Chart Of The Day: From Pervasive Cheap Credit To Hyperinflation

Tyler Durden's picture




 

The topic of the student loan bubble is not new: having crossed $1 trillion recently, student debt is now the biggest consumer debt category, greater even than US credit card debt. We have extensively discussed the implications of the parabolic curve representing outstanding student debt before, and it is no surprise that the issue of student loans has become of one of the key topics of debate in the ongoing presidential mudslinging campaign. As is also known, an increasing portion of student debt is funded by the government at an ever lower rate of interest: after all it is critical to allow the bubble to keep growing with as little interest expense diverting the stream of cash from the end borrower - wide eyed students who increasingly realize they are stuck with tens of thousands in loans and no jobs available to allow them to repay this debt, in effect making an entire generation debt slaves. Finally, as should be known, student debt is non-dischargeable, meaning once a person becomes indentured, they are so for life, and filing bankruptcy will do nothing to resolve debt claims against the individual. After all there is no other collateral by definition that can be confiscated by the creditor - the only thing the debtor "acquires" in exchange for this debt is a skillset, which sadly in the New Normal is increasingly redundant. But there has always been one question outstanding: just what does all this easily accessible and now pervasive student debt fund? The chart below, courtesy of Bloomberg, provides the answer: in the past 3 decades there has been no other cost that comes even remotely close to matching the near hyperinflationary surge in college tuition and costs.

Source

The follow through question then is: where do all these cheap debt funded dollars go? Why to pay the salaries, and lifetime guaranteed pensions of tenured Keynesian professors in "established" universities, who are delighted to keep peddling cheap debt if it means their compensation rises at a rate of 5-10% each year, every year, no matter how the economy performs.

After all they and their "ZIRP is the answer to all" brethren are the immediate beneficiaries of this 1120% cost explosion since 1978.

As to who foots the bill? It is all those young men and women who are indoctrinated day in and day out by every possible legacy media, whose sole interest is also to perpetuate the status quo, that the only way to succeed in this world is through untenable debt. Of course, it is packaged differently: study, get a loan, get a job and pay off the loan. Sadly, this is no longer the case in the New Normal where one is lucky to get a part-time job paying minimum wage, let alone one which allows the repayment of debt principal (this ignores the possibility of interest rates actually rising at some point in the future).

Some more perceptive readers may ask: did the cheap credit allow this explosion in tuition costs, or did soaring costs require the latest debt bubble. The answer in this chicken or egg riddle is unclear, but is also irrelevant: one thing is certain - a 1,100%+ increase in prices in just over 30 years for any "asset class" is way beyond the ordinary course of inflationary business, and may as well be classified with the -hyper- prefix on a long-enough timeline.

Another thing that is also certain is that this kind of price surge in unsustainable, as is the associated exponential increase in student debt. We can only hope both bubbles pop sooner rather than later, if for no other reason than to put the majority of status quo professors, who have been gladly and quality benefiting from this phenomenon for years, out on the streets, and having to take out a loan to see what it means to become an indentured servant for themselves.

Alas, with ZIRP about to be replaced by NIRP, we may have a while to wait.

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Wed, 08/29/2012 - 08:07 | 2745992 Undecided
Undecided's picture

http://www.theglobeandmail.com/globe-investor/investment-ideas/streetwise/bmo-scotia-capital-look-to-their-trading-desks-for-support/article4506421/

 

BMO, Scotia Capital look to their trading desks for support At least the banks know metals are where its at..
Wed, 08/29/2012 - 12:36 | 2746904 vast-dom
vast-dom's picture

EDUMACATING THE DEBTARDS.

Wed, 08/29/2012 - 13:33 | 2747103 madcows
madcows's picture

correction:

Hypnotizing the Debt-tards.  "you need a higher education.  You must have a higher education.  You can earn more money with a higher education.  You must have a higher education to get a job.  People without a higher education are more likely to be unemployed, but you'll be raking in the dough with your $120,000 liberal arts degree.  Go to college.  Go to college.  You must go to college.  Just borrow the money.  you can pay it off easily with all the bread you'll earn with you degree.  Repeat after me:  i need a higher education"

Wed, 08/29/2012 - 08:07 | 2745993 Aziz
Aziz's picture

Education, bitchez.

Wed, 08/29/2012 - 08:12 | 2745999 bank guy in Brussels
bank guy in Brussels's picture

And the logical deduction is that American college professors are mostly greedy gangsters too, cashing on in on a gravy train while enslaving their students

The USA seems to be in the lead in proving that formal 'Skool' is not the way to go

Wed, 08/29/2012 - 08:17 | 2746014 LawsofPhysics
LawsofPhysics's picture

This is easy to address.  Plot the average salary of a college professor against any banker, venture capitalist, hedge fund manager.  Don't know anyone in education buying private islands.

One thing is certain however, both depend on government and taxation to stay in business.  Wake up sheeple, there are no "free  markets", if there were all poorly run businesses would be allowed to FAIL.

Wed, 08/29/2012 - 08:33 | 2746051 francis_sawyer
francis_sawyer's picture

There sure hasn't been any 'hyperinflation' in intellect commensurate with the high tuition costs...

Like...OMG... TOTALLY!

~~~

But let's put a positive spin on this... The 'Girls Gone Wild' in Cancun videos are getting better & better... Finally teaching the co-eds what it takes to be a real slut...

Wed, 08/29/2012 - 08:53 | 2746114 economics9698
economics9698's picture

As I write this I am having to do power points and correct page after page of propaganda from a author that has his head in his ass when writing about economics.  It fucking sucks the complete bull shit taught to kids to cover up the theft of the Federal Reserve, Wall Street and federal government.  

It's fucking bull shit education for a dumbed down society that cannot figure things out.  A degree today is worthless.

Wed, 08/29/2012 - 08:57 | 2746133 fonzannoon
fonzannoon's picture

Make it happen economics9698 we are counting on you.

Wed, 08/29/2012 - 09:36 | 2746269 ParkAveFlasher
ParkAveFlasher's picture

"ZH, I'm putting you on double secret probation!"

Wed, 08/29/2012 - 15:34 | 2747565 Sun_Tzu
Sun_Tzu's picture

This chart shows that today's crop of college grads will learn at least one lesson they won't soon forget -- in elementary arithmetic.

Wed, 08/29/2012 - 09:28 | 2746235 TrumpXVI
TrumpXVI's picture

The college perfessers may not be in the same league with hedge fund managers, but they're doin' just fine.

I've worked all my life in academic institutions and know some of these folks.  Our former post doc is making as much as my boss in a temporary professor position.  Another, a professor of scientific illustration is putting two thousand dollars per month into his TIA/CREF.  I wish I could do that.

Wed, 08/29/2012 - 08:24 | 2746030 Thomas
Thomas's picture

Faculty are self interested like any group, but it is not at all about the greed of college professors. They are paid reasonable wages. A former student recently took about a 30% paycut to leave Pfizer and take a job at a four-year college. Some faculty are even well paid. There is, however, a definite paycut one takes by chosing academia over the private sector. When we interview assistant professor candidates (chemistry), the folks we are bringing through the door are the cream of the cream--the top 10 ranked PhD candidates in the world. When I left my PhD program I was god damned famous. Goddamned famous. I took that fame and parlay it into an $18K Ivy League starting salary. Even today, academic starting salaries are maybe 25% below their industrial counterparts. I am not compaining; I love my job. I also very well paid now (years later) but I earned it.

There are problems at universities. There is an arms race. It is not, however, the greed of the faculty.

Wed, 08/29/2012 - 08:28 | 2746044 LawsofPhysics
LawsofPhysics's picture

Like anything else it seems to me that there is a lack of real leadership and no-one takes any reasponsibility for their bad decisions.

Care to comment on the salaries of administrators?

Wed, 08/29/2012 - 08:33 | 2746058 RacerX
RacerX's picture

That seems to be the consistent thread with schools; public/private/primary/secondary.

Every time I turn around my local SD is asking for yet another levy. And it's always the scare tactic "remember our children!!". I always wonder how they get the $$ to send the full color brochures, run ads, etc. And there are quite a few highly-paid administrators..

Wed, 08/29/2012 - 08:45 | 2746089 economics9698
economics9698's picture

Thomas you are the exception not the rule.  Most professor are grossly overpaid and don’t know shit.  They study useless shit and get useless degrees and only through the gross misallocation of resources by the state are they able to get a job teaching new students useless shit.

The text books are full of propaganda and lies and a college degree, with a few exceptions, just means daddy has money, you are a minority hire, or you are a compete dumb ass that went into $100,000 of debt to get a women’s study degree that not worth shit.

I know this shit because I teach this shit at a university.

Wed, 08/29/2012 - 08:50 | 2746101 LawsofPhysics
LawsofPhysics's picture

If you teach eCONomics, then yes you teach shit.  

Personally I poached a great engineer from a local university.  Very smart guy, doubled his salary from $55K to $110K and he left in a hurry.  Has worked out great so far. I guess it all depends if you are studying a real science and if you actually know how to apply it to create something real.


Wed, 08/29/2012 - 08:56 | 2746124 economics9698
economics9698's picture

My students get their moneys worth.  They leave my class understanding the Federal Reserve and legalized theft.

Wed, 08/29/2012 - 09:01 | 2746131 LawsofPhysics
LawsofPhysics's picture

Then you are different from every college eCONomics professor I have ever met.  I provide two summer internships to a local University.  At a recent meeting of the "master's in Biomanufacturing program" one of the economics professors spoke after an engineering professor and said that the only thing that they did on their side of campus was "make money".  So pretty much admitting that they don't create anything of real value and I suggested that he rephrase his talk to say something like "facilitate bringing value to the marketplace through true price discovery".

He looked at me like I was nuts but thanked me for providing the internships just the same.

Wed, 08/29/2012 - 09:53 | 2746339 bigwavedave
bigwavedave's picture

They could learn that on ZH for free. QED squared

Wed, 08/29/2012 - 09:46 | 2746308 Spastica Rex
Spastica Rex's picture

In K-12, teacher salaries and benefits make up somewhere close to 70% of all education dollars spent nationally. That's because there are so many of them: about one for every 30 kids.

However, there are way too many administrators, consultants, trainers, bureaucrats, and etc. These people are HIGHLY paid (I was one).

The real job of these folks is to work out ways to lower the compensation of teachers - this is called "education reform."

Why?

Because even a small reduction in the number of teachers and/or their compensation frees up big chunks of money for education "service providers" operating through public/private partnerships.

Soon, children in America will be taught in for-profit McSchools. These schools will be cheap, popular, and highly profitable. Learning will be as important at these schools as nutrition is at McDonald's.

Wed, 08/29/2012 - 10:17 | 2746402 bigwavedave
bigwavedave's picture

I agree. I have been thinking about starting a McSchool myself.

Wed, 08/29/2012 - 10:27 | 2746434 Spastica Rex
Spastica Rex's picture

Just pick a few three letter program acronyms, hire some Broad Foundation consultants and adminstrators, give the Feds what they want, and it'll be way easier than running a McDonald's. You'll have guaranteed profits provided through captive tax payer money. Actually, I think McDonald's is in the EBT game now, so maybe it won't be that different.

Risk is for suckers.

Wed, 08/29/2012 - 10:32 | 2746446 HardAssets
HardAssets's picture

If you were/are in public 'education' you miss a very important point. Your job isn't to 'educate' at all. Its to dumb down and indoctrinate the students who are forced by law (or the wallets of their parents) to attend. The greatest attacks on the intellect of Americans for the last 100 years came out of public 'schools' - - and from television.

Refer to the works of John Taylor Gatto, for a start. I doubt if you have a 'masters' degree (they all seem to) in education that you hear of him in class.

Wed, 08/29/2012 - 10:36 | 2746467 Spastica Rex
Spastica Rex's picture

Yeah, well I left public education after 20 years for a life of poverty because I couldn't live with the scam. Compulsory public education in the US has never been about learning, it's been about sorting and controlling. If you think this is changing through "education reform," you're even stupider than you sound.

Public school "educated" yourself?

Wed, 08/29/2012 - 11:21 | 2746632 HardAssets
HardAssets's picture

Spastica Rex - - - My apologies if I came on too strong. This is a sore spot for me. (I didnt down vote you - I don't down vote people for an opinion different than mine.) I applaud your leaving the public 'ed' system. Many seem to just hang on for the pension despite harming the kids.

I agree that 'school reform' has been and always will be a completely useless joke. The mandatory public 'schools' do exactly what they were designed to do.

Yes, I was public school indoctrinated. - - - Thankfully,  I educated myself.

Wed, 08/29/2012 - 11:34 | 2746695 Spastica Rex
Spastica Rex's picture

Thanks. I was a dick, too. Sore spot for me, as well. I'm not one of the bad guys.

The pension thing is amazing (although I won't get one, and many of the teachers who think they will, won't.) It is common for adminstrators to retire in one state, collect their very generous pensions, and then go to work in another state.

Teachers as a group are far from perfect - just like the rest of humanity - but they are the least worst part of the scam. As a group, they have the BIG money, and Gates, Broad, Walton, et al want it. The Feds and their lackeys in state govt are happy to give it to them, and school district adminstrators are the biggest frauds of the whole picture (that was once my job).

I am very familiar with Gato. There are others like me who agree with his diagnosis but are ambivalent about his cure.

Wed, 08/29/2012 - 08:35 | 2746061 fonzannoon
fonzannoon's picture

Is there a pension system in place in college similar to the High School teachers in my area that all retire at 54 with a 100k/yr pension?

Wed, 08/29/2012 - 08:46 | 2746090 LawsofPhysics
LawsofPhysics's picture

I imagine this depends on what school/state you are in.  Thanks to the recent developments in Cali, we all now know California promises great pensions for their college professors.

Wed, 08/29/2012 - 08:52 | 2746105 fonzannoon
fonzannoon's picture

I get that the people that are responsible for teaching our children should be well paid.....but free healthcare for life and a pension that in many cases is as large as their final and largest years salary of their career is the most absurd thing out there. Well second to the bankers pay of course.

Whatever...why are we even talking about this. Takes 5 seconds to come back to the reality that we are totally fked.

Wed, 08/29/2012 - 10:28 | 2746394 drB
drB's picture

Yes, it depends on state. In TX faculty at state schools have no defined benefit pensions and no free healthcare for life. Only the "ruling class", such as the police and Governator has those benefits.

With respect to education being "useless", very recently one of my former PhD students who works at a private company developed a $ 0.5 bn/year process for making a chemical intermediate in Big Oil. Hard sciences are not as sexy as bullshit economics or Lesbian Eskimo Basket Weaving Studies, and also more difficult, but people with degrees in engineering actually can get jobs and accomplish something useful for themselves and society. Of course they do not get paid nearly as much as Wall Street individuals who do "God's work".

BTW, most of education price increases come from subsidizing sports and increase in senior administration - there is now a bureaucrat for every instructor. Additionally, about 75% of profs/instructors in US are non-tenured and can be fired at will.

Wed, 08/29/2012 - 10:36 | 2746466 HardAssets
HardAssets's picture

"I get that the people that are responsible for teaching our children should be well paid"

they don't teach them (in mandatory public school) - they indoctrinate them. Most teachers are completely unaware of this fact.

It was well known in my science & engineering orientated university - - that the students in the 'education' department were the dumbest.

Wed, 08/29/2012 - 08:29 | 2746048 bigkahuna
bigkahuna's picture

I tend to think of faculty as egomaniacs who were too timid to try their hand in the big game, so they resort to brow beating their students for pleasure.

Wed, 08/29/2012 - 08:44 | 2746081 Stock Tips Inve...
Stock Tips Investment's picture

We can not ignore the cost of education has increased significantly in U.S.. Probably more than any other item of the economy. It is also true that the income of the universities seem to fall into a black box from which very few people speak and less known. But so is our economy and we should not intervernir on it. It's free and dynamic.

Wed, 08/29/2012 - 08:55 | 2746125 LawsofPhysics
LawsofPhysics's picture

In most states the salaries of all public servants, including teachers at all levels is public record. Very easy to find.

You do know that there is a difference between a public university and a private one?

If a university doesn't take any federal funding, there really isn't shit you can say about how they pay their people.

Wed, 08/29/2012 - 10:38 | 2746471 tj3
tj3's picture

Construction, construction, and more construction. Football stadiums being the most egregious.

Wed, 08/29/2012 - 12:44 | 2746928 takinthehighway
takinthehighway's picture

At most schools, profits from the football program fund ALL of the other sports programs.

Wed, 08/29/2012 - 14:08 | 2747232 zerozulu
zerozulu's picture

I just checked my son's first semester's fee and it is $400 for tuition and $1500 for his health insurance for one semester. wtf..

American's are being robed by insurance crooks

Wed, 08/29/2012 - 08:45 | 2746087 KidHorn
KidHorn's picture

Having taught at a university and worked at the federal government, I can tell you, the employees at both places are completely clueless about the outside world. They think they're making a personal sacrifice by taking their job when in reality, they're paid better and treated much better than those in private industry.

In the real world, there is no job security. People work on saturdays. People have to put in 12 hour days. People have to produce. People have to pay for all or much of their health care out of pocket. People don't get 26 days of paid sick leave and 26 days of paid vacation every year. People don't get the summer's off. People don;t get a month long sabbatical every 5 years.

Almost everyone I worked with who had worked for a long enough time to be protected, wouldn't last a week at a real job.

Wed, 08/29/2012 - 09:18 | 2746197 Doubleguns
Doubleguns's picture

Thomas,  your former student that took a 30% paycut to leave Pfizer and take a job at a four-year college works a lot less days than he would at pfizer. Summers off, numerous holidays (paid), spring break (paid), winter break (paid), sick days (paid), vacation (paid)....Beats the hell out of 1 week vacation AFTER working for one year. I would think the pay reduction is well paid out in benefits.

Wed, 08/29/2012 - 09:28 | 2746226 LawsofPhysics
LawsofPhysics's picture

Not if he is at a research institution or medical school where faculty must raise 80% of their salary on their own through contracts and grants.  In this case, no time off and they work 80 hours per week.  In both cases the public is getting lots of innovation as a result.  Funny how people don't complain about all those new cures...

Wed, 08/29/2012 - 10:22 | 2746422 drB
drB's picture

Or how public does not complain about low nat gas prices because of government-supported fracking technology development...or new artificial hearts developed by academics funded by NIH...

Wed, 08/29/2012 - 10:42 | 2746490 HardAssets
HardAssets's picture

'government supported' ?   The employees in govt don't support squat - - taxpayers paid for that.

The difference between govt and the private sector is that -ultimately - govt forces you at the point of a gun to take their 'product'.  - - No, I'm wrong - there is an exception in the private sector  - the Mafia - - -

Wed, 08/29/2012 - 11:05 | 2746577 drB
drB's picture

Mafia...or Wall Street...or utilities where you do not have choice...etc
Probably only in small businesses we REALLY have choice. Large companies, at least in this country, have fused with government.

Wed, 08/29/2012 - 10:35 | 2746463 drB
drB's picture

I work in academia and I do not get off Spring break, Summer break, my sick days are not paid, I have to raise my own summer salary, and I get much worse health insurance/retirement benefits than my students who have taken jobs in chem industry. I have also worked in industry (although in Europe), and I know enough of the US industrial system - they do NOT start with one paid week vacation. In companies such as Merck, they get 2 weeks paid vacation the first year, and paid holidays off, such as Christmas, New year etc. Also, they typically do not work on Saturdays (unless these are startup companies) while most faculty at research schools do.
The reason why people choose faculty positions over much better-paid industrial ones are job security and, within some limits, ability to do what they like in research.

Wed, 08/29/2012 - 10:46 | 2746506 Doubleguns
Doubleguns's picture

I worked 4 years at GE Evendale plant and worked 12 hrs per day 7 days a week and had to wait one year to get my ONE miserable week off. 5 personal days off were heavily frowned upon if you took them, heavily frowned upon. I only dared take mine the year I left the company. Two weeks off my 4th year.....woohoo.

Wed, 08/29/2012 - 11:08 | 2746588 drB
drB's picture

Then GE stinks. My students work for Merck, Exxon, Shell etc and they have not informed me of anything like that. Must be company- or position dependent.

Wed, 08/29/2012 - 08:21 | 2746023 Stoploss
Stoploss's picture

Just invert the chart for the 'level' of education to complete the picture.

Looks like i finished at the top, after that, all downhill from there!! LOL!!

Wed, 08/29/2012 - 08:26 | 2746040 Sudden Debt
Sudden Debt's picture

WE DONT NEED NO STINCKING EDUKATION!!

SKOOL OF LIFE BITCHEZ!

NOW TAKE OF MY SNEAKERS, GIVE ME YOUR WALLET AND FUCK OFF OR I'LL CAP YOR ASS!

 

Wed, 08/29/2012 - 08:44 | 2746083 Rakshas
Rakshas's picture

This bill and the foregoing remarks of the majority remind me of an old Arabian proverb: "If the camel once gets his nose in the tent, his body will soon follow." If adopted, the legislation will mark the inception of aid, supervision, and ultimately control of education in this country by the federal authorities...... Barry Goldwater 1958 

Betchall wish somebody kicked that four legged fleabag ooot the tent back then.......... thats the problem with allowing a leviathan into the house, pretty soon you've got sea serpent shit all over the carpets........ what a fucking mess...

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