Mar 15 2015

The next bailout will be with student loans: White House takes first steps in allowing a bankruptcy option for student debt. $1.2 trillion in student debt outstanding.

It truly is absurd when you hear people moralizing that people should pay their student debt when virtually every other debt class can be discharged through bankruptcy.  You can go to Las Vegas, run up $50,000 in credit card debt for a wild night, and if you are unable to pay it back, no problem.  Sure, your credit is ruined but no one is going to garnish your wages.  Can’t pay your mortgage?  Foreclosure.  Can’t pay your auto loan?  Repossession.  Can’t pay your student debt?  Lifelong debtors’ prison for you.  Student debt is the largest non-housing related debt class in the US.  It makes sense that bankruptcy should be an option here.  There is one problem, however.  Most of the debt is government backed meaning the bill is going to be taken on by the government (aka the people).  This is something that should have been done over a decade ago when total student debt was $200 billion, not $1.2 trillion like it is today.  However, rising delinquencies show something needs to be done here.

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Mar 10 2015

The young, broke, and indebted American: 45 percent of 25 year olds carry student debt and the median net worth of those 35 and younger is one month of expenses.

It is clear looking at economic data that young Americans were not sent the memo regarding this economic recovery.  People do realize that the “Great Recession” officially ended in the summer of 2009, right?  We’re heading into year six of this recovery but many are simply seeing lower paying jobs, a deeper reliance on debt, and inflation hitting in important segments of our economy.  For example, some of the top employment sectors in our country are in the form of food services and retail that tend to hire a disproportionately large amount of young workers.  But with more people going to college and taking on record levels of debt, working retail is not going to cut it.  Back in 2000 about 25% of 25 year olds carried some form of college debt.  Today that percentage is up to 45%.  That is a major jump and shows that for many, simply going to college requires some form of debt assistance.  And that is why we now have over $1.2 trillion in outstanding student debt across the country.  But young Americans are also seeing hits to their net worth.  Let us look at the “recovery” for young Americans.

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Mar 6 2015

Low wage jobs and the increase in non-working America grow: Half of jobs added last month were in low wage fields and those not in the labor force jumped by 354,000.

If we look at the labor force in sheer numbers we find a couple growing themes.  The number of low wage jobs continues to dominate employment growth.  Of course this will only add additional burdens to an already cash strapped young American worker.  Financial pundits would say any job is better than no job.  Speaking of no jobs, the next theme is that of the massive number of Americans not in the labor force.  This number continues to trump any job gains.  For example all the current headlines are saying that the US added 295,000 jobs.  A nice number but where is the headline saying that the nation also added another 354,000 Americans to the “not in the labor force” category overshadowing any net gains in jobs?  The reason this isn’t reported is that those not in the labor force are somehow relegated to the national safe of unreported secrets.  Nearly 93 million Americans are not in the labor force.  The spin is that many are older Americans retiring but the data shows otherwise.  Many older Americans are too broke to retire.  Low wages and exiting the labor force seem to be the continuing trend.

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Mar 3 2015

The 35 year drought in real wages for American workers: American workers really haven’t had a raise since 1979.

Economic recoveries take on a variety of shape and sizes.  With stock markets reaching new highs you would expect that some of the fruits of this boom would trickle down to American workers.  But some of the booming trends are continuing on the path of low wage labor and certainly, of turning people into contract workers.  Think of a business like Uber that turns regular people into taxi drivers if they wish to become one.  For some, the pay is good but the benefits are non-existent.  For the founders of Uber, an untapped world of wealth is the reward.  This seems to be a big trend with technology.  Outsourcing many good paying jobs that bring wealth to a few but displace millions of workers.  Maybe this is simply unavoidable.  When we look at the top 10 occupations in the US, we see all of them in the low wage service sector outside of nursing.  It is hard to outsource janitorial services or someone making your food at a local restaurant.  A recent EPI study found that in the overall scheme of things, the American worker really hasn’t had a real raise since 1979.

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Feb 28 2015

The long inflation con on the public: How the CPI severely underreports inflation and the slow erosion in the American standard of living.

The Consumer Price Index (CPI) is supposed to give us a good barometer of price changes in the economy.  Unfortunately the CPI misses many big items like housing and college tuition.  The latest report shows that the economy had a taste of deflation for the first time since the Great Recession hit.  Of course this is going to provide more ammunition to the Federal Reserve to maintain negative interest rates that clearly are having an impact on the standard of living of Americans.  Subprime lending is already booming again as banks chase after cash strapped Americans.  You need to step back to understand the impact inflation is having on the economy overall.  Blindly accepting that prices “need” to go up is easier than understanding how the Federal Reserve impacts the dollars in your wallet.  The CPI is the official metric for price changes but if we look at it from a broader perspective, like looking at a forest from a plane versus looking at one tree on the ground, we realize the landscape is dramatically changing.  Inflation is eroding the quality of life for most Americans.

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Feb 24 2015

Subprime lending at highest level since financial crisis hit: The three leading subprime categories are auto loans, credit cards, and student debt. $189 billion in subprime loans made in 2014.

The euphoria is bleeding into every corner of our debt driven economy.  Access to credit is being given to consumers but unfortunately, the loans are tied to items that are counter to becoming financially healthy.  More to the point, subprime loans have reached levels that were last seen only during the financial crisis.  As fewer good borrowers are available, lenders are digging into every nook and cranny of the economy to find additional borrowers.  Money is brought into existence through debt.  People have a hard time wrapping their mind around this.  For example, say you are a student looking at going to college but have zero dollars to pay for it.  A lender will pay for your school and create this “money” out of thin air.  How so?  All of a sudden you graduate and now owe $50,000 for example.  You will need to pay this back with real earned income for many years.  This is money that was brought into the system from financial institutions and we are now seeing it permeate into auto loans and credit cards with subprime borrowers.  In 2014 $189 billion in subprime loans were made.  Welcome back to the easy debt party.

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Feb 20 2015

The revival of the American debt machine: auto loans, student debt, and credit card debt surge in latest report. Total non-housing debt now at $3.15 trillion.

Last week while going through mountains of credit cards offers, it felt as if we were in 2005 and 2006.  Even last year, the cold calls started and it seemed like the debt machine was back and alive.  This is helpful news for consumers given that half of Americans are living paycheck to paycheck.  Now that the bailouts have aided the very small portion of financially connected, it is time to shower the public with auto debt, credit card debt, and student loan debt to get the party fully going.  I’ve covered over the last few quarters the surge in subprime auto debt since practically all Americans have some sort of auto debt.  With all those with OK credit being tapped out, it was time to search for a wider market.  The last quarter saw auto debt go up by $21 billion, student debt by $31 billion, and credit card debt by $20 billion.  Non-housing debt continues to make new highs while housing debt is still off the peak since big banks and investors now own a good number of single family homes.  The debt machine is back on.

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