We are in the Worst Economic Recovery since that following the Great Depression because of Keynesian Economics

Posted by PITHOCRATES - February 15th, 2014

Week in Review

We are in the worst economic recovery since that following the Great Depression.  Why?  Because of Democrats.  Who are all Keynesians.  And that’s a big problem as all of our worst economic times were given to us by those who adhere dogmatically to Keynesian economics.  That school of economics that gave us the Great Depression.  The stagflation of the Seventies.  The dot-com bubble.  The bursting of the dot-com bubble.  And the dot-com recession.  As well as the subprime mortgage crisis and the Great Recession.  In all of these events the Keynesians in power followed Keynesian economic policies to avoid recessions.  And then to pull us out of recessions when their avoidance didn’t work.  Then doubling down on the things that didn’t work previously.  In particular artificially low interest rates.  Which have been around zero for the last 5 years.  And massive federal spending to stimulate the economy when the private sector wasn’t spending.  Two pillars of Keynesian economics.  Neither of which have done anything to help improve the worst economic recovery since that following the Great Depression.

This is the problem with all the ‘noted’ economists the government likes to cite.  They embrace poor economic principles.  Proven wrong over and over again.  They can come up with some impressive looking charts and graphs but their analysis is all wrong.  And the fact that we’re in the worst economic recovery since that following the Great Depression proves it better than any chart and graph.  They’re wrong.  And continue to be wrong.  Yet they provide the economic policies for our country.  Some of the greatest nonsense you will ever hear.  Things you wouldn’t do in your business.  Or in your personal life (see Student Loans Are A Drag On The Economy And Society by Josh Freedman posted 2/11/2014 on Forbes).

While loans are intended to expand college access to a broader population, the nature of risk that they entail also produces the opposite result. Low- and middle-income students worried about the consequences of taking out a loan will be more likely to decide that college attendance is not worth the risk…

Studies have found that high debt levels not only deter access at the beginning, but can also drive students away from completing college once they have already started… students who start college but do not graduate are stuck with loan repayments and no college degree. They still have to repay their loans but do not have the economic boost of a college degree to help them have enough income to cover this cost.

First of all, why is it when it comes to a college education no one ever demands that we lower the cost.  Like we do with greedy oil executives who keep the price of gasoline high.  Why is it no one attacks the greedy people in higher education that keep education so costly?

The problem is too many people are going to college for the wrong reason.  There is a reason why there is a list of the best party colleges every year.  Because a lot of these kids want to go to these schools.  Which explains why colleges in Colorado are seeing a spike in out-of-state applications.  Because these kids want to go to a college where they can party with legal marijuana.  And to make that partying easier they’re majoring in easier degree programs that the college assured these kids would provide them a comfortable living after graduation.  So they can get that profitable tuition out of these kids.  Often times paid for by these kids’ student loan borrowings.  So the colleges are misleading a lot of these kids to make a buck.  Leaving them saddled with a lot of student loan debt if they quit.  Or even more student loan debt if they stay in until graduation.  While getting a degree that can’t get them a job.

A second issue with increasing levels of student loan debt is the effect on the economy… Individuals with more student loan debt were less likely than individuals without student loan debt to purchase homes or cars.

Yes, having too much debt is a bad thing.  It reduces your disposable income.  Preventing you from purchasing a house or a car.  Yet these same economic advisors have no problem with raising taxes and devaluing the currency (i.e., printing money) to pay for all of the government’s stimulus spending.  Higher taxes reduce our paychecks.  And devaluing the currency raises real prices.  Reducing what we can buy with our smaller paychecks.  No, a Keynesian has no problem with debt at the federal level that affects everyone.  But student loan debt is just a terrible thing for those kids who dropped out of college or who didn’t get a degree that an employer could use.

In the wake of the financial crash, households have been trying to deleverage, or pay down their debt so they can have a healthier financial outlook, reduce the amount of their income that they use to service their debt, and begin investing and consuming again…

A look at the data suggests that student loans have slowed down households in the process of paying down debt. Since 2008 — the peak level of household debt — households lowered their levels every type of debt except student loan debt. Student loans have continued to grow throughout this process of deleveraging.

Of course the one thing missing from this analysis is the horrible economy President Obama’s Keynesian policies have given us.  Since he became president he has destroyed some 10,948,000 jobs.  Based on the number that were out of the labor force in the January 2014 BLS jobs report (91,455,000) and how many were out of the labor force when he entered office (80,507,000).  This is why people are struggling with debt levels.  There are no jobs.  If there was a robust economy flush with jobs people wouldn’t worry about taking on debt to invest in the future.  As long as they got a useful college degree in a high-tech economy.  And not something useless like women’s studies or poetry.

But aren’t people facing poor job prospects just taking out more loans to avoid working as baristas at coffee shops that drip the coffee super slowly for no apparent reason? This does not appear to be the case from the debt data. Student loan debt has grown at almost exactly the same rate since the crash as it had been the previous five years — i.e. steadily and without fail.

Student loan credit level has been steadily rising because the cost of a college education has been steadily rising.  Again, where is the outrage at our greedy educators getting rich by loading up these kids with student loan debt for a degree they can’t use in a high-tech economy?

…the loan system allows colleges to raise prices, which causes more students to take out loans. States, facing budget pressures, have also pulled back on investment, putting even more risk on students and further increasing the need for loans.

Again, where is the outrage at our greedy educators who keep raising tuition, forcing these kids to take out more and more student loan debt?

The risk and burdens that come from forcing students to take out debt up front and pay it back later is problematic from head to toe (tassel to hem, one might say). To create a better system of higher education, we need to look at alternatives to the current debt-financed model.

So the solution is for the taxpayer to foot the bill for these useless college degrees at these party colleges?  How is that going to solve any problem?  All that will do is allow more people to go to a college in Denver where they can get high for 4 years.  And then go to work as a barista at a coffee shop that requires no 4-year degree.  How does that make anything better?  Other than get more young people to vote Democrat.  Then again, perhaps that is the only objective of Keynesian economics.  Which is why those on the left embrace these failed policies with a religious fervor.  Because it helps them win elections.  Even while they’re destroying the economy.

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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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FT93: “Those who don’t want to pay more taxes are greedy yet those who want more free benefits are not.” -Old Pithy

Posted by PITHOCRATES - November 25th, 2011

Fundamental Truth

Income Gaps are a Bad Thing when our Own Income is at the Low End of the Gap

Greed is a tricky word.  A lot of people say it’s bad to be greedy.  And a lot of people believe that it is.  There is a level of wealth out there.  If you’re below it and you want more it’s okay.  You’re not greedy.  If you’re above it and you want more then shame on you.  Because you’re greedy.  But can you name that line of wealth?  Probably not.  Why?  Because it isn’t a fixed amount.  It moves.  And it’s relative.

You see, we judge wealth by comparing another’s wealth to our own.  Anyone wealthier than we are already has enough and should not object to paying more income taxes.  So these taxes can buy more free government benefits for those not as wealthy.  Namely ourselves.  So we can have more without having to work any harder to get it.  For we believe income gaps are a bad thing.  At least when our own income is at the low end of the gap.  And we believe the government should level the playing field.  Make things fairer.  By redistributing the income of those who already have enough.  To those of us who don’t.

At least that’s the mentality.  Because few people in the world would ever believe that they already have too much.  Even rock stars and professional athletes who have more wealth than most could ever imagine believe this.  Because neither continues to play for free after earning ‘enough’ wealth.  And neither would ever consider themselves greedy.

Wanting a Free College Education somehow isn’t Greedy

No one illustrates this better than the college student.  Fresh out of our public school system.  Where they’ve learned the evils of capitalism.  The fairness of socialism.  And the benevolence of Big Government.  These kids are all about equality.  Egalitarianism.  And sticking it to Big Business and corporate America.  All while enjoying their products.  Cell phones.  Cars.  Clothes.  iPods.  Air conditioning.  Heat.  The Internet.  Reality television.  To name but a few.

But life isn’t fair.  And favors the rich unfairly.  So they become politically active.  Vote the anti-capitalistic ticket.  And participate in the occasional protest.  Making it ever harder for Mom and Dad to foot the bill for their carefree life of self-discovery.  By voting for the party that raises their taxes.  But these kids don’t care.  Mostly because they don’t have a clue about the things they’re protesting.  But protesting is fun.  So they protest.  And, of course, because greed is bad.

But greed is relative.  And somehow their greed isn’t greed.  First of all, they’re going to college.  Why?  To make a lot of money.  Because they’re greedy and want the latest cell phone, car, style, iPod, etc.  They want all the best toys.  And party at all the best clubs.  But having that kind of money often requires a college education.  Which isn’t cheap.  And requires some sizeable student loans.  That they don’t want to repay.  Because it isn’t fair to burden new college graduates with the cost of their education.  And yet somehow this greed (wanting a free college education) isn’t greedy.

It’s Easy to Think of the Righteousness of Egalitarianism when you’re not Paying the Bills

College kids may think their parents are greedy for not wanting to pay more taxes.  For not believing in the righteousness of egalitarianism.  Like they do.  Then again, it’s easy to think that way when you’re not paying the bills.  It’s a whole different story when your bills don’t go to Mom and Dad anymore.

And if you got a high-paying job with that college degree you may lose even more of your brotherly love.  When you start paying your own bills.  You discover you can’t have everything you ever wanted simply by having a college degree.  And you make an even more startling discovery.  The more you earn the more the government takes in taxes.  And that just isn’t fair.  Now that you’re on the other side of that income gap.

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