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Breaking Bad (Debt) - Episode 3
Submitted by Jim Quinn via The Burning Platform blog,
In Part One of this three part article I laid out the groundwork of how the Federal Reserve is responsible for the excessive level of debt in our society and how it has warped the thinking of the American people, while creating a tremendous level of mal-investment. In Part Two I focused on the Federal Reserve/Federal Government scheme to artificially boost the economy through the issuance of subprime debt to create a false auto boom. In this final episode, I’ll address the disastrous student loan debacle and the dreadful global implications of $200 trillion of debt destroying the lives of citizens around the world.
Getting a PhD in Subprime Debt
“When easy money stopped, buyers couldn’t sell. They couldn’t refinance. First sales slowed, then prices started falling and then the housing bubble burst. Housing prices crashed. We know the rest of the story. We are still mired in the consequences. Can someone please explain to me how what is happening in higher education is any different?This bubble is going to burst.” – Mark Cuban

Now we get to the subprimiest of subprime debt – student loans. Student loans are not officially classified as subprime debt, but let’s compare borrowers. A subprime borrower has a FICO score of 660 or below, has defaulted on previous obligations, and has limited ability to meet monthly living expenses. A student loan borrower doesn’t have a credit score because they have no credit, have no job with which to pay back the loan, and have no ability other than the loan proceeds to meet their monthly living expenses. And in today’s job environment, they are more likely to land a waiter job at TGI Fridays than a job in their major. These loans are nothing more than deep subprime loans made to young people who have little chance of every paying them off, with hundreds of billions in losses being borne by the ever shrinking number of working taxpaying Americans.
Student loan debt stood at $660 billion when Obama was sworn into office in 2009. The official reported default rate was 7.9%. Obama and his administration took complete control of the student loan market shortly after his inauguration. They have since handed out a staggering $500 billion of new loans (a 76% increase), and the official reported default rate has soared by 43% to 11.3%. Of course, the true default rate is much higher. The level of mal-investment and utter stupidity is astounding, even for the Federal government. Just some basic unequivocal facts can prove my case.
There were 1.67 million Class of 2014 students who took the SAT. Only 42.6% of those students met the minimum threshold of predicted success in college (a B minus average). That amounts to 711,000 high school seniors intellectually capable of succeeding in college. This level has been consistent for years. So over the last five years only 3.5 million high school seniors should have entered college based on their intellectual ability to succeed. Instead, undergraduate college enrollment stands at 19.5 million. Colleges in the U.S. are admitting approximately 4.5 million more students per year than are capable of earning a degree. This waste of time and money can be laid at the feet of the Federal government. Obama and his minions believe everyone deserves a college degree, even if they aren’t intellectually capable of earning it, because it’s only fair. No teenager left behind, without un-payable debt.

According to National Center for Educational Statistics, colleges and universities will award 1 million associate’s degrees and 1.8 million bachelor’s degrees in 2014-2015. So they are admitting more than 5 million in the front end, with only 2.8 million ever earning a degree. That means almost 50% never graduate, confirming the SAT predictive results. Then there is the fact an associate’s degree and most of the liberal arts degrees awarded qualify the graduate for a fry cook job at Burger King. What is even more fascinating in this episode of absurdity is the fact undergraduate enrollment has fallen by 930,000 in the last two years and stands only 700,000 higher than when Obama took office. A critical thinking person might ask how student loan debt could grow by $500 billion when college enrollment only grew by 700,000. That is $711,000 per additional student in college. Something doesn’t add up.
The Federal government couldn’t possibly have doled out $500 billion to anyone with a pulse as a way to manipulate the national unemployment rate lower, because anyone in school is not considered unemployed. Do you think the $500 billion was spent on tuition and books? Or do you think those “students” used it to for hookers, blow, booze, iGadgets, HDTVs, online poker, weed, fantasy football entry fees, and Linkedin stock? – Whatever it takes to boost GDP. With default rates already at all-time highs and accelerating skyward, with $131 billion of loans already in serious delinquency, you don’t need a PhD from the University of Phoenix (where default rates exceed 30%) like Shaq to realize the American taxpayer is going to get it good and hard once again.

It seems the for-profit diploma mills and community colleges account for a huge percentage of loan defaults. They are nothing but bottom feeders in a feeding frenzy of Federal loans. The five schools in the country with the highest level of defaulters from 2011 through 2014 are as follows:
- University of Phoenix – 45,123
- ITT Technical Institute – 11,260
- Kaplan University – 10,684
- DeVry University – 9,081
- Ivy Tech Community College – 7,237
These institutions of lower learning spend more annually on marketing than Ivy League business schools generate in total revenue. They are nothing more than swindlers, gaming the Federal loan system, and dispensing virtually worthless diplomas, and leaving its students deep in debt. The true consequence of providing easy money to people who shouldn’t be in college has been to drive up tuition rates at all colleges and universities. Without this $500 billion infusion of illusion, demand would drop, the diploma mills would go out of business, and legitimate institutions would have to lower tuition rates to attract students. But that’s not how Obama and his administration roll.
The biggest scam is the reported default rate disseminated by the Fed and regurgitated by the mainstream media. There are over 7 million borrowers in default on a federal or private student loan. Roughly a third of Federal Direct Loan Program borrowers have been forced into choosing alternative repayment plans to lower their payments. The reported 11.3% delinquency rate is based on total student loans outstanding. In reality 50% of the loan balances are held by students still in school, in their grace period, in deference, or in forbearance. They haven’t been required to make a payment yet. Of course the loans in deference or forbearance due to unemployment or economic hardship are essentially an allowable delinquency. The true delinquency rate on loans in the repayment cycle is 23%. This strongly implies that taxpayers will be on the hook for at least $250 billion of losses.
The long term impact on borrowers is also dire. Student loan debt cannot be extinguished in bankruptcy. It will follow them throughout their lives. Defaulting on a federal student loan has serious consequences. Unlike other consumer credit, borrowers in default on a federal student loan might see their tax refund taken and their wages garnished without a court order. The impact on their credit rating will keep them from buying a home. The pure volume of student loan debt is currently restricting household formation, first time home buyers, marriages, and consumer spending. The unintended negative consequences of issuing hundreds of billions in bad debt have far outweighed the ephemeral short term fake benefits. But short-term appearances are all that matter to the ruling class.
As of the fourth quarter of 2014, 11.3% of all borrowers were in default, with an additional 7% of borrowers having defaulted in the past. Another 6% of borrowers were in earlier stages of delinquency, but not yet defaulted; fully 37% of borrowers had at least one missed payment on their credit report. The chart below shows the cohort of student loans since 2005. Each cohort has progressively worse default experience. Roughly one quarter of each of the cohorts has defaulted as of the fourth quarter of 2014. The default rate of the 2009 cohort has surpassed that of the earlier cohorts much more quickly. Based on historical trends, the 2009 cohort will experience close to a 40% default rate. And this is before Obama unleashed the torrent of subprime student loan debt.
Only an Ivy League educated Princeton economist could examine the facts presented and conclude these were brilliant fiscal policy decisions which have boosted economic activity and fended off another Depression. A rational thinking person would conclude these desperate reckless measures will result in far worse outcomes when the debt dominoes begin to fall.

We are in a World of Debt
“After the 2008 financial crisis and the longest and deepest global recession since World War II, it was widely expected that the world’s economies would deleverage. It has not happened. Debt continues to grow. Since 2007, global debt has grown by $57 trillion, raising the ratio of debt to GDP by 17 percentage points.” – McKinsey

It seems McKinsey is making the mistake of thinking like a logical sentient human being, rather than intellectually dishonest central bankers, criminally psychotic Wall Street CEOs, greedy myopic mega-corporation CEOs, or captured cowardly politicians. In a world run by honest, intelligent, rational people who cared about the long-term sustainability of our economic system, the actions taken after the 2008 debt fueled implosion would have been far different than the actions taken by the psychopathic, greedy, ego maniacal, hubristic moneyed interests over the last six years.
The 2008 worldwide financial crisis was produced due to excessively easy monetary policy, which caused the largest debt driven mal-investment in housing, automobiles, and Chinese produced crap in world history. It was done purposely by a uber-wealthy ruling class who call the shots, rig the game, reap the benefits, and deny responsibility when their machinations create havoc and suffering across the globe for the masses.
The consequences of this debt bacchanalia should have been the orderly liquidation of the Wall Street entities that created the crisis, the writing off of trillions in bad debt, corporate and personal bankruptcies of businesses and people who borrowed recklessly, a sharp steep economic decline to cleanse the excesses, and politicians who immediately began the process of reducing budgets and addressing long term unfunded unpayable liability promises. Instead, the psychotic oligarchs did not want to lose any of their power, wealth or control over the proletariat. They have done the exact opposite of what needed to be done. You must deleverage to solve a crisis caused by excessive debt. The oligarchs have succeeded in further raping and pillaging the working class, but have only delayed the final reckoning and guaranteed a debt apocalypse when their futile schemes fail again. And fail they will.
Arrogant condescending central bankers, narcissistic Wall Street psychopaths, crooked bought off politicians, and narrow-minded government apparatchiks across the developed world have colluded to add $57 trillion of additional debt to the existing Himalayan Mountain of unpayable debt we started with in 2008. We’ve entered the NIRP phase of the currency debasement race for the bottom.
Households throughout the developed world have acted in a relatively rational manner by paying down credit card debt and attempting to live within their means, because their real wages continue to decline and they are receiving no return on their savings. The moneyed interests continue to prey on the desperate and financially ignorant in their last ditch desperate attempt to loot the remaining treasure from the U.S.S. Titanic, hijack the remaining lifeboats, and leave the American people to sink into the frigid murky depths.
Corporate titans have added $18 trillion of debt as they take on debt to buy back their overpriced stock, artificially enhancing earnings per share and boosting their own compensation packages. Investing in their business is passé. We’ve entered a new paradigm where driving your stock price higher is all that matters to the Ivy League MBA executives. The Financial sector has shifted most of their toxic debt onto the Federal Reserve balance sheet and the backs of the American taxpayer.
The governing bodies of Japan, the EU, and the US have accounted for the vast majority of the $25 trillion increase in debt by the government sector. Total world debt as a percentage of World GDP is now approaching 300%. In 2000, the percentage was 185%. This level of debt can’t be sustained at zero interest rates, let alone normalized rates of 5%. Something that can’t be sustained won’t be. It is mathematically impossible for $200 trillion of debt to ever be repaid. It’s just a question of who gets screwed. And if the moneyed interests have their way, it’ll be you.

Everyone loves a boom. The party from 1996 to 2000 was a blast. Remember your moronic brother-in-law boasting about getting rich day trading. The bust was a bummer and your brother-in-law had to get a job at Wendy’s. The highly educated academics at the Fed couldn’t allow the pain or consequences to last. They made it their sole responsibility to create another boom from 2003 to 2008. It was a real doozy. The hangover afterwards was going to be epic.
The party should have been over, but Ben and Janet know better than the rest of us. Ben is a self-proclaimed expert on the Great Depression. Pain isn’t fun. Corrections and adversity must be banned. They have now created the most all-encompassing debt fueled contrived boom in history, with debt, stocks, and real estate all outrageously overvalued. The party has been going on for over five years. The inevitable collapse will be earth shatteringly horrendous. The public will be shocked once again. The anger, disillusionment, and shattering of confidence in the powers that be will be monstrous. This time there will be blood.
“The boom produces impoverishment. But still more disastrous are its moral ravages. It makes people despondent and dispirited. The more optimistic they were under the illusory prosperity of the boom, the greater is their despair and their feeling of frustration. The individual is always ready to ascribe his good luck to his own efficiency and to take it as a well-deserved reward for his talent, application, and probity. But reverses of fortune he always charges to other people, and most of all to the absurdity of social and political institutions. He does not blame the authorities for having fostered the boom. He reviles them for the inevitable collapse. In the opinion of the public, more inflation and more credit expansion are the only remedy against the evils which inflation and credit expansion have brought about”. – Ludwig von Mises
Despite the non-stop propaganda campaign waged by the ruling class through their media mouthpieces about a non-existent economic recovery, the papering over of the gaping funding holes through the issuance of $57 trillion more debt, the waging of wars against terrorists we created to distract the masses, conducting coups against our latest perceived enemies, and the blatant rigging of financial markets to extract the remaining wealth of the nation from the people, the crack-up boom is nearing its endgame. The system is exceptionally fragile. Confidence in leaders is waning. The people are growing weary of the lies and their restlessness will morph into anger when the economic collapse resumes. You can sense things are not right. Trust in the system has turned to suspicion and cynicism. The growing anger in the nation and the world is palpable. Violent protests are a daily event, even if the mainstream media doesn’t report them.
Yellen, Draghi, and Kuroda speak as if they know what they are doing, perform confidently when on stage, but continue to act in desperate manner five years into a supposed economic recovery. The emergency measures they continue to employ and expand upon reveal their angst and inability to implement a monetary solution. Their only tool is the printing press and when confidence in their infallibility dissipates, the system will fail. The stench of fraud, cronyism, corruption, and hypocrisy of the moneyed interests permeates our degraded culture of materialism, greed and criminality. The party was fun while it lasted, but it is reaching its sordid drunken climax in the near future. There is no means of avoiding the final collapse of this Federal Reserve created boom.

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” – Ludwig von Mises
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That looks depressing. Talk about depressing, I have to do an essay on Hard Times by Dickens.
Teacher Teacher I have a question. No not that.
If BIT becomes a publicly traded bitcoin fund does that mean Bitcoin will rapidly rise from its 30% rise in the last several weeks to
5,000 dollars a bitcoin?
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Are you my "moronic brother-in-law boasting about getting rich day trading"?
Speaking of MORONS...
SmokeyQuinn:
How many different ways are you going to write the same fucking article?
Just more drivel as the real world melts down around you.
Still waiting for your 9/11 Magnum Opus were you explain your moronic understanding of scientific reality.
https://www.corbettreport.com/911-a-conspiracy-theory/
You once again FAIL!
https://www.youtube.com/watch?v=p6O4LE0eTYc
DavidPierre, Jim Quinn DID write in the article above that:
"... the waging of wars against terrorists we created to distract the masses ..."
That seems like progress in the public position presented by Jim Quinn ...
In general, I find that the rate at which things are getting worse, faster, is driving lots of previously more mainstream people to become somewhat radicalized. Hanlon's Razor appears to be getting duller and duller, after it has to cut through so many blatant absurdities!
The following from the article above appeared to be facing facts:
"... the psychotic oligarchs ... have succeeded in further raping and pillaging ... and guaranteed a debt apocalypse ... This time there will be blood ..."
I have explained in my recent comment on The $100 Trillion Reason the Fed is Terrified of Deflation that the situation is way worse than Quinn is describing.
Quinn still has such a long way to go... with many public apologies by him to be made along the way.
He let his ego blind him to 9/11Truth.
No matter how much 'progress' he makes does not undo the fact that he is still an outed LIAR.
.....................................................
Read your comment. Good stuff!
But, my god, you are a wordy bugger.
Someone who has done as much to clarify a number of basic issues--as has RM--is permitted as many words as it takes.
Pound this asshole one-hundred with down votes
Speaking of Breaking Bad, have a look at "spot gold" tonight...
BTC, BTChez
Everything is getting slammed. What's up?
Not slammed anymore the whole system is fucked even on faux news 5 referances to ww3 hmmm here we go?
The new Mad Max Fury Road gets released in May. Consider it as a documentary.
Well this is certainly fucked up
http://gawker.com/graphic-video-lapd-officers-shoot-man-five-times-in-br...
Mr Obama has certainly got things under control
Skid Row is the future of this country. It is just going to grow. The high life fashion district will get flashier and richer, but the blight the financial thieves create will surround it. This is just a glimpse of the future.
"Instead, the psychotic oligarchs did not want to lose any of their power, wealth or control over the proletariat. They have done the exact opposite of what needed to be done."
The solution to this is to start hearings on Treason.
"IF" they are found guilty, then they need to be executed.
"The level of mal-investment and utter stupidity is astounding, even for the Federal government."
It's not stupidity, it is deliberate, it's the final pillage of a once great nation.
http://presstv.com/Detail/2015/03/03/400022/LAPD-defends-shooting-of-hom...
LAPD defends shooting of slain homeless man"Living just enough for the City" has a whole new meaning.
> police state <. How'd we get here ? Long before obummer came along.
Sucking these dumbass kids and their families into this debt trap is no differant than a drug dealer handing your kid a bag of heroin and a needle.
And it chases them for life.
And if they are graduated, they end up with a piece of paper so devalued , I've heard stories of headhunters and interviewers looking for apps with NO diploma. Just for something differant.
The Chinese and Asian population at UCLA is going up fast. Everyday there are lots of Chinese with cameras on campus. Hundreds of kids show up sometimes like little armies all dressed in either green, yellow or orange. Since I get hardly any sleep I have to be careful not to wreck into them critters. It is strange phenomenon to witness. The student population has become so F'n straight, except of course for the homos and trannies, it won't be long before everyone is wearing uniforms. Right now my essays have to wear uniforms otherwise I don't get good grades. Yeah bitchez. Bitcoin is the way to financial independence. Its on like Donkey Kong (again).
Fuck it Dude,....Let's go bowling
When conservative ideas were lost in higher education they were, by definition, lost everywhere else. We're just now seeing the natural result of that before our eyes, shocked that it could be taking place so fast.
Institutions of higher indocrination are the epicenter of the rise of the liberal/progressive/statist/fascist insanity that's overtaking our country.
I have a clear recollection of the run up to 2008, the cisis itself, and the aftermath. All the fundamentals pointed to fraud and leverage driven bubbles. Most all economists denied these were problems. But when the day finally came, we all saw the rats turn to Paulson and Paulson turn to congress, as a down payment on saving the investors, the government kicked in all but a trillion dollars. The the Fed went to work with investor resuce packages of printed liquidity, market manipulations. Result is we are back at 2007 only X 10 WORSE.
So here we are back where we began. Only wages are lower, unemployment higher, full time work scarce, millions dropped out of the labor market, personal and government debt sky high.
So, what does government and the Fed do this second time we crash and burn? All the tricks in the bag are now used up.
No lessons were learned. No investor suffered for bad investments, failed banks still run, the rich have gotten very much richer due to Fed policies.
Why has American turned to war all across the globe? Why are they pushing hard to force Russia into a full scale European war? The elites must somehow think war powers will allow the US Government to crush the people when the economic collapse comes and no resuce plans work. Millions will be destitute, only police and military force can maintain the elites power and wealth then. War will be used as the excuse to crush domestic unrest.
“United States is becoming a failed state, and thus a danger to its own people and the world.” – Noam Chomsky, 2006
This is the first intelligent thing you've posted.
I beg to differ.
I back up my statements with data, and examples.
Dude, learn to take a complement. He's right. It was an intelligent comment/appropriate quote to reference. Keep arguing about it and it won't be after a while.
Dude, very good observation.
With Noam doing his level best to make it happen.
5.4 million high paid hard working insurance people out of work and after 29 years of selling can I find a decent job no way and im down to looking for 30,000 year so glad no dbt no games here wish the fall would come so we can get through it and restart a normal society yes I know few years after but gotta fall first
Thats the best news I've heard in a while. %.4 million HIGH PAID insurance people out of work? Really? And then You say we should restart a normal society? Well bud, let me tell ya, There's no fucking reason there should have ever been ONE high paid insurance people, let alone 5.4 million of them. What a fucking total waste the insurance industry really is....
The concept of shifting risk to another by contract is one of the strokes of genius of Western economic history.
"Violent protests are a daily event, even if the mainstream media doesn’t report them."
Reporting them could be a good money-maker idea for a web site. Course, that would be a target for continual DNS attacks
Banks only have one product, debt (loans/mortgages).
They give loans/mortgages that can be spent today with repayments in the future.
Their one product allows you to borrow your own money from the future to spend today.
The loans/mortgages are spent and the repayments are due.
Banks have one product and so there can only ever be one outcome from a financial/banking boom.
A world mired in debt with vast sums borrowed from the future and already spent with the repayments now due.
The future is here, it's repayment time.
It's about time for TPTB to find a one-handed economist to chart a path to recovery.
Or maybe a crack-pipe economist like the UK government has advising it.
In 1987 I graduated with an engineering (debt free), and in my final year we had nine graduate. Three Of the nine were direct entry third year because they had completed a trade qualification.
So of the 73 who started first year, 6 graduated, more than 90% drop out rate.
The numbers haven't changed, but Loans dished out.
We have a bursary system where government grants were awarded based on previous year's results. So the Money went to those that worked hard.
It is pretty easy to fix, but Obummer has got a brain.
Hear! Hear!
Debt is not the issue. DEFAULTs are the issue. And DEFAULTs are not reported anywhere.
Debt is not the issue. DEFAULTs are the issue.
Thanks for confirming Ludwig von Mises once again!
"[The individual] does not blame the authorities for having fostered the boom. He reviles them for the inevitable collapse."
Translation?
The "authorities" are the biggest defaulters. Rollover is DEFAULT!
$250bln taxpayer bailout for defaulted student loans is nothing...!!
We'll call that $250bln debt write-off, raise it by $100bln auto finance bailout on the turn, and go all in with $2trln of QE4 on the river...!!!
FTW!!!