The Gateway Drug to Debt Slavery

[Rajiv]

Student Loans, Gateway Drug To Debt Slavery

One of the most important lessons students learn in college is how to get into debt and stay there. It's crucial to the success of the Republic. An indebted population is easier to control; needing to pay off crushing debt - a debt that if defaulted on has been stripped of many normal consumer protections and rights - graduates more willingly shuttle into cubicles, becoming the square pegs demanded by the square holes. After a few futile years of floundering idealism, their souls have been successfully jackbooted into powder and they're ready to keep the thumb on the next generation of would-be drones so as to protect their empire of matchsticks. But how did we get here? This chunky infographic examines the origins and (d)evolution of the student loan leviathan.

[sishya]

Re: The Gateway Drug to Debt Slavery

In Third World countries Govt Loans are written off(Agri loans).
In First World countries, Govt Loans are never forgiven and no escape.
what a contrast. I have heard students by pass this issue by paying fees on credit cards and declaring bankruptcy on that.

[LargoWinch]

Re: The Gateway Drug to Debt Slavery

Me likes. Thanks Rajiv.

The force of FIRE is strong in this socio-politico-economio world...

Ice Ice Baby.

[Jay]

Re: The Gateway Drug to Debt Slavery

It's funny you posted this today. Ironically, today happens to be the day I repaid my med school loan in full. It was at 2.85% but I was making less on my treasury backed account. I don't have the option to use that money to make more than 2.85% anymore, say if rates spike, but in this jump ball environment it feels good to have no debt. We own our cars and rent. The only debt I have now is credit card debt paid off in full every month.

[don]

Re: The Gateway Drug to Debt Slavery

Get it while the gettin's good.

FIRE searches for the soft underbelly.

In time, these drained carcasses will be discarded.

FIRE will feed on fundamentals, for the most part.

Food...Shelter...Air...Water

Intellectual Copyrights on Food (can anyone grasp the obscenity of this)...Rentier Class Explodes...Carbon Tax Up the Ying-Yang.

Everyone who consciously pays their bills, and keeps out of debt, are fruit to plucked.

In a fiat world, we're as well equipped as the Taliban.

[Jay]

Re: The Gateway Drug to Debt Slavery

"Everyone who consciously pays their bills, and keeps out of debt, are fruit to plucked."

So what, don't pay my student loans? The deck is stacked.

[don]

Re: The Gateway Drug to Debt Slavery

"Everyone who consciously pays their bills, and keeps out of debt, are fruit to plucked."

So what, don't pay my student loans? The deck is stacked.

I'm with you, pal. I've been paying off my bills for years. I estimate I've been plundered for a 100 grand in lost interest due to ZIRP.

Like the maiden that's been raped, I don't have an answer but I know I've been had.

See below.

[don]

Re: The Gateway Drug to Debt Slavery

Falling Rates Aid Debtors, but Hamper Savers

By GRAHAM BOWLEY

Households and corporations alike are refinancing their loans in droves to take advantage of interest rates that seem impossibly cheap. But those same low rates come with a flip side, driving down the income of retirees and others who live off their savings.

It is a side effect of a government policy meant to push down interest rates to a point that businesses and consumers are compelled to borrow and spend again, and yet it is hurting anyone with a savings account.

With the regulated rate that financial institutions can borrow from one another at almost zero, banks are paying savers next to nothing. The average returns on interest-bearing deposit accounts slipped to 0.99 percent in July, according to Market Rates Insight, which tracks bank rates. It is the first time its measure has dipped below 1 percent since the 1950s, when its data begins.

As a result, the amount of money on deposit at United States bank branches fell during the first half of 2010, Market Rates Insight reported this week. It was the first time that had happened in nearly two decades, indicating that people are dissatisfied with how little interest they are earning from their bank accounts.

Perversely, coming after a devastating financial crisis caused by companies and households that feasted on borrowing, ultralow interest rates are penalizing people who have paid down their debt and are now trying to save. It is also punishing those who rely on the proceeds of their nest eggs to pay the bills.

“It’s the whole point of low rates, to entice borrowing and discourage saving, but it means a massive wealth transfer from savers to borrowers,” said Greg McBride, a senior financial analyst at Bankrate.com. “It is a trend on steroids now because interest rates have been cut to the bone.”

For example, anyone keeping $500,000 in a 12-month certificate of deposit earning a rate of 1.5 percent annually — one of the best savings rates available nationally these days — would earn $7,500 a year, hardly enough to live on. Just three years ago, that same investment would have generated $26,250.

The new low interest rates are having a personal impact. Take William D’Alessandro, 62, an editor of corporate sustainability newsletters in Amherst, N.H. He has moved from job to job and has no pension but planned to live on savings when he retired.

Now, year by year, Mr. D’Alessandro has had to put off his retirement until he can afford to buy, among other things, health insurance for himself and his wife, to supplement Medicare when he gets it.

“It is fearful,” he said. “We have been saving all these years, and now we want to go into retirement we can’t. We have been traveling less. What am I going to do if I live to 82 — or 99 like my grandfather?”

Now, savers are searching desperately for a better return on their money. “All of our clients are struggling with this,” said Cary Carbonaro, a financial planner who works in New York City and Long Island. “It has never been as bad.”

With the jittery stock market posing too much risk for many people, they have rushed to Treasury bonds, which generate higher rates than regular bank accounts or short-term C.D.’s.

But so much money flowing into Treasuries has served only to depress the rate of return on those bonds, to a dismal 2.7 percent a year for a 10-year note;
shorter-term bond rates are below 1 percent. Anyone investing $500,000 in 10-year Treasuries at current yields would earn $13,500 a year.

Some savers have begun to pour more of their cash into the corporate bond market, where big companies sell bonds to raise money, usually at a slightly higher return in exchange for modestly higher risk.

As demand for such bonds has soared, it has prompted corporations like PepsiCo and Wal-Mart to issue more bonds at bargain-basement rates of interest. Such companies sold $563.4 billion to United States investors last year, a record, and have sold $238.8 billion more so far in 2010, according to Dealogic, a financial data provider. Yet, economists complain that apart from a few notable corporate acquisitions that were financed largely with pent-up cash, many businesses are sitting on their money rather than spending it. For now, that would seem to undermine the purpose of low interest rates, which is to get companies and consumers spending again.

Nonfinancial corporations were holding about $1.8 trillion in liquid assets in the first quarter of this year, according to the Federal Reserve, a level that has been steadily rising and compares with $1.5 trillion at the start of 2009.

“They don’t need the cash,” said Bernard Baumohl, an economist at the Economic Outlook Group, but they are borrowing anyway because it is so cheap at the moment.

Once again, though, the unusually high demand for blue-chip corporate bonds is driving down the rate of return on those bonds. When I.B.M. sold $1.5 billion of three-year bonds in August, investors received only a 1 percent return.

So some ordinary investors seeking better returns are resorting to lending to companies with shakier credit. The so-called high-yield junk bond market has taken off, with nonfinancial companies issuing $159.6 billion in high-yield bonds to American investors last year, the most since at least 1995. They have borrowed a further $142.4 billion so far this year, according to Dealogic, a financial data provider.

This is giving the ordinary investors a rate of return they used to get from ordinary savings accounts or C.D.’s but with higher risk.

As long as rates stay this low, the plight of the saver will be especially disquieting for those who rely on their savings for a large slice, if not all, of their income. That is a particularly unnerving prospect for pensioners or for people approaching retirement age — who now want to draw on the interest from their savings to support them when they are no longer working.

“You have spent your life being prudent, building a nest egg for your retirement, and now the returns are terrible,” said Todd E. Petzel, chief investment adviser at Offit Capital Advisors, a wealth advisory company in New York. “I am 58 years old. I know lots of my peers who are thinking of retiring, and they are scared to death.”

Among the winners from low interest rates are people taking out new mortgages. The benchmark 30-year fixed-rate mortgage has fallen to 4.53 percent, the lowest in more than half a century, according to Bankrate.com.

At these rates, refinancing is attractive. The Mortgage Bankers Association said last week that 83 percent of pending mortgage applications were for refinancing existing mortgages.

It is good for other kinds of borrowers, too. Marcel Lonneman, a retired AT&T engineer in Jamestown, R.I., said he would like to borrow more, but his partners in a real estate business he is associated with are reluctant to borrow at current interest rates because they think they may still fall further.

“It is an excellent time to be a borrower,” he said. “I’ve paid as high as 21 percent interest in 1981 for a real estate loan and have refinanced real estate loans several times for lower interest rates,” he added in an e-mail. “Better a borrower than a lender be.”

http://www.nytimes.com/2010/09/09/bu...ef=todayspaper

Not a word about FIRE's ZIRP speculating and dollar trade.....

[Jay]

Re: The Gateway Drug to Debt Slavery

Like the maiden that's been raped, I don't have an answer but I know I've been had.

My goal is to stay a law abiding citizen and to reject the perverse incentives that push society toward the alternative. I'm trying to do that while living well and guaranteeing my kids a worthwhile education and future. It is a tricky feat, without even taking into account how difficult it is to figure out what half the laws mean anymore. If the corruption keeps going, which it will, it may well become nigh impossible for anyone to do it. I guess it may have felt similar during the end of Rome too. Ugh.

[Chris]

Re: The Gateway Drug to Debt Slavery

This is an interesting thread.

Here in the UK the BOE are talking about extending ZIRP into late 2011. I gather the FED will try and do the same. In the paper this morning I read an article about the benefits/costs of mortage refinancing and outright purchase at 30 year fixed rates of 4.65%.

I can't get a return on my savings, I'm already overweight PMs, I own no stocks on iTulip's advice except for some play money trading the premium differential on PHYS. I wanted to save for my children's future education (I don't have any children yet, just planning in advance) but I'm aware that any purchasing power I currently have on cash will be eroded over the next decade through inflation. I've got to say that that 30 year fix on a property does look tempting but something just doesn't feel right about it given where we are in the GFC and the housing debacle. So, like everyone else I know who isn't frantically working to pay down obscene mortgages on properties they couldn't afford, I keep my head down and wait for some semblance of reality to emerge from this bizarre situation.

When I read Adam Smith and Hayek in college I understood, at least cerebrally, the idea that government intervention in the economy could distorted the normal functioning of the markets. Well this is it folk, in extremis.

[flintlock]

Re: The Gateway Drug to Debt Slavery

Every now and then I listen in to the Dave Ramsey show. Seems like at least half of the callers are buried under tons of school debt, which starts them on the road to financial ruin. Many have near worthless degrees. In fields with no economic viability, but rather fields that offer them "self-fulfillment" and ego gratification". When will people realize you can't always just buy your way into a good job with a degree? At some point most jobs will actually expect HARD WORK and the ability to add worth to a company, not just show up with a degree. These people can't find jobs that pay enough to justify their degree because business owners realize that a degree is just a starting point and in no way a substitute for experience. And now that government jobs are drying up, being able to actually produce financial results will become more important. Sorry, but that $100k doctorate in counseling may need to be put on the back burner until you can afford to actually pay your rent and eat.

Of course its all a result of too few jobs for too many people. But my advice to any young person would be to find a field where there is a need and learn how to fill it. Forget what your friends think. Forget how the job title sounds. Just find something where you can earn a living and be able to live with some sort of stability and not become a drain on your family or the taxpayer.

[bobola]

Re: The Gateway Drug to Debt Slavery

"...Even in lean times, the $400 billion business of higher education is booming. Nowhere is this more true than in one of the fastest-growing -- and most controversial -- sectors of the industry: for-profit colleges and universities that cater to non-traditional students, often confer degrees over the Internet, and, along the way, successfully capture billions of federal financial aid dollars.

In College, Inc., correspondent Martin Smith investigates the promise and explosive growth of the for-profit higher education industry. Through interviews with school executives, government officials, admissions counselors, former students and industry observers, this film explores the tension between the industry --which says it's helping an underserved student population obtain a quality education and marketable job skills -- and critics who charge the for-profits with churning out worthless degrees that leave students with a mountain of debt.

At the center of it all stands a vulnerable population of potential students, often working adults eager for a university degree to move up the career ladder. FRONTLINE talks to a former staffer at a California-based for-profit university who says she was under pressure to sign up growing numbers of new students. "I didn't realize just how many students we were expected to recruit," says the former enrollment counselor. "They used to tell us, you know, 'Dig deep. Get to their pain. Get to what's bothering them. So, that way, you can convince them that a college degree is going to solve all their problems.'"

Graduates of another for-profit school -- a college nursing program in California -- tell FRONTLINE that they received their diplomas without ever setting foot in a hospital. Graduates at other for-profit schools report being unable to find a job, or make their student loan payments, because their degree was perceived to be of little worth by prospective employers. One woman who enrolled in a for-profit doctorate program in Dallas later learned that the school never acquired the proper accreditation she would need to get the job she trained for. She is now sinking in over $200,000 in student debt..."

PBS Frontline program; http://www.pbs.org/wgbh/pages/frontl...llegeinc/view/

[Starving Steve]

Re: The Gateway Drug to Debt Slavery

I'd rather have toilet paper than a college degree to-day.

The issue with worthless college degrees is not student debt, it is the education kids receive is not valued in the world job market. The job market wants DO-ers. The job market wants workers who PRODUCE tangible products.

And here we go right back to the U.S. Dept. of Education: Why do we have this worthless curriculum in the public schools to-day? Who does it benefit? -- certainly not the students. Who does cursive benefit? Who does English-only benefit? Who does nationalism benefit? Who does standardized timed-testing benefit?

Imagine nurses that are churned-out of colleges that have never worked in a hospital before! ( ref. bobola's post above )

[don]

Re: The Gateway Drug to Debt Slavery

A family member went this route, feeling he was alone at work without a degree. We were at his house when he had to excuse himself to take a few classes. Fifteen minutes later he was back, having checked off three sessions. It was all a big joke except for the $18,000 in student loans he now pays on. At work he still has his job. No raise, just the same job. There's no telling if the paper credential made any difference whatsoever. It's called shearing, I believe.

[BuckarooBanzai]

Re: The Gateway Drug to Debt Slavery

As always, wherever the Federal Gubmint gets involved (Medicare, Medicaid, Student Loans, Social Security, Education, etc etc), costs escalate, quality plummets, and efficiency degrades.