The $1.2 trillion student loan problem - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 6 September 2013
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Baltimore, Maryland

Stocks were flat yesterday. Gold dropped $17.

What to make of it?

Our Crash Alert flag warns of a crash in stocks. Readers are advised to proceed with caution.

But so far...since the beginning of September, the news for stocks has not been bad. If you want to buy stocks, the financial press and Wall Street can give you plenty of reasons to do so. There is hope, they will tell you, for the US Empire...and its whole capital structure.

Yes, reporters, analysts, and commentators are back at work. They're finding problems. Risks. Worries. And reasons to be bullish too.

Fracking, for example, will add $1,200 to US household income, says a report from Bloomberg:

    Surging oil and natural gas production brought on by hydraulic fracturing is lifting the U.S. economy by lowering energy costs for consumers and manufacturers, according an industry-funded report.

    In 2012, the energy boom supported 2.1 million jobs, added almost $75 billion in federal and state revenues, contributed $283 billion to the gross domestic product and lifted household income by more than $1,200, according to the report released today from IHS CERA.
Maybe Bloomberg is right. Maybe fracking will give the American Empire of Debt a new lease on life...much in the way Rome got a new burst of energy on for another 200 years after the Crisis of the 3rd Century. Fracking will reduce the trade deficit, it says, turn America into an even greater manufacturer, and add to household incomes.

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But we wouldn't rush to spend that money, if we were you. It would be nice if the US were entering a new golden age...like the period between the end of WWII and the end of the 20th century. The first part of that boom was genuine - with rising wages and improving standards of living. The second part - in the '80s and '90s - was largely fraudulent, funded almost entirely with borrowed money. People spent more...they lived better...but they went further into debt. Now they are faced with years of debt reduction and lower living standards.

So far, the 21st century has been no golden age either. It is more like an Age of Granite Countertops. It is an age where appearances count for more than reality. First, people appear to improve their standards of living by spending money they don't have on things they don't need...buying bigger houses and fancier cars... Then, when the bubble pops, the feds appear to bring about 'recovery' by giving them more credit. Things that really matter, meanwhile - savings, investment, peace and prosperity -- haven't happened. The things that have happened, on the other hand, have been big disasters - pointless wars and jackass economic policies that encouraged spending and zombieism.

One of those policies is in the news again: student loans. It is another corrupt government program bearing another bitten fruit. Here's a Reuters report:
    What we don't know about the $1.2 trillion student loan problem

    The basics:
    • $1.2 trillion -- the estimated amount in outstanding student debt.
    • $260 billion -- what that amount was in 2004.
    • 37 million -- Americans with student loan debt outstanding, according to estimates from The New York Fed.
    • $28,000 -- The typical 2012 college graduate's debt load upon Graduation Day, according to Hamilton Place Strategies.
    • $9,000 -- That debt load in 1993.
    • $810 billion and $670 billion -- The total outstanding auto and credit card debt held by Americans, respectively, putting student debt into a clear lead.

    The default rates:
    • 13.4% -- the national default rate for borrowers whose loans entered repayment from fall 2009 - fall 2010. (This is the first year for which the government has released three-year default data.)
    • 22.7% -- defaults in the first three years for graduates from for-profit colleges. "For-profit institutions had the highest average three-year default rates at 22.7 percent, with public institutions following at 11 percent and private non-profit institutions at 7.5 percent," according to the Department of Education.
    • Nearly 47% of all defaults were from for-profit colleges, the Institute for College Access & Success said, even though those institutions have just a 13% share of college enrollment.
    • 7 million -- Number of student loan borrowers in default, out of an estimated 37 million total. That includes public and private loans, according to the CFPB.
Student Loans are only a small part of a big tableau. But everywhere you look the scene is the same. The insiders are taking more and more wealth from the outsiders. Everyone wants to be an insider. And in a democracy, especially, over time, more and more people find ways to game the system and join the insiders. Finally, everyone seems to have an angle.

And pretty soon, civilization itself is on the road to decline and ruin. That happens when there are more parasites than producers...more voters with their hands in the cookie jar than there are people making cookies!

Thanks to Richard Russell, we can pass along this picture of a zombified America, from The Week:
    In America, seven out of 10 people are on the dole, said Michael Tanner. That's the percentage of people who receive more in government benefits than they pay in taxes, according to a new Tax Foundation study. Some of these beneficiaries of Uncle Sam's largesse are the poor; another new study, by the Cato Foundation, found that families collecting various welfare benefits, including food stamps, "temporary" cash assistance, and Medicaid, could bring in the equivalent of $35,000 a year -- more than someone would earn in a $20-an-hour job. But it's not just the poor who feed at the trough of our vast welfare state. Most seniors get far more from Social Security and Medicare than they contribute in payroll taxes. Giant corporations get $100 billion in direct payments and subsidies from the government, in the form of farm and "green" energy subsidies, and Export-Import bank loan guarantees. The military squanders billions on weapons systems it doesn't need, to fund jobs in key lawmakers' districts.
Yes, dear reader. A little democracy - restrained, say, by a Bill of Rights and a Constitution - may be a good thing. But sooner or later the zombies take over. Then it is best understood by the old definition: Democracy - a political system in which two wolves and one sheep vote on what to have for dinner.

Hark...is that the dinner bell we hear?

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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2 Responses to "The $1.2 trillion student loan problem"

SUSHMA

Sep 7, 2013

It is equally true in Indian context. Here also, 2 wolves and a sheep ( Janata) decide what to have in dinner !!!! Perhaps Indian Polity draws its lessons from American thought.

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LOVEPAREEK

Sep 6, 2013

WELL, SIR. AMERICA'S FATE WAS (TILL NOW) SEALED, BUT THIS ENTIRE NEW UNEXPECTED TWIST OF FRACKING HAS AGAIN INTRODUCED A NEW UNCERTAINTY.... SUMTHING LIKE A LICENSE FOR MORE PRINTING, AND PRODUCING A NEW POPULATION OF FURTHER SUPERZOMBIES....I WONDER HOW THE SCENARIO WILL PLAY OUT NOW.....BUT LETS NOT TAKE MORE OF YOUR TIME...SINCE U HAVE ALREADY HEARD THE DINNER BELL. :-)

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