Tag Archives: student loans

GLOBAL OUTLOOK BLEAK FOR 2019

There have been an increasing number of articles warning about the global economy.   The latest predicts a depression worse than the Great Depression.   None are specific, in terms of “when” but all say the signs are there.

The most common problem cited is debt.   Governmental debt is already over $22 trillion in the US.   This is the highest amount any country in history has ever owed, so it’s difficult to predict what will happen.   In addition, there’s also corporate and private debt.   The figures given do not include mortgage debt, which is also extremely high.   Nor do they include the annual commitments for Medicare, Medicaid, Social Security and other government programs, the so-called entitlements.

The 2008 financial crash started as a mortgage failure.   So did the 1873 crash.   It began in Austria-Hungary and spread around the world.   This particular crash was known as The Great Depression, more than fifty years before the depression of the thirties.   It would be a mistake to think it cannot happen again.

In fact, depressions have been a regular feature in America’s history.   There have been as many as 47 recessions and depressions since independence.   After the end of the Revolutionary War, there was a depression, in which the economy slumped by 50%.   The depression of 1873 lasted 25 years, on and off.   Unemployment was at 50% in the 1896 election, resulting in the highest turnout ever – a full 80% of voters participated that year.

Not every year saw the economy in deep depression.   It came in three waves.   It finally ended with the Spanish-American War, which got the economy moving again.

PANIC OF 1873

The 1873 depression in the US started with the collapse of Jay Cooke & Co., then a major component of the American banking establishment.   Contributory failures were the post-Civil War inflation, rampant speculative investment and losses in the Chicago and Boston fires (1871 & 1872).   Bank reserves plummeted in the first two months from $50 million to $17 million.

“The failure of the Jay Cooke bank, followed quickly by that of Henry Clews, set off a chain reaction of bank failures and temporarily closed the New York stock market.   Factories began to lay off workers as the United States slipped into depression.   The effects of the panic were quickly felt in New York, and more slowly in Chicago, Virginia City, Nevada (where silver mining was active), and San Francisco.

“The New York Stock Exchange closed for ten days starting 20 September.    By November 1873 some 55 of the nation’s railroads had failed, and another 60 went bankrupt by the first anniversary of the crisis.    Construction of new rail lines, formerly one of the backbones of the economy, plummeted from 7,500 miles (12,070 km) of track in 1872 to just 1,600 miles (2,575 km) in 1875.    18,000 businesses failed between 1873 and 1875.    Unemployment peaked in 1878 at 8.25%.    Building construction was halted, wages were cut, real estate values fell and corporate profits vanished. ”  (Panic of 1873, Wikipedia)

GRUNDERKRACH

I single out the 1873 depression because of the similarities in the global situation today.   The depression in German speaking countries is known as the Grunderkrach, or Founders Crash.   When Germany was united following the Franco-Prussian war, a lot of money flowed into the country, mostly from French war reparations. Loans were then made, mostly for mortgages.   When people couldn’t pay them, the banking system collapsed.   This spread to the US and Britain.   It was the beginning of the end of Britain’s global supremacy.

The Great Recession of 2008 began as a housing crisis.   It actually began two years earlier when housing prices started falling.   For years previously house prices had been rising fast.   Millions of people bought homes, homes they could not afford.   The banks loaned to people who should not have had loans.   It was a recipe for disaster.

The same thing is happening again.   Bad loans and speculative investments are pervasive.   Student loans are so high they could be the cause of a collapse by themselves.   Government debt is at an all-time high as are corporate debt and consumer, non-mortgage debt (credit cards).

I am reminded of what the late President of France, Charles de Gaulle, said over 50 years ago.   He did not want Britain to join the EU (he had incredible foresight!).   He dismissed the US and the UK as “the Anglo Saxon debtor nations.”   The British-American economic systems have been built on massive debt.   It works well . . . for a while!   Eventually, there comes the day of reckoning.

That may be this year.

We should never have borrowed so much money, especially after the Crash of 2008.   Often it’s been encouraged by government, when it makes little sense.   Social engineering has boosted the value of homes and increased the number of loans (more profits).   A government decree made under the last administration was that all neighborhoods should be 25% minority; the only way to achieve that was to give 100% loans to people who had never owned a house. Additionally, 100% loans have been made to immigrants, who have had little time to learn how the economy works in the US.

Remember, at stake here is America’s global leadership role.   A serious set-back for the economy would weaken the US.

It’s interesting here to note that the euro is set up very differently, with government borrowing limited to 3%.   The euro has its own problems, but could emerge as the greater currency in the event of a global depression.  It’s already used by more people than the US dollar.

Debt can mean the borrower ends up in servitude to the lender. Note the following warning from scripture:   Proverbs 22:7 7  “The rich rules over the poor, And the borrower is servant to the lender.”

This is a far cry from the promised blessings for obedience:

Deuteronomy 15:6 says:  “For the Lord your God will bless you just as He promised you; you shall lend to many nations, but you shall not borrow; you shall reign over many nations, but they shall not reign over you.”

A second cause of financial concern is impending TRADE WARS.   These will slow down the global economy.   Once again, uncertainty is an issue here.

A third reason the global economy is at risk is BREXIT, now less than two months away.   This could seriously affect inter-European trade.

A fourth factor, increasingly seen, is the economic Rule of Inequality. This is an economic law that predicts the likelihood of revolution based on the gap between the rich and the poor in any country. China is very concerned about this.   There is only one country with a greater gap and that’s the US.   Trump’s election was our “revolution” – if he is not able to deliver, there will be trouble ahead.

There are many countries around the world with a similar gap. France is going through weekly demonstrations about the rising gap between rich and poor; Venezuela and Zimbabwe are on the brink of revolution.

Other factors to watch are China’s slowdown and even the weather. Both can impact economies.

The above are all the predictables.   There may be other factors, unpredicatables, such as war, that can add to economic woes.

It remains to be seen.   But the warnings are there.   The only question is “When?”

————————————————-

RUSSIA & CHINA POSE BIGGEST THREATS TO US

“Former national security adviser Zbigniew Brzezinski warned in 1997 that the greatest long-term threat to US interests would be a “grand coalition” of China and Russia, ‘”united not by ideology but by complementary grievances.”   This coalition “would be reminiscent in scale and scope of the challenge once posed by the Sino-Soviet bloc, though this time China would likely be the leader and Russia the follower.”

Nobody listened back then, but now it’s becoming clear that the two countries are cooperating to deal with what each perceives as the American threat.   The latest development is in Venezuela, where they are supporting President Maduro and condemning the US for backing the “usurper,” Juan Guaido.

In the past, the US has thought a Sino-Russian entente outlandish. Only now it’s happening.   As Mr. Brzezinski warned, it’s not that they have a lot in common, but rather they share a common enemy.

——————————————————————-

UK TO CRASH OUT OF THE EU

Now, nothing can stop Brexit from happening.   Even many supporters of remaining in the EU see that.   The way Europe has treated the UK will make it impossible to avoid a hard Brexit.   (This assumes no change of heart in the EU.)

The facts are that British incompetence has led to Europe just wanting to get it over with.   Looking back on almost 50 years of membership there is a realization that Britain has never been a good fit, either, so why try to keep the British in?

A third reason is NATO.   Most of the other European countries sense that the US is pulling out of NATO, that it doesn’t want the responsibility or cost of defending the other members.   This is why Europe is trying to put together its own military force.   Britain, more pro-American, would only get in the way of this.

So, expect a full Brexit on March 29th.

This will not prevent Mrs. May running around Europe like a chicken with its head cut-off!

——————————————————————

BOOK QUOTE

“From July 1780 until the end of the year, the Catawba River Valley and the adjacent northern districts were the scenes of some of the most brutal warfare ever fought in what is now the United States.   It was a civil war, with all its horrors, as neighbors and families turned on one another with a vengeance.”   (page 140, Partisans and Redcoats, by Walter Edgar, 2001)

Advertisements

GAP BETWEEN RICH AND POOR – A WARNING OF FUTURE UPHEAVALS

Mind the Income Gap

It disturbs me when fellow conservatives make insensitive comments about the poor.   Many of them are too busy making money to read much history, but, if they did, they would know that Marie Antoinette did not live long after she dismissively said, “Let them eat cake!”, when told the peasants had no bread.   Whether or not she really did say that is irrelevant – people believed she said it and she soon had an appointment with Madame Guillotine!

128 years later the Russian Revolution began with a bread riot in the capital Petrograd (now Saint Petersburg).  Both the Bourbons and the Romanovs lost their thrones.

It’s the height of arrogance for us to think that, because we have supposedly matured to a better form of government, it cannot happen here.  When people are hungry, they won’t care about constitutional niceties.  If they are not fed, they will get violent and will then turn on those with the food.

Marie Antoinette might have survived if she had been familiar with the economic Rule of Inequality, an economic law by which you can accurately predict the likelihood of civil disturbance right up to and including revolution.  Simplified, what it says is that the greater the gap between rich and poor, the more likely revolution becomes.   And, if there’s a revolution, the wealthy will lose everything, so the wealthy do have a definite interest in the welfare of the poor.

A nineteenth century Conservative leader of Great Britain saw this clearly.  Benjamin Disraeli wrote the novel “Sybil; or the Two Nations” in 1845.  He was extremely concerned about the increasing gap between the haves and the have-nots.   Disraeli showed that Conservatives can do a great deal to help the poor.

China has tried to address this problem.  Frightened at the prospect of revolution as the wealthy rather vulgarly display their wealth in front of peasants who barely eke out a living. The Chinese government is trying to rectify the imbalance.

The only industrialized nation in the world that has a wider gap between rich and poor is the United States.  Yet, in the last election, the issue of poverty was not even addressed.

Mitt Romney, the Republican candidate, sounded rather like the late decapitated French queen when he talked of the “47%”, the voters who depend on government, saying they would never vote for him.   Even the Democratic leader, the current president, had nothing positive to say about the poor.  They are largely forgotten.

The United States and China are not the only countries with this problem.  It is a worldwide phenomenon that has already caused riots and revolutions in some countries.

Jesus Christ said: “the poor you will always have with you” (Matthew 26:11).  That’s very true.  The Rule of Inequality refers, rather, to the widening gap between rich and poor, a gap we see widening with almost every announcement on the economy.

As a fiscal conservative, I do believe government should live within its means.  But if, as some suggest, government programs like food stamps, WIC (food for Women, Infants and Children), Medicare for the elderly and Medicaid for the really poor, are abolished or greatly reduced, this could trigger off the revolution Marie Antoinette did not see coming!

Put bluntly, abolishing food stamps will mean riots in the streets of our big cities.  Again, that’s how the world’s worst revolution started, in Russia in February 1917.

This does not mean, either, that government programs are the best way to alleviate poverty.   The New Republic magazine showed two decades ago that the Salvation Army is far more cost-effective in caring for the poor, than is the federal government.

But that’s a separate issue.  The reality is that the poor do need help – or we will all suffer the consequences.

Conservative churches in the United States never seem to address this issue.  They tend to focus on abortion and same-sex marriage, both of which are unbiblical.  But they should remember that a major reason for God’s condemnation of ancient Israel and a reason why He let their nations be brought down, was because they exploited and neglected the poor.  Maybe a reason why churches won’t address this issue is because too many of their members are involved in exploitation – people who appease their conscience by making generous donations to the church!

Note the following condemnation of supposedly dedicated people who fast, but oppress the poor while they fast.   “You seem eager for God to come near you.  Yet on the day of your fasting, you do as you please and exploit all your workers.  Yet is not this the kind of fasting I, your Lord, have chosen: to loose the chains of injustice…to share your food with the hungry and to provide the poor wanderer with shelter—when you see the naked, to clothe them?” (Isaiah 58: 2-7).

Also note: Prov. 14:31 Anyone who oppresses the poor is insulting God who made them. To help the poor is to honor God.

One way in which the poor are exploited is through usury.   Millions of people are heavily in debt.  It’s too easy to say that they brought it on themselves.  It would be better to look at what the Bible says.  What many Christians do not realize is that usury, the charging of interest, is condemned in the Bible.  “If one of your brethren becomes poor, and falls into poverty among you, then you shall help him…Take no usury or interest from him….”  (Leviticus 25:35-36).  In stark contrast to this biblical instruction, our cities are full of “Cash Advance” stores that charge exorbitant rates of interest.  The more interest people have to pay on loans, the less money they have to spend, hence the recession!

It wasn’t until 1694 that a Christian country, England, allowed interest to be charged, when the Bank of England was founded.  Before that, Christians were not involved in banking.  That was the preserve of Jews.  This practice often led to pogroms against the Jews.  In York, England, in 1190, all the Jews in the city were killed, when town officials stirred up the people in order to get out from under their own debt obligations.

Today, we see people’s debts constantly rising.  Student loan debt is at an all-time high.  Many students will never be able to pay off their debt and will never be able to buy a house, marry or start a family.  In spite of this, our society encourages people to get deeper into debt.

What’s needed is a biblical Year of Jubilee.  The peoples of ancient Israel were instructed to cancel all debts once every fifty years.  You can read about this in the Book of Leviticus, chapter 25.  The result of the Year of Jubilee was that nobody could become too wealthy or too poor.  Instead of the Year of Jubilee, we have a depression or a recession approximately once every fifty years.  The Great Recession of 2008 was brought on by too much debt.  We have not been able to get back to where we were before 2008 and we won’t be able to until we cancel all debts.

It’s an ancient idea but it remains the best way forward for western nations today!

HIGHER PAY FOR MSU FACULTY

studentdebt

A few days ago I posted a blog about student loans and the bubble that will soon burst.   In the article, I showed how government backed student loans have been a major factor in the high cost of education.

Today’s Lansing State Journal’s front page reports on a development at Michigan State University, which is only a few miles away from our home.  “MSU top faculty see higher pay raises” is the headline of the article, written by Matthew Miller.

The article reports that four Cincinnati researchers were lured to MSU in 2009 and 2010.  Their starting salaries then were between $175,000 and $210,000.   As their salaries have been determined to be on the low side, they are now going to receive substantial raises.  One justification for this is that they have brought in more than $8 million in grants.

A table accompanying the article shows that MSU typically pays professors $131,200 per annum, while Associate professors receive $90,900 and Assistant professors have to make do on a mere $71,000.

I have no doubt that these salaries are justified in order to attract top people from other institutions of higher learning that pay more.

It is also no wonder that so many university professors are liberal and support big government.  After all, they have done very well out of government.  They likely assume that if the government controlled everything, we would all be better off.

But these salaries contribute to the student loan bubble.  Last week, it was announced that neighboring former Lansing Community College students are defaulting on their loans at a rate of 17.2%.  A few days later, MSU increases the pay of some of its top employees.

Do we see the connection here?  Rising costs are simply passed on to students.   Students can pay because they can borrow excessively from government.  Most students, being young and inexperienced, don’t realize there will come a day when they have to pay it all back.  Almost impossible in the present job market, unless, of course, they end up employed by a government-funded university!

It’s time for a level playing field.  Only true free enterprise will give us that.

Abolish government backed student loans and demand for education will drop.  That will bring the price of education down to a realistic level.  Simple “supply and demand” will always work – it’s a law of economics, sometimes distorted by governments to try to get votes.

STUDENT LOAN DEFAULTS ON RISE

CollegeEducation[32]

Assuming that Lansing, Michigan, is typical of national trends, there’s a crisis brewing when it comes to student loans.

Lansing is the home of Lansing Community College.  East Lansing, a city that borders Lansing, is home to Michigan State University, so higher education is a big factor in the local economy.  Not too far away is Ann Arbor, home of the University of Michigan.  Both universities are Big Ten universities here in the US.

These institutions of higher learning hardly suffered after the financial collapse in 2008.   A friend once described Ann Arbor as “a reality free zone.”  But reality has a habit of eventually catching up on people, institutions and countries.  They can’t avoid trouble forever.

“Student loan defaults on rise at LCC” ran a headline in today’s Lansing State Journal (April 26th).  “The recession years brought a boom in enrollment to Lansing Community College and a boom in borrowing.”  IOW, they did not suffer like the rest of us.

Continuing:  “In 2007-08, the year before the markets collapsed, LCC students took out just under $29 million in federal student loans.  Three years later, that number topped $68 million.  More borrowers were borrowing more money.”

Ironically, the reason why more borrowers borrowed more money was the recession itself.  People lost their jobs and went back to school for further training.  (That, of course, has led to a great deal of disappointment as, upon graduation, the jobs aren’t there, leaving many to feel higher education is not worth it.  That could be a further problem for colleges and universities in the future.)

Anyway, “of the 3,779 former LCC students who began repaying their student loans between October 1, 2009 and September 30th of the following year, 653 of them went into default over the next two years.  That’s 17.2 % . . .”

A few weeks ago, it was announced that student loan debt had reached over $1 trillion.   The President promised to do something about it, which, likely, will simply result in government taking over some of that debt, adding to the country’s financial woes.

What’s needed is a deeper look at this problem.

A television news program this week showed that thousands of Americans are now moving to Canada for higher education as the cost is roughly a quarter of what American institutions charged.  That’s a staggering difference.  While the rest of the country had to economize after the financial crash, academic institutions continued to raise their prices for tuition, room and board, as if nothing had happened.

Is it possible that student loans in the US have actually enabled higher education to keep charging more, knowing that the kids can always borrow the money from Uncle Sam?   Never mind the kids, after they get a degree, they will be earning good money and will happily pay it all back!

However, that’s not happening any more.

Millions of young people can’t find a well paid job, can’t afford to buy their own place so they go back to Mom and Dad, can’t afford to marry and start a family, hence the falling birthrate.  Post-WWII expectations are no longer guaranteed.

Student loans are only part of the problem.  But they are a large part of it.

What’s surprising is that the local rate of defaults is only 17.2%.

At some point this bubble is going to burst and the consequences could be worse than when the housing bubble burst in 2006.