Student Loan Debt at Record Highs in the Worst Economy since the Great Depression risk Default

Posted by PITHOCRATES - August 11th, 2012

Week in Review

Ben Bernanke gives us encouraging news.  Government guaranteed student loan debt is at a record high.  In a time when the unemployment rate is at a near record high.  In the worst economy since the Great Depression.  With a large chunk of those unemployed being those new college graduates.  But if these college graduates default it won’t put the financial system at risk (see Bernanke Says Student Loans Won’t Cause Crisis by Jeff Kearns and Janet Lorin posted 8/7/2012 on Bloomberg).

Federal Reserve Chairman Ben S. Bernanke said record U.S. student loan debt doesn’t put the financial system at risk the way mortgages did because most educational borrowing is backed by the government…

Outstanding educational debt, which includes loans taken out by students and their parents, is estimated at $1 trillion, according to the Consumer Financial Protection Bureau. About 15 percent is private student loans, issued by lenders including banks. The rest is backed by the government.

So instead of the government using tax dollars to bailout financial institutions the government will use tax dollars to pay off these guaranteed student loans once they default.  So what?  What’s putting another Obamacare on the books?  Then again, CBO originally scored Obamacare to cost $1 trillion over ten years.  So a student loan default would be like adding ten Obamacares on the books.   In a year or two.  That would be bad.  But it could be worse.  At least it won’t put the financial system at risk.

If these students default on their student loans because they can’t get a job in this rotten economy with their useless liberal arts or social sciences degrees that aren’t in demand then perhaps we should make the universities refund their money.  Or offer them a degree in something useful at no additional cost.  Like in science or engineering.

Record debt.  Record deficit.  Record government spending.  And now a trillion dollars in student loan debt that may add to the debt pile.  It’s as if the U.S. is on a subway.  And the next stop is Greece.


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The US assures the UN that they Still Plan on Ruining their Economy to Fight Global Warming

Posted by PITHOCRATES - August 11th, 2012

Week in Review

The UN is still trying to impose a carbon trading scheme on the world.  To fight global warming.  Perhaps by 2015.  To make people pay them (or their governments that fund the UN) for burning carbon.  To create an egalitarian world.  With them sitting at the top.  More equal than others (see U.S. affirms support for U.N. climate goal after criticism by Alister Doyle posted 8/8/2012 on Reuters).

Almost 200 nations, including the United States, have agreed to limit rising temperatures to below 2 degrees Celsius (3.6 F) above pre-industrial times to avoid dangerous changes such as floods, droughts and rising sea levels.

The EU Commission, small island states and environmental activists urged the world to stick to the target on Tuesday, fearing that Washington was withdrawing support. Temperatures have already risen by about 0.8 degree C…

Many scientists say the 2 degrees target is getting out of reach because of rising emissions, mainly from burning fossil fuels.

Emissions of carbon dioxide, the main greenhouse gas, rose 3.1 percent in 2011 to a record high. The decade ending in 2010 was the warmest since records began in the mid-19th century, U.N. data show.

Anyone else see the fatal flaw in this plan?  It assumes man alone controls global temperatures.  Which we don’t.  We had the Little Ice Age following the Medieval Warm Period.  It wasn’t glaciers reaching halfway down North America but cool, wet growing seasons reduced harvests.  And caused some famine.  And this was before we burned gasoline in our cars.  And coal in our steam engines during the Industrial Revolution.  Man didn’t cause these global changes.  Man just suffered through them.

And speaking of the Ice Ages, what about the Ice Ages?  Just what made the glaciers advance then recede?  These even preceded man’s use of fire.  So it clearly was something else cooling and warming the planet.  Unless we were a far gassier people back then.  (If so lucky for them there were no open flames.)

The planet warms and cools.  It did so before man burned fossil fuels with a vengeance.  And after man burned fossil fuels with a vengeance.  If the temperature moves a degree in one direction or the other there is absolutely no way to know if that was just a natural change (like through 99.9% of the planet’s existence – including those ice ages) or if it was caused by man (whose been around approximately 0.1% of the planet’s existence).

This isn’t science.  This is politics.  A way for the anti-Capitalists to turn back the hands of time.  And make life truly unpleasant for the masses.  As they produce an egalitarian world.  Where everyone suffers equally.  Except those sitting at the top ensuring the world is fair and just.  As they determine what fair and just to be.  The UN.  The world’s overlords.  Once they control the world’s economies, that is.


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Black Wednesday and the Killing Season sound like Action Adventure Titles but it’s just August in the NHS

Posted by PITHOCRATES - August 11th, 2012

Week in Review

If you’re traveling in Britain in the first week of August don’t get sick.  Unless you feel lucky (see Thousands of juniors start jobs in NHS ‘killing season’ by Rebecca Smith posted 8/1/2012 on The Telegraph).

Around 7,000 graduates begin their first job as a doctor today and thousands more change to new jobs as their training continues.

The changeover has been labelled as ‘black Wednesday’ or the ‘killing season’ because of the rise in deaths.

Studies have shown that patients admitted as an emergency on the first Wednesday in August are six per cent more likely to die than on the previous Wednesday.

Black Wednesday?  Killing Season?  Egad these are two labels you don’t want to hear describing the hospital they’re rushing you to so they can save your life.  The NHS should really do something about this.  It’s not befitting a national health care system they celebrate in the opening ceremonies of the Olympic Games.  And the NHS, being the fine national health care system it is, is fixing this problem.

It was announced earlier this year that junior doctors will shadow a more senior colleague for four days in an attempt to reduce the number of mistakes made and ensure patients are kept safe…

Trials in Bristol reduced mistakes by junior doctors by 50 per cent over their first four months.

There’s a fine line between being a highly skilled doctor in the NHS capable of taking on any health care emergency.  And being a junior doctor with capable skills that may only kill 6% of his or her patients.  That line in the NHS is after day 4.  After which their kill percentage goes down to an acceptable 3%.

There is a reason this is happening.  And it’s not because the medical schools are bad.  It’s not because these senior doctors do a poor job in teaching the new doctors.  And it’s not because the junior doctors are bad.  The reason is economic.  A declining birth rate created an aging population.  That aging population is now hitting Britain’s pension system.  And the NHS.  Increasing spending at a time when there are fewer people entering the workforce to pay the taxes to fund the NHS and those pensions.  Budgets are straining.  Deficits are growing.  So what do you do when the number of patients is growing greater than the ability to pay for them?  You make doctors and nurses cover more patients.  Forcing these junior doctors to ‘grow up’ fast on the job.  To act as if they have years of experience during their first days on the job.

Surveys have shown that junior doctors are asked to carry out operations and procedures on patients which are beyond their capabilities and often have responsibility for large numbers of hospitals patients overnight when fewer senior staff are on duty.

Dr Anthea Martin, senior medical adviser at the Medical and Dental Defence Union of Scotland, which provides legal advice for doctors and dentists nationwide, said junior doctors should not be asked to carry out tasks they are not confident doing and should always seek help from senrio [sic] colleagues if tehy [sic] are unsure.

The sad thing is that it will only get worse.  Until the baby boomers die out so that they have more taxpayers entering the workforce than leaving it.

Announcing the new shadowing scheme, Professor Sir Bruce Keogh, NHS Medical Director, said…“Patient safety and providing a high quality service is at the heart of a modern NHS. This shadowing period could potentially save lives, and will equip new junior doctors with the local knowledge and skills needed to provide safe, high quality patient care, from their first day as a doctor…”

“It means new doctors will be ready to go on the first day, familiar with the hospital’s systems and ready to focus on patient care rather than worrying about where to find the X-ray request forms.

“It will go some way to making sure that patients get good care whatever day of the year they present and we’re pleased this is now in place nation-wide.”

Yes, let’s teach these new doctors the important things. Have these senior doctors show these junior doctors where the X-ray request forms are.  Once they get the proper bureaucratic procedures under their belt then they can treat their patients.  Knowing that when they request some test or procedure that they will use the correct form.  Reducing lost time from not making these life-threatening mistakes.  So the hospital can input patients and process them quickly.  In an assembly line procession.  One after the other. Quickly.  And efficiently.  No time to dither around with that talking nonsense.  Patient arrives at one workstation.  The worker reads the form.  Performs the work.  And sends the patient to the next workstation.  High productivity is the only answer to the problems at the NHS.  As it will be with Obamacare.  Because the Americans, too, have an aging population.

Currently the U.S. doesn’t have a Black Wednesday.  Or a Killing Season.  But you know it’s coming.  Because there is no way that Obamacare will be better than the NHS.  Not when they will be starting with an aging population that will only age more.  And they will have 5 times the patients the NHS has.  Not to mention the fact that the NHS has been doing national health care for awhile.  So on top of everything else the Americans will also have the learning curve working against them.  Which could cause a British patient being rushed to hospital on a Wednesday during the Killing Season to say with typical British fortitude, “Could be worse.  I could be in America.”


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The Keynesian Contagion in the Eurozone is so Bad Investors are Paying People to hold their Money Elsewhere

Posted by PITHOCRATES - August 11th, 2012

Week in Review

The Keynesian answer to everything is more spending.  By any means possible.  By taxes.  By borrowing.  Or by printing.  Despite Jimmy Carter’s stagflation of the Seventies.  Japan’s Lost Decade in the Nineties.  And the current sovereign debt crisis in Europe.  All Keynesian failures.  And the Keynesian answer to why they all failed.  Because they didn’t spend enough.  It’s amazing.  No matter how wrong they are they keep insisting that they are right.  And now things are so bad in the Eurozone that investors are paying people to hold their money until the current Keynesian contagion spreading through Europe dies out (see Negative interest rates spell final defeat for beleaguered savers by Jeremy Warner posted 8/6/2012 on The Telegraph).

Ignore, for the moment, what has happened to bond yields in the troubled eurozone periphery. That is an unnecessary tragedy unique to certain members of the euro. The bigger story is that across large parts of Europe, nominal interest rates are turning negative. Germany, the Netherlands, Finland, Denmark, Austria and Switzerland are already there, and now there is even some possibility of the UK joining them.

Last week, the yield on two-year gilts reached a record low, and though it has come back a bit since – boosted by the possibly mistaken belief that Mario Draghi, president of the European Central Bank, is about to come riding to the rescue in the eurozone debt crisis – it still hovers at an almost unbelievable 0.05pc. Real yields on index-linked gilts have been negative for some years now, but this is the first time that nominal yields have looked like joining them.

The way things are going, investors will soon be forced to pay to lend the Government their money, a topsy-turvy, Through the Looking Glass world where the lender pays the borrower a rate of interest, rather than the other way around. The profligacy of government is rewarded, the thrift of its citizens is punished. For long something of a mug’s game, saving for the future becomes completely pointless, while pension funds, forced into gilts by solvency regulation, are further crucified.

As governments lower interest rates to try and stimulate economic activity that isn’t there (and won’t appear even with these low rates as proven by the fact that these low rates haven’t stimulated economic activity yet) this also lowers the interest rate on savings accounts.  So as the government pursues reckless Keynesian policies (lowering interest rates to stimulate the economy) those who live responsibly and save for their retirement see their savings shrink instead of grow.  Though this destroys lives it doesn’t necessarily bother Keynesians.  Who hate people who save their money instead of spending it.  Because in the Keynesian view savings reduce economic activity by pulling cash out of the economy.  Of course savings have typically been the source of investment capital that actually generates economic activity.  But the Keynesians ignore this fact.  As well as the one about destroying people’s retirement.  Which is why their policies destroy economies.

Ultra-low bond yields are a sign not so much of international confidence in the UK’s credit worthiness, but of a seriously impaired economy…

In the meantime, fear of a disorderly break-up continues to drive investors into safe-haven assets, which, in practice, means any half-way credit-worthy alternative to the eurozone periphery…

When a country’s bond interest rate falls it is typically a sign of a strong and healthy economy.  Things are going so well that people have little fear in loaning money to them.  And therefore the country doesn’t have to pay high interest rates to attract buyers for their bonds.  This is not what is happening now, though.  Money is flowing to Britain and the United States not because their economies are strong and robust (they’re not) but because their economies aren’t as horrible as in other countries.  Especially in the Eurozone.  Where interest rates are high because of the high risk of default.  Which drives investors to countries not with better and more robust economies.  But where the risk of default is lower.  The investors are basically saying that, yes, the economies of Britain and the United States are bad.  But they are not ‘Eurozone’ bad.  So they will park their money there.  And even pay (with negative bond yields) these countries to hold their money until some better investing opportunity comes along.  You see, it’s not about earning profits now.  It’s about trying to save what money they have until this current Keynesian contagion dies out.

Banks struggle to fund themselves at the same low rates as the Government because investors fear that a eurozone break-up would further undermine their solvency. Even in Britain, banks are once again seen as fundamentally unsafe…

When the economy is growing strongly, money changes hands with high velocity, creating a consequent demand for cash. To satisfy this demand, money is withdrawn from bonds, causing interest rates to rise. But with conditions as they are now, the reverse takes place. Low economic activity causes cash to flow back the other way and into bonds, driving yields into negative territory.

In such circumstances the Bank of England has little option but to carry on with quantitative easing, even though this has become something of a circular process. The Bank buys gilts to pump prime the economy with cash and investors use the cash to buy still more gilts…

Eventually, the Bank will need to go rapidly into reverse to prevent more serious inflation, a la 1970s. The velocity of money will rise, and all that freshly minted cash will suddenly start chasing goods, wages, assets and commodities, instead of sitting in bonds.

Before there was a large government debt market rich people invested in businesses.  Small business with venture capital.  And large businesses with corporate stocks and bonds.  Rich people got richer by investing in businesses that created jobs.  Increasing economic activity throughout the country.  They made greater profits.  And took greater risks.  With a large government debt market, though, they have another alternative.  Rich people can buy government bonds instead.  They don’t make as much but they don’t take anywhere near the same risk.  Unless they’re investing in the Eurozone.  Which they appear not to be doing these days.  In fact, with these bargain basement interest rates some are even borrowing money to invest in higher interest bonds of other countries.  We call this trading on the interest.  Or carry trading.  Borrow at low interest rates.  And using that money to buy investments with high interest rates.

This is the price we pay with high government debt.  It pulls capital out of the private sector.  Provides a safer, non-job-creating option for rich investors.  And all of this extra money in the economy will sooner or later ignite inflation.  As well as threaten the solvency of the banking sector when some of these bets on carry trades go bad.  As a lot of these investors borrow money to make these trades leaving the banking sector exposed to huge risks when things go bad.  And they often do.

This is what Keynesian economics does.  Has done.  And always will do.  Yet governments still play their Keynesian games with interest rates.  And their interventions into the economy.  So why do governments keep going down this same destructive road?  Because they can.  And they just love spending other people’s money.


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The Creative Destruction of the Internet may put Best Buy Stores out of Business

Posted by PITHOCRATES - August 11th, 2012

Week in Review

Best Buy and Circuit City were once fierce competitors in retail electronics.  Big box stores that carried an amazing range of consumer goods from televisions to car stereos to cameras to computers to refrigerators.  Their marketing plan?  Trade volume for margin.  They sold at low prices with low profit margins that mom and pop stores could not match and remain profitable.  But because of their high volume Best Buy and Circuit City could make a profit with those small margins.  Which they padded with those extended warranties.  It was a successful business model.  For awhile.  Circuit City is no longer with us.  And now Best Buy is struggling (see Best Buy founder proposes taking retailer private by Dhanya Skariachan and Nadia Damouni posted 8/6/2012 on Reuters).

Best Buy Co Inc (BBY.N) founder Richard Schulze on Monday made a bid to take the struggling U.S. electronics retailer private just months after being forced out as chairman.

If Schulze succeeds, it could result in the world’s biggest leveraged buyout of the year. But early reaction suggests he faces an uphill battle in taking his once wildly successful company in a new direction…

Best Buy has been closing stores, cutting jobs and trying out a new store format to improve business. It has faced criticism for being too slow to react to a changing retail world, where many use Best Buy as a “showroom” to try out gadgets and then buy them online or elsewhere for less.

It takes money to maintain inventory.  And every Best Buy store has inventory.  It’s a huge cost.  But it also gives them purchasing power.  This is why the mom and pop stores went bye-bye.  With their low sales volume they had small purchasing power.  So the little they bought came at higher unit costs than Best Buy’s.  Which meant they had to charge higher prices to cover those costs.  And now it’s happening again.  Only it’s online sales that are squeezing the profits out of Best Buy.  From suppliers that have no retail stores.  And a more consolidated inventory.  With no sales force or cashiers to pay.  They have high sales volume and low operating costs.  So now Best Buy is getting a taste of what it was like for the mom and pop stores.

We call this creative destruction.  And it’s a good thing in capitalism.  Everyone agrees.  Having a cell phone is better than having a pager that displays a phone number to call.  Then finding a public telephone to make that call from.  Cell phones have hurt the pager industry.  Just as digital cameras have hurt the instant camera industry.  Just like the MP3 player has hurt the compact disc industry.  Which hurt the cassette tape business.  Which hurt the 8-track tape business.  And now the Internet is hurting the big box retail industry.  We call this progress.  And it’s what the people want.  Because it’s the people driving this change.  They’re the ones buying the cell phones, digital cameras, MP3 players, compact discs and cassette tapes.  And it’s the people who are now shopping online.

New technology is always replacing old technology.  When it does it destroys a lot of jobs.  But it also creates a lot of new jobs.  Yes, it’s sad to see some of our favorite businesses go out of business.  But they only go out of business because there is something better out there attracting our business away from those old businesses.  And the day we stop wanting this is the day we give up our smartphones.  Or whatever will have replaced our smartphones in the future.


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Australia subsidizes a University Education to generate Tax Revenue and Volunteerism

Posted by PITHOCRATES - August 11th, 2012

Week in Review

Australian university graduates are not volunteering enough after receiving their subsidized education according to a new study.  Which is one of the reasons they subsidize the high price of a university degree.  Instead of trying to bring those high prices down (see Student subsidy too high: report by Benjamin Preiss posted 8/6/2012 on The Sidney Morning Herald).

THE government should spend less on subsidising university students until graduates can provide a better return for society on the public investment, according to a new study.

Existing fee subsidies were merely redistributing income to students and graduates who would have attended university anyway, according to the report, Graduate Winners, by the independent think tank the Grattan Institute. It suggests the $6 billion the government spends on fee support could be better spent.

The report compares the personal gains for university graduates with their broader contributions to society in areas such as volunteering and paying taxes. Graduates, in most cases, benefit financially from a university degree by getting higher-paid jobs than people with no higher education. But the report found graduates were only slightly more likely to volunteer regularly than people with low-level TAFE qualifications…

If a goal of university subsidies is volunteerism and they’re not seeing a return on that investment why continue the subsidies?  They have the same problem in America.  Liberal college graduates’ idea of volunteerism is raising taxes and donating other people’s money to their favorite causes.  Some leading American liberal politicians even have a sad record of charitable donations.  Because they are never generous with their own money.  They want a larger more caring government to provide for the poor and impoverished masses but they want other people to pay for it.  Yet those who do donate and contribute their time are often conservatives.  Who do this through their churches.  Who work hard and pay their taxes.  And donate their time and money to charitable causes.  A lot of them without a university degree to boot.  Apparently some things transcend international borders.

Mr Norton said the government should cut back its funding and allow universities to increase the price of their degrees. He said the earning capacity for university graduates in most cases outweighed the cost of more expensive degrees.

But Tertiary Education Minister Chris Evans said the government would not increase fees for university students.

He said the students would carry an additional $3 billion a year in debt if the government accepted the report’s recommendations. ”The evidence is that dramatic increases in fees lead to decreased participation and higher debt,” Mr Evans said. ”We don’t want a situation where students leave university, join the workforce and have debts that shadow them for many years…”

Here’s something else they share with the Americans.  The high price of a university degree.  Which the answer is the same everywhere in the world apparently.  Subsidize education.  But they never try to reduce the high prices of education.  In fact, higher education is the one area that they never criticize for its high prices.  Unlike health care.  Prescription drugs.  Gasoline.  You name it.  When it’s the private sector pursuing profits liberals everywhere demonize these seekers of profit.  But when it’s liberal universities pursuing profits so they can provide higher pay and benefit packages to their professors, administrators and campus workers what do you hear from liberals about these seekers of profits?  Just a whole lot of quiet interrupted by the sounds of crickets chirping.  Then the attacks on ‘greedy’ taxpayers who oppose higher taxes to subsidize the generous pay and benefit packages of said university employees.  Which is what gives those students “debts that shadow them for many years.”


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