The broken tassel of American higher education – College debt defaults bring up questions about repayment structure. Is college even worth the current costs?
As hundreds of thousands of young American enter the employment market with newly minted degrees, the clock begins to tick on those heavy student loans. The majority of student loans do not enter repayment until six months after graduation. Yet we are facing tectonic shifts in higher education. The cost of going to college, seemingly the only path to what remains of the middle class, has far outstripped any sensible measure of inflation. As young graduates leave school many are saddled with tens of thousands of dollars in debt and the reality is, many are entering a lower wage workforce where pensions are a thing of the past, healthcare is largely shouldered by employees, and employment security is nearly nonexistent. Keep in mind this is the market for recently minted graduates which are a small segment of our US population. There are countless horror stories of student debt including debt collectors going after parents of a deceased son. Welcome to college circa 2012.
The global addiction of central banking stimulus – Contagion spreads to Spain as 10-year edges to 7 percent. Life in a perpetual quantitative easing world.
Financial markets around the world are now desperately dependent on central bank stimulus. The US recovery is largely dependent on the Federal Reserve funneling loans into the system via the quantitative easing process and other archaic forms of money development. It is interesting how the Greek stock market rallied this week merely on the notion that pro-bailout parties will be elected and thus allows even more debt to be injected into the system. Yet this does not solve the core problem that too much debt is swimming in the system. Central banks do not create any real tangible product in the economy. They have the incredible power to inject resources into banks and thus create “money” in the real economy. Yet this only happens if banks lend this out to consumers instead of using the funds to speculate in complicated global money making schemes. The whipsaw behavior of the market highlights the massive addiction to central banking stimulus we are in.
How to lose 40 percent of your net worth in 3 years – Americans see their net worth collapse during the recession. Federal Reserve survey highlights a case of austerity for the masses and social welfare for the politically connected.
Working and middle class families already feel the burden of a more limited financial middle in our economy. What was once taken for granted such as affordable quality college education, homes with moderate mortgages, and healthcare costs that didn’t put families on the verge of bankruptcy are now largely harder to come by. The Federal Reserve in their triennial Consumer Finance Survey (CFS) showed what most of us already know. The middle class has been crushed since this recession. The survey looks at data going back 18 months but the trend is unmistakable from 2007 to 2010. Middle class families were crushed as their number one asset in housing has plummeted while stocks which are largely consolidated in the top echelons of our wage earners had a stellar recovery since 2009. The median net worth of families fell a stunning 40 percent over this period.
The banking shell game sponsored by your bailout dollars – how banks lure working and middle class Americans into losing hard earned money. $29.5 billion in overdraft fees charged last year.
Banks really have a wonderful structure in place at least when it comes to US banking. The Federal Reserve and US Treasury have given an open ended response in terms of bailing out the banking system should any additional financial crisis should arise. Even at the moment no real changes have occurred and this is troubling given the headwinds that are approaching. In the US the largest banks, the too big to fail variety, charged Americans over $29.5 billion in overdraft fees last year. This ludicrous figure was released in a recent Pew Research study showing that banks have no desire in consumer protection and would rather operate like a loan shark. If you calculate the annual percentage based on these short-term “loans” you would understand that the overdraft piece of the pie is too lucrative to banks but provides no real service. Banks would argue that they are helping the public access money when they need it. If we did a survey, I think most would opt out of paying $35 for a burger or for a cup of coffee. Yet this is part of the larger banking shell game still going on.
The dark financial clouds engulfing Europe. CBO projects massive deficits yet Treasury Bills move lower on global mattress bet.
The Congressional Budget Office released national debt projections showing the US Federal debt will surge to over 200 percent of GDP in the next two decades. Or maybe it will go under 100 percent. It is an interesting wide range projection. You only have a few options to remedy the situation and for the moment it appears that we are simply gliding on momentum. In Europe the markets seem to think that simply adding more debt to a debt crisis is somehow the solution. As if Greece will grow out of their predicament just because central banks extend more loans with more obscure terms and conditions. While this front is presented to the public behind the scenes money is quickly preparing and gearing up for a second phase of the financial crisis.
The day the credit markets awake from a slumber – $1 trillion in consumer debt currently delinquent. Student debt continues to grow adding fuel to the higher education bubble.
With much of the attention being diverted to the cascading financial crisis in Europe something was missed in the United States. The incredibly important quarterly consumer credit report released by the Federal Reserve highlighted some disturbing trends. The first overall point is that the American consumer continues to deleverage. Yet with a system built on massive debt and consumption this can only mean a contraction. In the report however the total amount of student debt outstanding grew a whopping $30 billion in one quarter bringing the official total to $904 billion. This should tell you a few things about debt in the US. The first point is that debt backed by verifiable income is falling based on stagnant wages and debt based on easy financing (i.e., student debt) continues to expand. The report also showed that total household debt fell by $100 billion in the last quarter highlighting the continued austerity being experienced by many Americans.
The end game of global leveraged debt – double-digit percentage point market declines in Europe and Japan and the danger of refinancing debt with longer term debt.
There is a painful realization that shifting debt around like a game of musical chairs has little merit unless real production is achieved as an end result. May was a disappointing month for markets in general. While the S&P 500 certainly fell, markets in Japan and Europe took double-digit declines. The massive amount of leverage and debt is simply being shifted around via Long Term Refinancing Operations (LTROs) in Europe. The market has little faith in this since a day of reckoning is hard to avoid even though large financial institutions seem to think they can shift away risk via fancy algorithms. To the contrary, these formulas have perfected a system that is simply dismantling the US middle class. A financial crisis built on debt is trying to find a solution in higher levels of debt via these same institutions.