Student Loans

Barack Obama and the Federal Reserve are lying to you. The "economic recovery" that we all keep hearing about is mostly just a mirage...  For those out there that still believe that we are doing "just fine", here are 19 more facts about the messed up state of the U.S. economy.

Extend the trendlines in these charts, and then ask yourself: where do they end? What will they trigger as they push ever deeper into uncharted waters?

The student loan debt bubble in America is spiraling out of control, and it is financially crippling an entire generation of young Americans.  At this point, the grand total of student loan debt in the United States has reached a staggering 1.2 trillion dollars, and an all-time record high 40 million Americans are currently paying off student loan debts.  Just when our young people should be planning on buying homes and starting families, they find themselves financially paralyzed by oppressive levels of debt.  What makes all of this even worse is that only some of our college graduates are able to get the “good jobs” that we promised them.

"Don’t let the occasional 50-60% crashes disturb your peace of mind! You will always win in the long run! Long term bear markets don’t exist... well, maybe except in Japan. And much of the 18th century. But other than that, nothing can go wrong..."

The summer rebound is well and truly over, and the latest nail in the short-lived rebound came moments ago when the Fed reported that in August, consumer credit rose by only $13.5 billion: only because it was far below the $20 billion expected and a plunge from the $26 billion surge in July, since revised far lower to $21.6 billion. Worse, revolving credit actually declined in the month by just over $200 million, its first decline since February. But don't worry: while US consumers put their credit cards on ice, they had no problems continuing to borrow like drunken sailor when it comes to car and student loans, which rose to a new record high of $2.366 trillion, an increase of $13.7 billion, which still was the lowest monthly increase since January.

If you want to understand why our economy is stagnating and wealth inequality is rising, look at the rise of rentier skims and the resulting decline in wealth creation.  To understand why the real economy is stagnating, we have to understand the critical difference between rentier wealth and wealth creation. Rentier wealth is skimmed by fees that provide little to no value to the to the person paying the fee. The classic example is a fee collected to pass from one fiefdom's border to the next: no value is provided to the person paying the border fee; it is a rentier skim that transfers wealth from serfs to the fiefdom's landowning nobility. In the modern economy, rentier skims take a variety of forms. The government is adept at levying rentier skims. Harsh penalty fees piled on top of minor traffic violations are one example; another is extra fees to "expedite" services government is supposed to provide in a timely manner.

It is amazing how the government manages to continue selling Brooklyn Bridges to a gullible public. Americans buy wars they don’t need and economic recoveries that do not exist. Government in America is focused on something different from a healthy economy and the well being of citizens. We call it democracy, but it’s not.

"Live at home..."

What is really embodied in today’s report is more evidence that America’s dependency ratio is still rising and that the already crushing burden of the welfare state will weigh ever more heavily on an economy that is visibly failing as measured by any of the fundamental trends of performance. Indeed, it is well to recall that even today—after what the clueless occupant of the White House claims as 10 million new jobs when 90% of that number, in fact, represents “born again” jobs relative to the 2007 peak—-there are 110 million Americans living in households receiving means-tested benefits and 158 million in households that receive transfer payments of all types. Yet as the burden of taxation and public debt resulting from these trends weigh ever more heavily, it leaves the mad money printers resident in the Eccles Building stranded in an impossible corner.

"Despite the low level of interest rates, mortgage affordability for first-time buyers remains roughly at the long-term average levels whereas the aggregate home buyer's affordability remains well below the long-term average. As the servicing of student loan debt is part of the Debt-To-Income calculation, the new regulatory (Bernanke-busting) regime compounds the already substantial challenges confronting the first-time home-buyer's access to mortgage credit. We believe the average student debtor is likely unable to secure a typical home mortgage due to their debt-to-income ratio."

Setting aside monsters under the bed, the Ebola virus and fanatical terrorists bent on our destruction--what are we so afraid of? It must be something, because fear is the ever-present backdrop in America.

With the September jobs report, perhaps one of the most irrelevant monthly updates from the BLS in a long time, due out in less than half an hour, BofA's Chart of the Day looks at what has become the most sticky issue in the monthly jobs report of late: where the inflation-adjusted income growth, or lack thereof, can be found. What it finds is that the average American can still hope for rising real wages: they just have to be massively underwater on unrepayable student debt.

The pool of greater fools willing and able to buy assets at higher prices with leveraged free money has been drained by six years of credit/risk expansion. Those who believe the stock market can continue rising despite the end of the Fed's "free money for financiers" programs are implicitly claiming that the pool of greater fools is still filled to the brim. Simply put, speculating with leveraged free money and extending credit to marginal borrowers is not sustainable or productive, and the stock market seems poised to reflect these three dynamics...

A “poisonous combination” of record debt and slowing growth suggest the global economy could be heading for another crisis, a hard-hitting report will warn on Monday. It warns of a “poisonous combination of high and rising global debt and slowing nominal GDP [gross domestic product], driven by both slowing real growth and falling inflation”. The total burden of world debt, private and public, has risen from 160 per cent of national income in 2001 to almost 200 per cent after the crisis struck in 2009 and 215 per cent in 2013. “Contrary to widely held beliefs, the world has not yet begun to delever and the global debt to GDP ratio is still growing, breaking new highs,” the report said. Luigi Buttiglione, one of the report’s authors and head of global strategy at hedge fund Brevan Howard, said: “Over my career I have seen many so-called miracle economies – Italy in the 1960s, Japan, the Asian tigers, Ireland, Spain and now perhaps China – and they all ended after a build-up of debt.”

On the surface, earning $174,000 per year, while putting one solidly in the top 10% of all US earners, does not sound like much. This happens to be the 2014 allocated wage of America's elected political representatives, the members of the House of Representatives. And indeed, in the grand scheme of things it isn't much... until one considers that in the 102-day period between August 1 and November 12, this wage will be "earned" for just working a paltry 8 days, which, presuming 10 hour workdays, amounts to a whopping $608 per hour, on par with what some of America's most prominent lawyers earn. It is also several times the hourly compensation of anesthesiologists, one of the highest-earning professions, according to the Bureau of Labor Statistics, at $113 an hour on average.