Income Based Repayment plan cementing inflated higher education costs for graduate school: How new IBR Pay as you Earn plan will be a big win for graduate students and keep college costs high. Student debt to hit $1.8 trillion in 2020.
It is interesting that the two segments in our economy mired in debt, housing and higher education, were largely inflated courtesy of easy access to debt. New rules on how students pay back their student debt including the Income Based Repayment plan ironically will keep prices inflated. The new program dubbed “Pay as you Earn” reduces the cap on loan payments from 15 to 10 percent of a borrower’s income and accelerates loan forgiveness from 25 to 20 years. As we will highlight, this will largely aid in keeping prices inflated especially in graduate schools since the government will provide a subsidy to this cohort. It is interesting that the fastest growing debt segment of the economy after the recession has come in student debt. Instead of looking at the issue comprehensively, it is likely that we will continue to push this bubble until it pops.
Is the stock market a sham for the middle class? Retail investors expected to pull out $475 billion in funds. Volatility index under pricing real risks.
The stock market is largely a source of entertainment or awe for most Americans instead of being a true source of wealth. In the United States roughly 42 percent of all financial wealth is aggregated with one percent of the population. One third of Americans have no savings at all so for this group, the stock market does not even enter the equation. Yet the stock market itself is now inching closer to record levels. Even volatility is abnormally low given that we barely avoided the fiscal cliff and are dealing with debt ceiling challenges once again. The stock market would signify that the American economy is doing fantastic. In reality, many people are still struggling and many organizations used the recession as a period to cut jobs and slash costs. The economy is still short four million jobs from the peak reached a few years ago yet here we are, with the stock market up over 100+ percent from the March 2009 lows. Is the stock market a sham for the middle class?
Federal Reserve bubble escape clause: The master of bubble creation talks about preventing future bubbles and other circular banking logic. Fed aggressively buying securities outright.
It is no secret that the Federal Reserve is aggressively buying up a variety of securities and storing them in their opaque balance sheet. The Fed in essence has become the bad bank and has served as the conduit to support bad banking policy. There seems to be a policy of slowly shrinking the middle class and over time, maybe people will not notice it. How can you not see that the central bank of the United States has been at the nucleus of many of the previous bubbles? So with that said, I found it rich that the Fed has talked about its ability to moderate bubbles. That is right. The Fed, the numero uno culprit in the housing bubble is talking about preventing future bubbles. Ironically by going deep into QE3 they are essentially inflating asset prices yet again by destroying fixed income investments and causing inflation to pick back up.
US median household income trap: Four decades of data and households struggling to keep up with inflation. Younger Americans face bigger income struggles.
Household income growth in the US has largely been absent for well over a decade if we adjust for inflation. This is important because people truly care about what their money can purchase. What use is it getting a $1 raise if healthcare went up $2? What use is it that you are earning $1,000 more a year when sending your kids to college now costs $5,000 a year more? It is unfortunate so little attention is given to income growth when the available data is readily available. Part of the lack of coverage probably stems from the reality that the mainstream press is largely an advertising vehicle. Do not hold your breath for deep analysis and reporting from the press. Telling people how their inflation adjusted incomes are back to 1990s levels isn’t going to encourage people to go out and buy that new car, fancy tech gadget, or go into heavy debt for that new home. Let us dive deep into the income data.
Sequestering the working and middle class – The implications of runaway debt. GDP at record levels yet nonfarm employment is 4 million below previous peak. Trillion dollar coins. Greece unemployment reaches a new record.
Gear up those printing presses. You might be thinking that some of the policy talk coming out today is from The Onion but no, the idea of a $1 trillion coin is being discussed. The Federal Reserve is already very willing to become a shadow bad bank and take on all the questionable assets from the latest bubble from member banks. As the middle class is crushed, our nation is becoming more polarized. You have a massively large group of people that are now classified as poor in the world’s wealthiest nation. We have over 47 million Americans on food stamps. The average per capita pay is $26,000 much to the surprise of many people conditioned on only getting their data from the mainstream press. Those that deny inflation are not looking hard enough. The purchasing power for working and middle class Americans is being slowly destroyed. Europe is still facing major headwinds with Greece reaching a troubling new record with their unemployment rate. All this rhetoric means the Fed and ECB will continue on their path of quantitative easing and digital money printing.
Inflation by any other name – Central banks around the world increase balance sheets from $2 trillion in 2008 to $6 trillion in 2013. The slow erosion of purchasing power in the US.
The Federal Reserve has been trying with all its power to stoke inflation. This is not the stated mission and you will not hear this proclaimed over loud speakers but if actions speak louder than words, this is the policy they are following. Yet the Fed is picking winners and losers with their inflation targeting. The reason the CPI for example is not reflecting major changes is the massive wealth destruction that has occurred in the debt markets, particularly with mortgages. In a system like our own, debt is money and there has been an enormous amount of debt that has been destroyed. Yet the Fed has aided the banking system by forcing rates lower and thus keeping asset prices higher for the mistakes taken on during the bubble years. This provides little support for working and middle class Americans. For example, this hurts fixed income savers including our rapidly aging older population. Also, even a modest amount of inflation is destructive should incomes remain stagnant.
American Gerontocracy: Since 2009 2.7 million jobs for those 16 to 55 have been lost yet 4 million jobs were added for those between 55 and 69.
It is still a tough time to be young and looking for work in the United States. With the steady destruction of blue collar industries with living wages, many have to pursue a college degree for any chance at becoming middle class. Yet higher education has become a debt plagued mess where students have to enter selective schools or pick in demand degrees to have any fighting chance in the economy. The rest go into deep debt for what is now worthless paper. Yet it is understandable for young Americans to take this risk given the weak prospects in the market for those without a college education. The recent jobs reports are more proof of the great divide that is happening in our nation based on age. Since 2009, the economy has lost about 2.7 million jobs for those between the ages of 16 to 55. However, the offset has come from adding 4 million jobs in the age range of 55 to 69. Welcome to the American Gerontocracy.