The Student Debt Bubble


As more and more young people graduate from college with mounds of unresolved loan debt, financial experts and bankruptcy attorneys are calling the progressively worsening dilemma the “next debt bomb.” According to a new survey conducted by the National Association of Consumer Bankruptcy Attorneys (NACBA), 81 percent of bankruptcy lawyers report that the number of prospective clients with student loan debt has increased “significantly” or “somewhat” in the past few years.

The organization even compared the purported student loan debt “crisis” with the collapse of the housing industry:

With student loan debt now topping U.S. credit card debt and few or no options available for distressed borrowers (including unwary parents who co-signed loans and now face the loss of nest eggs, retirement homes and other assets), America faces the very real possibility of another major economic threat on a par with the devastating home mortgage crisis, according to a new survey and report published today [Feb. 7] by the National Association of Consumer Bankruptcy Attorneys (NACBA).

Moreover, the survey reported:

  • Nearly two out of five bankruptcy attorneys (39 percent) have seen potential student loan client cases jump 25-50 percent in the last three to four years. About a quarter of bankruptcy attorneys (23 percent) have seen such cases jump by 50 percent to more than 100 percent.
  • Most bankruptcy attorneys (95 percent) report that few student loan debtors are seen as having any chance of obtaining a discharge as a result of undue hardship.
  • More than four out of five bankruptcy attorneys (82 percent) see the limited availability of student loan discharge in bankruptcy as “a big problem” barring a fresh start for clients.
  • Nearly two out of three bankruptcy attorneys (65 percent) say that student loan provider debt collections have become “much more” or “somewhat more” aggressive in the last 18 months.

Most of those clients, the association affirmed, were unable to meet the federal hardship criteria required to exempt their student loans through bankruptcy proceedings. Consequently, many loan co-signers, who are often parents or guardians, are required to cover the payments. Head of the NACBA William Brewer asserted, “This could very well be the next debt bomb for the U.S. economy.”

“Obviously, in the short term, student loan defaults are not going to have the same ripple effect through the economy that mortgage defaults did,” Brewer added. “My concern is that the long-term effect may be even graver, because people who need student loans to try to get a higher education or retraining” will be reluctant to apply for them.

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What’s the US like today? More taxes, more Unemployment, more Homeless, more Alcohol Sales

by Luis R. Miranda
The Real Agenda
February 1, 2012

Often times, people want to know what exactly is the United States like. Most people have the wrong idea as it turns out. In many countries, where people believe that having it all is what life is all about, they still see the US as the bright house on the hill. “It is very different from when I used to live there,” I frequently respond. The key here is that the changes that have taken place in the United States, most if not all of them for the worst, have happened fast. The most significant to much of the population there took place in the last decade.

Most of the negative changes have to do with the loss of liberty and freedom, a consequence of the out-of-control growth of the federal government. Today even the main stream media can’t hide the reality the US is in; not even the liberal pro-Obama corporate media. (MSNBC, NBC, CNN, NYTIMES, TIME, NEWSWEEK, FOX and so on). The abhorrent situation in which the United States find itself in right now can be measured by at least 4 variables: Taxes, Unemployment, Poverty and Alcohol Sales.

The Federal Government’s Golden Egg Goose: You

Let’s start with taxes. The power to tax is the power to enslave. I don’t know how many times I’ve heard that sentence, but I doubt many people in power truly understand what it really means. Probably fewer than a handful are willing to act to correct what it means. Up until 1913, the United States Federal Government and the States were functioning pretty well without an income tax, but the monies collected through taxation were not enough to grow the government to the levels the controllers wanted. Today, the income tax eats up much of the fruit of people’s hard labor. And when the taxes are not enough to support the ever-growing bureaucracy more taxes are imposed on the population. That is how it has been for almost 100 years. But the growth of the Federal Government and its outreach to gain more power is not the only reason why it needs to tax more. If you don’t believe the government has no money to pay teachers, policemen, firefighters and other local and federal workers, you are probably aware of the infamous Comprehensive Annual Financial Reports. This is the double set of books all cities and states have. One has the accounting most people think they know, the other one has the record of the monies that were taken from the governments’ safe to do things you probably don’t know about. Meanwhile, corporations and banks get easy credit from the Federal Reserve window, in addition to being bailed-out with trillions of dollars from the tax payers. Oh the other hand, average people have had to tighten their belts if they were lucky to keep their jobs over the last 10 years. Although the economic crisis is said to have begun in 2008, the truth is that it started way before that, even before George Bush came into office.

If anyone can expect that during a republican administration taxes be lower, someone can also count on higher taxes during a democratic administration. Unfortunately, republican tax cuts are usually applied to the very rich, and democrat tax increases are applied to the middle class and the very poor. See, either way people lose. The last decade has been the worst for the people of the United States, probably since the last Great Depression. But the situation does not seem to be getting any better. Who’s fault is it? Every single president who did not have the cojones to stand up to the off-shore corporations that have controlled the central government at least since 1913. According to the Congressional Budget Office (CBO), there will be no relief for American tax payers in 2012, either. In fact, taxes will increase by at least 30 percent in the next two years. That number is valid if we leave aside the other taxing practice the Federal Government has used for 100 years, and that is currency manipulation, or the artificial devaluation of the dollar by printing money out of thin air.

Higher taxes not only mean a bigger Federal Government, but also less recovery, less jobs, less income, less liberty and freedom. This outlook will be so due “mostly because of the recent or scheduled expiration of tax provisions, such as those that lower income tax rates and limit the reach of the alternative minimum tax (AMT), and the imposition of new taxes, fees, and penalties that are scheduled to go into effect,” reads the CBO’s document.

How could there be a recovery when the Federal Government eats a big chunk of the monies collected through taxes and almost none of it is put to work for the tax payers? Numbers by the CBO show that federal tax revenues reached $2.302 trillion in fiscal 2011, and will increase to $2,523 trillion in fiscal 2012, $2,988 trillion in fiscal in 2013, and $3,313 trillion in 2014. The report adds that as a percentage of the GDP, tax revenues were 15.4 percent in fiscal 2011, and will be 16.3 percent in 2012, 18.8 percent in 2013, and 20.0 percent in fiscal 2014. In other words, the Federal Government will have even more money to spend than in previous years. It is unlikely though that the government will spend the money in programs to grow the economy, create jobs and improve the debt issue. In fact, in January the Federal Government increase de debt by another trillion dollars. That is where the forecast for a sluggish economy for the next six years comes from.

More taxes, less jobs

Let’s talk unemployment. With cooked numbers, the government says the unemployment rate is at about 7 percent. The CBO has come out to say it is really 10 percent. However, it is likely that such rate has reached 20 percent by now, since it was calculated at over 17 percent in 2009. The Federal government has taken it upon itself to encourage companies to move abroad, instead of promoting the United States as the place to be, to create jobs, to produce goods and to sell their products. Higher taxes at home together with corporate greed prompted companies to move to Asia and Latin America at an accelerated pace. At the same time, higher taxes and a slow economy have ended with local entrepreneurship and opened the door to entities like Wal-mart, IKEA, and businesses alike which make their money by exploiting third world workers to produce garbage that is then sold in the United States and the rest of the world. If you are a socialist or communist and believe that consumerism is bad for the environment and humanity as a whole, check out what cheap labor and cheap products do to both.

Since approximately 2000, the United States has lost 6 million manufacturing jobs. Most of these jobs, as I have said, moved to Mexico, Brazil, India, China and other countries around the world at the expense of American tax payers. A study conducted by the Economic Policy Institute shows how the American trade deficit with China causes the United States to lose about half a million jobs a year.  Separately, tax records indicate that up until 2008, employment offered by U.S. parent companies created 10.1 million jobs abroad through their affiliates in countries like the ones mentioned before. That is about half the number of jobs that multinational corporations cut in the United States during the same period. The total amount? 21.1 million. Manufacturing is no longer as much of a significant activity in the US as it was 50 or 60 years ago, when 28 percent of the economic output was directly related to the production of goods on US soil. Today, it is less than half; 11.5 percent.

Have you heard about the NAFTA effect? In case you don’t know what NAFTA is, it would be a great idea to ask Bill Clinton and Al Gore, the parents of this child. The North American Free Trade Agreement signed under the Clinton administration was supposed to be, according to Clinton and Gore, the best invention since the assembly line came into existence. Ironically, NAFTA is mostly responsible for killing the assembly line in the United States.

Free trade is not bad when there is a leveled field for all participants who trade, or as long as losses here can be with earnings there, if you know what I mean. However, this is not what NAFTA did for the US after it was signed by Clinton in 1994. NAFTA supporters contradict the idea that this agreement was negative for the US, because according to them the US experienced a significant increase in GDP as a result of the implementation of NAFTA. They often compare post NAFTA numbers to pre NAFTA ones to make their arguments. The positive outcomes of NAFTA are presented and described in macroeconomic terms, because it is easy to make up talking points to feed the main stream media so that they can regurgitate to the public. However, as we showed before, NAFTA is indeed responsible for the loss of manufacturing jobs. This loss did not occur immediately after NAFTA was implemented, as most companies did not move abroad right after NAFTA was adopted. The runaway loss of jobs came late in the 90’s and across the millennium into the 21st century. One single report by economist Robert Scott, from Economic Policy Institute accounts for the loss of at least 700,000 jobs due to NAFTA. Read the complete report “Heading South: U.S.-Mexico trade and job displacement after NAFTA”. Opinions about how NAFTA helped or harmed the US economy will continue to abound, but the truth is that the proof is in the pudding.

Bye, bye American Dream

Personally, I do not believe in the so-called American Dream, so forgive me if you do. But regardless of whether it was real at some point, perhaps people in the US (99 percent of them) would agree that it went poof in the last ten years. Depending on who you ask, the most important symbol of making it in the US is to own a home, even though in most cases people don’t really own their houses; the banks do. This is another aspect that changed in the United States in the last decade. Although the new millennium saw more and more Americans getting loans to buy houses, we now know it was just a planned bubble, that was supposed to explode to leave millions of people homeless all across the country.

No matter how much main stream media outlets swear by it, the downturn isn’t ending any time soon. Along with the deepening bad economic conditions, home ownership has also taken a big hit. As of today, the number of home owners in the US has fallen 66 percent. This figure comes from the US Census Bureau and it was revealed this morning. But the lack of home ownership is not new. It is a trend Americans have seen more strongly for at least the last thee years. Along with the fall in home ownership comes the fall in home prices at rates of 1.3 percent in November and 3.7 percent in October. The numbers above are reminders of conditions experienced only back in the days of the Great Depression. So when the corporate media says the country is on the rebound, you can be sure that is one of the boldest lies you’ve heard. It may be different for Wall Street insiders, of course.

The main two reasons for the fall in home ownership? Lack of available credit -not due to the lack of money- and few financing options for potential homeowners. Economist Paul Dales, says that even if people want to get a house, it is difficult to do so, because no financing for a mortgage is available. How would any financier risk to help anyone if home prices will continue to fall this years and into 2013? The number of existing homes that remain vacant remains at around 2.5 percent; quite an inventory for buyers to choose from. But are there any buyers? There certainly are a lot of homeless people who need a place to crash. The drop in home ownership has seen its worst in the West coast, where the rate reached 60.1 percent according to census data. This scenario is not surprising, because if people don’t have jobs, well paying stable jobs while being  slaves of the IRS, it cannot be expected that they become potential homeowners.

A tool of last resort: Alcohol?

Desperate times call for desperate measures. What are the chances that alcohol sales increase on a yearly basis during an economic downturn? I am in no way saying that this increase is a direct consequence of the global crisis, but it wouldn’t be a surprise. “US shipments of scotch, vodka, rum and other spirits in 2011 increased 2.7 percent over the previous year — the strongest increase in five years, according to industry data,” reports Fox News. A rate of 2.7 percent doesn’t sound like much, but if this percentage is quantified, maybe we can get a better perspective. “Sales of “high-end” brands were up 5.3 percent last year, in line with the pre-recession average of 5.8 percent. At least we know what sector of the economy has the potential to grow. So divest your 401K, savings and other financial products into food, water and perhaps alcohol industry shares?

Is North-South Korea Conflict a Pretext to Boost Dollar?

Congressman Ron Paul speculated on the Alex Jones Show today that the war footing between North and South Korea could be an orchestrated crisis to boost the dollar and reverse the US economy, paralleling the RAND Corporation’s call two years ago for the United States to become embroiled in a major war as a means of preventing a double dip recession.

South Korea admitted that it fired the first shots prompting a North Korean retaliation that killed two South Korean Marines and set ablaze many homes on the Yellow Sea border island of Yeonpyeong.

Tensions are running dangerously high after North Korea’s military vowed a “merciless military strike” and South Korean President Lee Myung-bak ordered his military to strike North Korea’s missile base around its coastline artillery positions if the North made any further moves. Japan announced that it was preparing for “any eventuality” while Russia said the events represented a “colossal danger” to peace in the region.

Stock markets sank worldwide while the dollar and gold bullion rallied in response to the news.

Speaking to the Alex Jones Show, Congressman Paul said it was frightening that people in the Obama administration were advocating war as a means of escaping the economic crisis, saying that North Korea stood no chance whatsoever of successfully defeating South Korea in any conflict.

Paul speculated that the US military-industrial complex was, “Doing it deliberately, and sort of orchestrating this in order to have the military-industrial complex benefit and the dollar temporarily benefit.”

As we highlighted two years ago when the story first broke, the RAND Corporation has been aggressively lobbying the Pentagon to become embroiled in a major new war to jump-start a recovery of the US economy and boost profits for the military-industrial complex after the scaling down of the wars in Iraq and Afghanistan.

Chinese media sources reported that RAND had presented a proposal to the Pentagon that revolved around fostering a conflict with a major foreign power in order to stimulate the American economy and prevent a double dip recession.

Although at the time RAND considered North Korea on its own to be too small a target, any full scale confrontation between the Koreas would embroil the United States on the side of the South and China on the side of the North. If North Korea were to tap its arsenal of nuclear weapons, the entire international community would quickly rubber stamp a US-led military assault on the rogue nation.

Given the fact that North Korea’s nuclear belligerency has its foundations in the best efforts of people like Donald Rumsfeld and the Bush administration, through the AQ Khan weapons trading network, to provide Communist agitator Kim Jong-Il and his hereditary successor with nuclear weapons, the fact that we are now seeing tensions reach boiling point represents a huge opportunity for the US military-industrial complex to manipulate into being the massive war that they have been seeking for years.


World Growing Independent of U.S. Economy


Wall Street economists are reviving a bet that the global economy will withstand the U.S. slowdown.

Just three years since America began dragging the world into its deepest recession in seven decades, Goldman Sachs Group Inc., Credit Suisse Holdings USA Inc. and BofA Merrill Lynch Global Research are forecasting that this time will be different. Goldman Sachs predicts worldwide growth will slow 0.2 percentage point to 4.6 percent in 2011, even as expansion in the U.S. falls to 1.8 percent from 2.6 percent.

Underpinning their analysis is the view that international reliance on U.S. trade has diminished and is too small to spread the lingering effects of America’s housing bust. Providing the U.S. pain doesn’t roil financial markets as it did in the credit crisis, Goldman Sachs expects a weakening dollar, higher bond yields outside the U.S. and stronger emerging-market equities.

“So long as it doesn’t turn to flu, the world can withstand a cold from the U.S.,” Ethan Harris, head of developed-markets economic research in New York at BofA Merrill Lynch, said in a telephone interview. He predicts the U.S. will expand 1.8 percent next year, compared with 3.9 percent globally.

That may provide comfort for some of the central bankers and finance ministers from 187 nations flocking to Washington for annual meetings of the International Monetary Fund and World Bank on Oct. 8-10. IMF chief economist Olivier Blanchard last month predicted “positive but low growth in advanced countries,” while developing nations expand at a “very high” rate. He will release revised forecasts on Oct. 6.

‘Partially Decoupled’

“The world has already become partially decoupled,” Nobel laureate Joseph Stiglitz, a professor at New York’s Columbia University, said in a Sept. 20 interview in Zurich. He will speak at an IMF event this week.

Sixteen months after the world’s largest economy emerged from recession, the U.S. recovery is losing momentum, with declining factory orders, a slowdown in pending home sales and rising unemployment, according to the median forecasts of economists in Bloomberg News surveys taken ahead of reports this week. Their predictions don’t include another contraction, with growth estimated at 2.7 percent this year.

Emerging markets are showing more strength. Manufacturing in China accelerated for a second consecutive month in September, and industrial production in India jumped 13.8 percent in July from a year earlier, more than twice the June pace.

Emerging-Markets ‘Outperformance’

“It seems that recent economic data help to confirm the story of emerging-markets outperformance,” said David Lubin, chief economist for emerging markets at Citigroup Inc. in London.

The gap in growth rates between the developing and advanced worlds is widening, he said. Emerging economies will account for about 60 percent of global expansion this year and next, up from about 25 percent a decade ago, according to his estimates.

The main reason for the divergence: “Direct transmission from a U.S. slowdown to other economies through exports is just not large enough to spread a U.S. demand problem globally,” Goldman Sachs economists Dominic Wilson and Stacy Carlson wrote in a Sept. 22 report entitled “If the U.S. sneezes…”

Take the so-called BRIC countries of Brazil, Russia, India and China. While exports account for almost 20 percent of their gross domestic product, sales to the U.S. compose less than 5 percent of GDP, according to their estimates. That means even if U.S. growth slowed 2 percent, the drag on these four countries would be about 0.1 percentage point, the economists reckon. Developed economies including the U.K., Germany and Japan also have limited exposure, they said.

Room to Grow

Economies outside the U.S. have room to grow that the U.S. doesn’t, partly because of its outsized slump in house prices, Wilson and Carlson said. The drop of almost 35 percent is more than twice as large as the worst declines in the rest of the Group of 10 industrial nations, they found.

The risk to the decoupling wager is a repeat of 2008, when the U.S. property bubble burst and then morphed into a global credit and banking shock that ricocheted around the world. For now, Goldman Sachs’s index of U.S. financial conditions signals that bond and stock markets aren’t stressed by the U.S. outlook.

The break with the U.S. will be reflected in a weaker dollar, with the Chinese yuan appreciating to 6.49 per dollar in a year from 6.685 on Oct. 1, according to Goldman Sachs forecasts.

Lower Yields

The bank is also betting that yields on U.S. 10-year debt will be lower by June than equivalent yields for Germany, the U.K., Canada, Australia and Norway. U.S. notes will rise to 2.8 percent from 2.52 percent, Germany’s will increase to 3 percent from 2.3 percent and Canada’s will grow to 3.8 percent from 2.76 percent on Oct. 1, Goldman Sachs projects.

Goldman Sachs isn’t alone in making the case for decoupling. Harris at BofA Merrill Lynch said he didn’t buy the argument prior to the financial crisis. Now he believes global growth is strong enough to offer a “handkerchief” to the U.S. as it suffers a “growth recession” of weak expansion and rising unemployment, he said.

Giving him confidence is his calculation that the U.S. share of global GDP has shrunk to about 24 percent from 31 percent in 2000. He also notes that, unlike the U.S., many countries avoided asset bubbles, kept their banking systems sound and improved their trade and budget positions.

Economic Locomotives

A book published last week by the World Bank backs him up. “The Day After Tomorrow” concludes that developing nations aren’t only decoupling, they also are undergoing a “switchover” that will make them such locomotives for the world economy, they can help rescue advanced nations. Among the reasons for the revolution are greater trade between emerging markets, the rise of the middle class and higher commodity prices, the book said.

Investors are signaling they agree. The U.S. has fallen behind Brazil, China and India as the preferred place to invest, according to a quarterly survey conducted last month of 1,408 investors, analysts and traders who subscribe to Bloomberg. Emerging markets also attracted more money from share offerings than industrialized nations last quarter for the first time in at least a decade, Bloomberg data show.

Indonesia, India, China and Poland are the developing economies least vulnerable to a U.S. slowdown, according to a Sept. 14 study based on trade ties by HSBC Holdings Plc economists. China, Russia and Brazil also are among nations with more room than industrial countries to ease policies if a U.S. slowdown does weigh on their growth, according to a policy- flexibility index designed by the economists, who include New York-based Pablo Goldberg.

‘Act Countercyclically’

“Emerging economies kept their powder relatively dry, and are, for the most part, in a position where they could act countercyclically if needed,” the HSBC group said.

Links to developing countries are helping insulate some companies against U.S. weakness. Swiss watch manufacturer Swatch Group AG and tire maker Nokian Renkaat of Finland are among the European businesses that should benefit from trade with nations such as Russia and China where consumer demand is growing, according to BlackRock Inc. portfolio manager Alister Hibbert.

“There’s a lot of life in the global economy,” Hibbert, said at a Sept. 8 presentation to reporters in London.

Asset Bubbles

The increasing focus on emerging markets may present challenges for their policy makers as the flow of money into their economies risks fanning inflation, asset bubbles and currency appreciation. Countries from South Korea to Thailand have already intervened to weaken their currencies, along with taking steps to restrict capital inflows.

Stephen Roach, nonexecutive Asia chairman for Morgan Stanley, remains skeptical of decoupling. He links the optimism to a snapback in global trade from a record 11 percent slide in 2009. As that fades amid sluggish demand from advanced economies, emerging markets that rely on exports for strength will “face renewed and formidable headwinds,” he said.

“Decoupling is still a dream in much of the developing world,” said Roach, who also teaches at Yale University in New Haven, Connecticut.

The Goldman Sachs economists argue history is on their side. The U.K., Australia and Canada all continued growing amid the U.S. recession of 2001 as the technology-stock bust passed them by, while America’s 2006-2007 housing slowdown inflicted little pain outside its borders, they said. The shift came when the latter morphed into a financial crisis, prompting Goldman Sachs to declare in December 2007 that 2008 would be the “year of recoupling.”

The argument finds favor with Neal Soss, New York-based chief economist at Credit Suisse. While the supply of dollars and letters of credit that fuel international commerce dried up during the turmoil, that isn’t a problem now, so the rest of the world can cope with a weaker U.S., he said.

“Decoupling was a good idea then and is a good idea now,” Soss said.