Part 1 the numbers of banks has declined by almost 2/3rd's in the last 30 years. The same consolidation of control and power has occurred in the corporate realm while the international companies - with no sovereign allegiance - have been allowed to gain greater and greater control.
Why these ideas will never be implemented
The reason why these ideas or any other ideas that would work to deprive the big banks and the big corporations of their exorbitant advantage is perhaps best explained by this quote from Nathaniel Rothschild back in 1912:
The few who could understand the system (cheque, money, credits) will either be so interested in its profits, or so dependent on its favours, that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.
Nathaniel Mayer Rothschild, 1912
Who are the "few who could understand"? The political class - or at least a significant portion of that group - is the right answer. And who are "the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system"? That would be all the rest of us and it is indeed hard to make a case for the idea that the people today do understand the "tremendous advantage" afforded those who control the banking system.
I am not sure in times past the people had any greater understanding of the matter than the people do today but one thing is certain - our political class in times past did indeed understand. Andrew Jackson had this to say on the matter of central banks:
The bold effort the present (central) bank had made to control the government … are but premonitions of the fate that await the American people should they be deluded into a perpetuation of this institution or the establishment of another like it. I am one of those who do not believe that a national debt is a national blessing, but rather a curse to a republic; inasmuch as it is calculated to raise around the administration a moneyed aristocracy dangerous to the liberties of the country.
It was not only "dangerous to liberties of the country" it was also dangerous to the health of those who stood in opposition to those who would attempt to control through the manipulation of the system to their advantage. The following excerpt from Wikipedia explains the attempted assassination of Jackson:
On January 30, 1835, what is believed to be the first attempt to kill a sitting President of the United States occurred just outside the United States Capitol. When Jackson was leaving through the East Portico after the funeral of South Carolina Representative Warren R. Davis, Richard Lawrence, an unemployed housepainter from England, aimed a pistol at Jackson, which misfired. Lawrence pulled out a second pistol, which also misfired. Historians believe the humid weather contributed to the double misfiring. Lawrence was restrained, and legend says that Jackson attacked Lawrence with his cane. Others present, including David Crockett, restrained and disarmed Lawrence.
Wikipedia explains the reason for the assassination attempt this way:
Lawrence told doctors later his reasons for the shooting. He blamed Jackson for the loss of his job. He claimed that with the President dead, "money would be more plenty" (a reference to Jackson's struggle with the Bank of the United States) and that he "could not rise until the President fell".
Here are a few more quotes - this time from Jefferson and Adams:
There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt.
- John Adams
If the American people ever allow the banks to control issuance of their currency, first by inflation and then by deflation, the banks and corporations that grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers occupied.
- Thomas Jefferson
I believe that banking institutions are more dangerous to our liberties than standing armies…The issuing power should be taken from the banks and restored to the Government, to whom it properly belongs.
- Thomas Jefferson
Others who were opposed to central banks and the fractional bank system include Abraham Lincoln, James Garfield, William McKinley and John Kennedy. Is it just coincidence that these 4 presidents - all assassinated - shared at least one thing in common - an opposition to the central bank/fractional reserve system?
Perhaps these narcissistic statements from David Rockefeller best describe the mindset of those who favor a continuation of the status quo:
We are grateful to the Washington Post, The New York Times, Time Magazine and other great publications whose directors have attended our meetings and respected their promises of discretion for almost forty years... It would have been impossible for us to develop our plan for the world if we had been subjected to the lights of publicity during those years. But, the world is now more sophisticated and prepared to march towards a world government. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the national auto-determination practiced in past centuries.
David Rockefeller, Bilderberg Meeting, June 1991 Baden, Germany
For more than a century, ideological extremists at either end of the political spectrum have seized upon well-publicized incidents to attack the Rockefeller family for the inordinate influence they claim we wield over American political and economic institutions. Some even believe we are part of a secret cabal working against the best interests of the United States, characterizing my family and me as "internationalists" and of conspiring with others around the world to build a more integrated global political and economic structure - one world, if you will. If that's the charge, I stand guilty, and I am proud of it.
David Rockefeller Memoirs
Even the most optimistic stock market bull has to concede that an economy dependent on increasing government debt can't be sustained indefinitely. We have created significant distortions in so many metrics since the end of the recession as a result of this massive and unprecedented accumulation of debt. Withdraw it and GDP moves into recession territory. Continue to accumulate it and the tax burden needed to service the debt necessarily shrinks disposable income and contracts GDP.
We are at a point where few who really understand these dynamics can sincerely argue in favor of a positive ending. The math just doesn't work. And the problem only gets worse as the unemployment levels of the young are much worse than the overall unemployment rate.
There are two ways to deal with unfunded entitlements - borrow the money or feed the system from the bottom up. In other words those entering the market will need to provide contributions at sufficient levels to cover the payouts and the prospects for that happening don't look good. What that means is more debt.
The problem is debt - both existing debt and the continuously accumulating debt. A solution does exist and the ideas I have set forth above would go a long way toward resolving the problem. These ideas are so simple and straightforward and they would work if properly implemented.
That said - I hold out little hope for such an outcome. As Nathaniel Rothschild said about 100 years ago . . .
. . . . the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.