Student Loans

There has been a theme coming from the White House in recent weeks.  It's this: Obama wants your vote.  Are you mad at Wall Street - not the actual street, but the bankers, or at least the ones who you have been told are responsible for getting us into our current Great Recession?  Obama is too, and he wants to teach those millionaires and billionaires a lesson, even if he has to take it out on people making a mere $250K a year.  Are you sick of the super-wealthy not paying their "fair share?"  Obama is too, and he's going to try to increase the capital gains tax, so that Warren Buffett et al pay a fair amount.  Obama and the media are not talking about the fact that the only thing raising the capital gains tax will do is remove any incentive for the middle class to make any investments whatsoever.  We can discuss later what this will do to retirement planning.  The point here is that Obama is engaging in class warfare because he knows the rich are a minority and he wants the majority of votes, even if it means dividing the country and retarding the economic growth.


Now he has realized that one of his biggest voting blocks - the young voters - are not too enthused about supporting him.  He wants those votes, so he has decided to "help" them on their student loans.  Let's take a look:

First, we can probably all agree that the cost of higher education is climbing out of control.  It is well-documented that student loan debt has increased at a rate that far outstrips the increase in income.  Part of the problem may well be that loans and tuition prices are locked in an upward spiral: as tuition goes up, loan amounts must also go up; as loan amounts increase, schools can increase tuition because they know that the loans available to students will increase.  Each enables the other.  Schools aren't honest enough to make a decision to stop spending money and control tuition, instead choosing to charge far more than their degree is actually worth.  The student loan people (now the Federal Gov't) have yet to put the brakes on the loan amounts. Defaults on student loans are up 25% in the past year!

So, enter Obama with a plan to help students, or, more specifically, the ones with loan debt.  His plan is to tie repayment into one's income, with a cap at 10% of that income, with a long-term cap of 20 years. One way of looking at this is to say, borrow money for school, and repay as much as you can over the next 20 years; just do the best you can.  Looking closer, this plan does nothing to help anyone who finishes school and goes on to be financially successful within a short time after graduating.  If you make enough money, you will pay back 100% of your loans.  But if you don't make a lot of money after graduation, don't sweat it - do your best and the rest will be forgiven.  Gee...this sounds very familiar.

The Atlantic has a useful article on the subject.  The author concludes that the 10% cap will really only impact people who make under $32K.  What is important here is to look at the amount of debt versus income.  the article correctly points out the correlation between educational attainment and income.  People go to law/medical/business schools because those graduates have a tendency to earn more. 

But it is all smoke and mirrors.  First, the it appears that the average holder of student loan debt would only save about $8 per month, with people who hold even $100K in debt saving maybe $28/month.  That is not the kind of money that helps people buy a home or a car; it's not even beer money.  Second, Obama has not conjured this "gift" out of thin air.  The 10% cap and 20-year forgiveness program are part of legislation slated to into effect in 2014; Obama is just moving it up 2 years.  Of course, 2012 just happens to coincide with the election.

The real question that will be answered next November is whether today's young adults care more about their future.  Rewarding Obama for an empty handout today is selling out the future of this country.

Still Here

It's been a little bit slow here lately, and there is a reason.  Seven weeks ago we welcomed our first son into the world.  Since then, finding time to sleep has been hard.  Finding time to keep up with current events has been even harder.  Finding the energy to have coherent thoughts and the time to put them into blog form has been, as you have seen, impossible.  But Gadsden Rising continues, and new content will be posted regularly again.

For starters, here is a must-see.  Scott Johnson, over at Powerline, has posted a brilliant video of Prof. Epstein discussing income inequality.  We have all been watching the collection of dolts, criminals, community organizers, nihilists, suckers, the naive/misinformed, anti-Semitic, and whathaveyou who have been occupying various cities streetcorners throughout America (and abroad, it seems) who are upset about things and want the banks destroyed or free money or student debt repaid or free food or they're-not-quite-sure-what-but-they-want-something.  These people claim to be the 99%.  Well.

As Prof. Epstein comments, the 1% probably does have a disproportionate amount of influence, but they hardly have a controlling influence.  If 99% of the population agreed on something, there is nothing the remaining 1% could do to counter it; the sheer number of votes proves this.  But what if a large number of the "99%" agreed with many or most of the principles that allow the 1% to exist in the first place?  Perhaps that number is better represented by the 53% of Americans who actually pay taxes.  Might be why the Occupiers are getting so little actual support, although their inability to articulate their demands is probably also a hindrance.

Taxing Millionaires...

...will do almost nothing.  According to the CBO, the democrat-proposed surtax on millionaires will raise about $450 billion over the next ten years.  We are currently operating at a deficit of about $100 billion per MONTH.  Do the math; we can take money from millionaires and openly engage in class warfare and achieve a deficit balance for 4 out of the next 120 months.  Taxing millionaires more will help us make up 3% of the deficit over the next decade.  Wow.  Looks like the perfect solution...if your definition of solution is to do something that accomplishes close to zero % of your goal.  Of course, it IS the perfect solution if your goal is to continue the ruination of the economy, expand the number of people dependent upon the government, disincent the accumulation of wealth and foment lasting class warfare.

Thought For the Day

As much of a juggernaut as the '85 Chicago Bears were, they did not repeat as champions.  In '86 (and '87), Washington ended their season.  

The Restaurant At The End Of The Universe

It's the follow-up book to Douglas Adam's Hitchhiker's Guide To The Galaxy.  In it, the characters wind up at a place called The Restaurant At The End Of The Universe, where during dinner they are able to watch the universe end. 

"Ladies and gentlemen," he said, "The Universe as we know it has now been in existence for over one hundred and seventy thousand million billion years and will be ending in a little over half an hour. So, welcome one and all to Milliways, the Restaurant at the End of the Universe!"

In the book, Milliways is only accessible via time travel.  Why is this important to current events?  Because although we don't have the ability, as yet, to travel through time, we do have people looking for Milliways.  Why look for Milliways?  Because many people are starting to realize that our economy is on the verge of collapse and will take pretty much the rest of the world with it if it, in the words of Monty Python, becomes an ex-economy, expires, ceases to be.  Here's Terry Coxon of Casey Research (via Zero Hedge):

By Terry Coxon, Casey Research

"A rock and a hard place" is a long-running theme of Casey Research publications. It refers to the dilemma the US government has wandered into with its continued policy of rescue inflation. The "rock" is what will happen if the Fed pauses for long in printing still more money – the collapse of an economy burdened by an accumulation of mistakes that rescue inflation has been keeping at bay. The "hard place" is the disruptive price inflation that becomes more likely (and likely more severe) with every new dollar the Fed prints to keep the effects of those mistakes suppressed.
When the dollar was cut loose from the gold standard in 1971, the Federal Reserve was freed to create as much new money as it saw fit, whenever it saw fit. Enabled, it turned with enthusiasm to doing what central bankers imagine they are supposed to do – eliminate downturns in the economy. The Fed fancied itself as being on the answering end of a 911 system: whenever the financial markets signaled distress, whenever the economy came down with the flutters, the Federal Reserve would dispatch a van, an ambulance, a fire engine or even an assault vehicle, whatever seemed right but in every case full of cash.
To most people, rescue inflation was entirely agreeable. It made their world more comfortable and seemed to make it safer. Comfortable, yes. Safer, no. The pernicious but entirely welcome effect of rescue inflation was to cover up mistakes and keep them going. It allowed people – especially people handling other people's money – to make progressively bigger mistakes. Lending on implausible mortgages and buying securities tied to those mortgages are the most recent examples, follies that required decades of training.
Rescue inflation allowed everyone to get away with everything. The assurance that a high-speed vehicle with flashing lights on top would always arrive in time let individuals pay for houses with a little cash and a big mortgage. It let corporate managers rely on borrowing heavily, rather than selling stock, to raise capital. It let investors cheerfully accumulate junk bonds. And it let banks hire and set loose bright young minds to design financial gizmos with astounding leverage guaranteed to deliver excellently profitable results for so long as the economy continued on its excellent and guaranteed way. All of those hang-glider stunts seemed safe because if at any point the prices of the assets underlying anyone’s commitment failed to rise... a Federal Reserve rescue inflation vehicle would surely dash to the scene. That’s what FedVans are for.
And rescue inflation let the politicians dodge the consequences of their own thoughtlessness. The economic drag of the tax rules the politicians found convenient to enact and the effects that deficit spending has on economic growth and on living standards were obscured by the ready supply of that all-purpose balm and lubricant, new money.
But problems that are hidden don't go away; they accumulate; and they grow. Answering its most recent 911 call (the one that rang in 2008), the Fed dispatched an entire fleet of trucks stuffed with cash. It increased the money supply by 40%, yet today the economy is barely staggering forward. At this point, creating more cash might buy some time, but it can't buy a solution.
The problem, unless you think there isn’t one, seems impossible to solve. But rather than dismissing the possibility of a way out, it would be more circumspect to consider how the economy might in fact navigate between the rock and the hard place. That won't happen simply because we've found a way for it to happen. The White House hasn’t called me in a long time. But if we understand what it would take to slip past the rock and the hard place, we can judge how likely such a passage is.
The economy doesn't need anyone to fix it. It's all that fixing for the last 40 years that is the problem. Unmolested, the economy will right itself. The only thing needed is for the Great Molester, the government, to surrender to a serious regimen of behavior modification and let the economy operate without suffocating interference. Then it would be able to shed its problems – not painlessly but quickly and with a minimum of pain. Here's the protocol.
Bring out your dead. Even after catching the trillions in bailout money thrown at them, some financial institutions remain under water – closer to the surface than before but still snorkeling. Let them go. Release them from their zombie state. Bless them with the peace of zero assistance and the promise of unbeing. Paying the dead to mimic the living casts a blight on all the banks that are competently managed, and it leaves trillions of dollars of capital to be allocated by hired hands who've shown by their performance that their talents call them to some other line of work.
And give up on mouth-to-mouth for the biggest corpse of all. Stop trying to prop up housing prices by financing the banking system's huge inventory of foreclosed property and by funding programs to slow the foreclosure rate. The housing market won’t recover its health until prices reach a market-clearing level.
Stop the acknowledged deficits now. That means cutting federal spending drastically. There's already unanimous lip service for doing so, but even if there were a genuine resolve to do it, there are an infinite number of ways to go about it. A clean starting point would be to revert to the last Clinton budget, which would almost certainly require getting by on one war at a time. Stopping the deficits is essential to allowing the economy to heal itself because it slows the wasting of resources and because it eliminates the fear of higher tax rates, which is a fear that retards business investment.
Make tax rules a little less stupid. The two most mischievous features of the Internal Revenue Code are the double-taxation of corporate profits and the deduction for home mortgage interest. The former is a powerful and dangerous invitation for high debt-to-equity ratios; make dividends tax-deductible for the paying company, and the problem goes away. The deductibility of mortgage interest has operated as an amplifier for everything the government does to encourage overinvestment in housing. Yes, eliminating the mortgage deduction will be another blow to the housing market, but since we're committed to bringing out the dead, let’s think about cremating the remains.
Stabilize tax rules. High tax rates are bad enough for the economy. Not knowing what next year's tax rates are going to be is much worse. It paralyzes business decisions. Make the current rates "permanent" in the sense that it would take further legislation to change them.
Reduce the legal minimum wage to zero. Minimum wage laws are convenient for labor unions whose members are somewhat skilled, but they toss the unskilled into the economic dumpster. A minimum wage law effectively prohibits the unskilled and inexperienced from working by pricing them out of the market. It’s an unemployment guarantee program for millions of the economically weakest people in the country. I’d miss the minimum wage, because there is nothing that shouts louder that government uses the poor as human shields to protect the state. But to let the economy recover, let it go.
Destrangulate. Repeal the Sarbanes-Oxley law and its weird spawn, Dodd-Frank. Repeal Obamacare. Allow individual states to license drugs without waiting on the FDA. End all prohibitions on insider trading. Charge banks for FDIC insurance at rates tied to a balance sheet formula – and then free them to make their own lending decisions. (You might like even more deregulation than that, but we're not building utopia, we're only trying to avoid camping in dystopia.)
Euthanasia for Social Security and Medicare. Raise the eligibility age by one month every year. The unfunded net liabilities for those programs (variously estimated at $60 trillion to $80 trillion) will evaporate, and everyone who has been counting on impossible promises being kept will have plenty of time to come to terms with reality.
That would do it, and that or something similar is what it would take. The economy might need a year or so for the dust to settle. A certain number of mental breakdowns would be provoked by the trashing of heart-felt assumptions, but for the other 99.9999999% of us, the Greater Depression would be canceled.
It's not politically impossible. Everyone, politician and politician-afflicted alike, is capable of a 180-degree course change when fear and pain become great enough. It's not impossible at all. And unicorns aren’t impossible. Typically, they get started when a pony is fighting a cowlick.
At the just-concluded Casey/Sprott Summit When Money Dies, the all-star faculty unanimously agreed that the US economy is in dire straits… and will be for a while. But there are ways to protect your assets and profit from this crisis. Listen to John Hathaway, Mike Maloney, Richard Hanley, Doug Casey, Chris Martenson, and many more expert speakers on more than 20 hours of audio recordings – incl. their best stock picks and hands-on investment advice. Learn more.

Should We Be Worried?

(H/T: the Mysterious Stranger)

Ever had that nagging feeling that something massive is about to happen? You're not alone:

Michael Malone, writing at ricochet.com has a fascinating article.  Remember (from history class, probably not personal recollection) who Gavrilo Princip was?  He was the young man who kicked off WWI by assassinating Arch-duke Franz Ferdinand.  Malone's article points out some interesting similarities between today's world and that of 100 years ago, and how delicate the balance is.

As it happens, I’ve been thinking about Princip lately – not the pathetic little man – but what he represents.  When, amazed at his luck that the Imperial motorcade had stalled in front of him, Princip pulled out that pistol and started shooting, he unknowingly tripped a series of switches in palaces and ministries across Europe – and eventually around the globe – that would lead to a four year war that would pull down the royalty of Europe, murder millions of soldiers and citizens, and set the stage for an even greater slaughter a quarter-century later.

But the fact that all of those servers and networks, storing and transferring much of the world’s financial and intellectual capital are also interlinked via the Web with few protections and no kill switch, is enormously dangerous. It gives the global economy, says Davidow, an unprecedented volatility and vulnerability to tiny events that can chain react at light speed into world-wide crises. 
Four years ago, when I read Bill’s first draft, I thought he was being a bit over-the-top.  After subsequent events, from the global economic crash to the Arab Spring, I now wonder if he didn’t go far enough.  Suddenly the pace of technological change (Moore’s Law) and the networking effect (Metcalfe’s Law), so long celebrated for their benefits to modern life, are now showing us their very sharp teeth.  We are now discovering to our dismay that the democratization of information not only can improve the lot of billions of people, but that it can also empower little men standing outside cafes with hatred in their brains and pistols in their pockets awaiting the chance to unleash both.

As for the United States, the world’s military protector and economic backstop, there is not only the greatest philosophical schism since the Civil War, but a dangerous lack of leadership at the top.  Even as it is crushing new business and new job creation at home with endless regulations and the corruption of corporatism, it is also projecting a self-righteous image of weakness abroad.  The lesson of history is that vacuums in leadership are always filled, more often by the ambitious than the responsible.  And that, at least in the short run, “soft” power is no defense against hard men.  Right now there are some very hard men out there leading nations, loading their pistols and eyeing their neighbors and rivals.

Michael Moore Is An Idiot

Michael Moore has joined in the chorus of buffoons who are protesting Wall Street.  He appeared on Olberman's show (which seems to have so few viewers that even Keith is taking a casual approach and going sans tie) to talk about how great the protests are. 

Here's a link to the clip.  See if you can figure out what the heck he's talking about.  I can only conclude that he's as misguided as the protestors...because if the folks on Wall Street have committed crimes you would want to march there and in other cities that have...people?...and not march on Washington and protest the Dept. of Justice's failure to act.  Wait, that's not it.  Moore says that people who are in charge of our economy are to blame...so that's Bernanke and Geithner and Obama?  No, Moore is programed to like and support those people.  Is it Congress?  No, better not go there...the democrats controlled congress during the "meltdown."

Confused yet?  Well, don't feel bad.  Moore is so confused he doesn't know that "tens of hundreds of billions" equals the "even trillions" he tries to stretch his tiny brain to understand.  Wonder what he would think if someone showed him how much money Obama has borrowed since taking office...of course, it would have to be described to him in terms of "tens of hundreds of billions."