I hate to be Downer Debby, but I see shade of 2008 in the Student Loan system.
There is an Eight Hundred Pound Gorilla in our Economy. It is not Social Security trillions in the account and that money is actually making interest on the US Debt. SSI is the largest purchaser of US Bonds if you don’t know. It is not the $1 Trillion Dollars of Federal Deficit Spending last year. Federal debt is small potatoes.
What brought down our Economy the last time folks, PRIVATE DEBT!
Last couple years private debt was shrinking down from the $42 Trillion high at the Last 2008 Bubble Burst. This last year Private Debt went back up again to $38 Trillion. Being driven by student loans and the derivatives based on them. Understand the 3 biggest drivers of debt is consumer short term debt ie: credit cards this is actually going down, folks are learning, but student loans are now the new big game. Consumer long term loans home ie: Mortgages are now stabilizing.But the Shadow debt system derivatives is now way up. Let's see which will have a greater effect on the US economy $1 trillion Federal Debt or $38 trillion dollars of Private Debt?
Its income stupid folks! Debt is serviced by revenue streams it is Money Velocity game. In the past I have said over and over again it is all about cash flows.
Remember, the Banking system in the 40's, 50's, 60's and even 70's was only 10% of GDP. Essential lending only allows the banking industry to develop this far: the boring FDIC Banks. That is why Community Banking makes up less and less of the financial services industry every year. Interest rates have a healthy range, so as not to collapse the Economy too soon things start out always low, but the banking industry can only sustain their dominate position in the Economy through speculation. It is velocity stupid, the more a commodity can be sold and re-sold= churned the more profit can be gotten from that commodity. Math stupid 5X > 4X. This is why we now have a bubble economy. Yes government spending has increased, but if we factor out military spending in this increase, we see that government spending ghosting the Boom/Busts of the recent business cycles. Government spending increases is a symptom of our current boom/bust business cycle. The Boom/Bust business cycle is driven or fueled by speculative lending cycles; which is allowed to happen, because of deregulation of the biggest lending institutions to the point that we can’t even prosecute bad behavior to only emboldening perpetrators . This is a prescription for the next melt down.
Guess what Wall Street has gotten smarter at this game. Folks can walk away from Home loans, but made the Biggy Banks sure the kids can’t walk away from their student loans. And they have done a fine job of securitizing those loans for those who don’t know this means slicing and dicing those loans. So God help us on unraveling this loan mess. At this point I should make a clarification here at this point New York State and Wall Street has just too many regulations to get away with the next step. Then they roll those sliced and diced Student Loans into Derivatives in which Speculators looking for a big payout can constantly buy and sell those items and you can only do that in New Jersey the gambling Capital of this Country. Las Vegas has nothing on New Jersey. Now here’s the kicker folks, one has to have Asperger’s to read one of those Derivatives, but the Cliff notes version is this folks, they are Bar Bets against the kids paying off their loans and this is why they are Bar Bets. Remember the Republican Governors going after the Unions they were doing a thing called income sliding which is a form of wage suppression. Top wage earners create a ceiling, lower the folks at the ceiling and you lower everyone under them. Ceiling simple! Does this promote increased productivity in the long run? (You know the top CEO’s work harder, because they can look forward to increase pay. This same logic doesn’t apply to the rest of the labor market?) That put shock waves into our economy soften-up the labor market. Who is most affected: those with long periods of Un-employment? Older Americans and those getting out of High school and College. The group with the Highest Unemployment today is our youth. Though moderated some the student loan program is still a 24 month down the road time bomb. Now this is why:
Understand the money multiplier effect on Social Security cuts going forward. Masses with money makes for a robust economy. Small changes in individual consumption can have huge changes on aggregate consumption at the local, state and national level, which will only slow down the economy going forward. In the Bible, Matthew 20 points out that Charity expands, your workers are your customers = your citizens are your taxpayers. What is a major tax revenue component of our government finance, but consumption taxes. That you can't make everyone rich and not to give into greed, but what you can and ought to do is make sure everyone has a job, remember the owner went out 5 times that day and scoured the village to make sure everyone had a job, and that job can support them. Quite honestly we should be pushing not only a living wage, but a living wage plus 15%, so that single women with children can support their children without government assistance. But SSi hasn’t kept-up with prices and to slow it even more is to promote folks to not retire. From experience if I have a choice of hiring some-one with years of experience or some-one with no experience at the same price who would chose? But retirees and grads will be going into the secondary job market and the grads will lose 2/3rd of the time. Pushing for higher retirement ages will have the same effect. No job no income stream = default on loan? Soft labor market low wages. If wages are too low the revenue stream will be too low to pay; same affect. We are already seeing the tip of this effect this year. Guess who is being brought down? The Kids, NO! Their 50 some parents! We are seeing an increase in Bankruptcies due to co-signing effect. Understand, the kids have nothing to go after, but mom and dad, that’s another thing. The fact is student loans are taking out entire families, and the garnishment laws put in by Conservative ALEC which allows these loans to be collected without taking into consideration of Mortgages are starting to cause a whole new set of foreclosures. Good luck on getting a Federal judge to forgive the average $25K student loan too. If we don’t re-act quickly to make JOBS #1 soon, we will soon be hip deep in Number 2. Given preliminary data based on the last Bubble and crash I give us 24 months before we start with the Student loan bubble.
I don’t see this timing as co-incidental; happening just before the next Presidential Election Season., when political pressure for a quick solution will play into the perpetrators benefit as it did in 2008. Also taking into account that the last stimulus took 18 months to go into effect this budget battle is the crucial one. Even waiting one more year could put us back into the next financial meltdown. That is why I am telling anyone who will listen to me that Keith Ellison’s Jobs Budget is the best budget even better than the President’s. We cannot wait any longer to wait to start tightening up this labor market. Understand our current deficit is a symptom of the last melt down, because of shrink effects causing loss of revenues and if we go through another it would take 3 years $4 trillion dollar deficits to get this economy back on the road again, everyone is weaker, so a lot more money will be needed. All you have to do is to look on what happened in the Japanese Economy.
You think our deficit is high now just wait 24 months. Do yourself a favor and start the pressure on making Jobs 1, so we don’t have to go through more number 2.
The secrete to being a great leader is making your people strong, quit supporting those who stand against making full employment Job 1.