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It was the best of times, it was the worst of times; it was the age of wisdom, it was the age of foolishness; it was the epoch of belief, it was the epoch of incredulity; it was the season of Light, it was the season of Darkness; it was the spring of hope, it was the winter of despair; we had everything before us, we had nothing before us; we were all going directly to Heaven, we were all going the other way. — Charles Dickens

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Devon Douglas-Bowers
Activist Post

We are in a time of crisis, a time of austerity, a time the where poor are getting poorer and the rich are getting richer at a faster pace than any other time in recent US history. We have gone from having a well-functioning economy to a real unemployment rate of 14.5% [1].

During all of this, the situation has greatly affected college students, who are taking on massive debt just to further their education. With student debt now being over $1 trillion, an examination is underway of how we have gotten into this scenario and how we can get our way out of it.

The situation began in 1964 when Lyndon B. Johnson established a task force to examine the role of federal government in student aid, headed by John W. Gardener. The task force firmly believed that cost shouldn’t be a barrier in attaining a college education; and to this end they concerned themselves with how lack of funds contributed to students being unable to attend college. Gardener focused on a study which revealed that one out of six students who took the National Merit Scholarship test in high school did not attend college. Of the students who did not attend college and who had families who could contribute only $300 or less to their education, about 75 percent of the men and 55 percent of the women indicated that they would have attended college if they had had more money available.[2] (emphasis added)

Upon seeing this information, Johnson was shocked as he viewed the situation as a loss in human capital.

This drove him to sign the the Higher Education Opportunity Act of 1965 into law. The bill included the recommendations put forth by the Gardener task force that the federal government should aid students in their journey to attain a higher education by providing loans, remedial classes, and grants to college-aspiring students, as well as special programs and projects for low-income students who have an interest in attending college. This allowed for low-income and middle-class students to have an opportunity to go to college.

Ellen H. Brown, Contributor
Activist Post

“The Social Security program…represents our commitment as a society to the belief that workers should not live in dread that a disability, death, or old age could leave them or their families destitute.” – President Jimmy Carter, December 20, 1977.

“[This law] assures the elderly that America will always keep the promises made in troubled times a half century ago…[The Social Security Amendments of 1983 are] a monument to the spirit of compassion and commitment that unites us as a people.” – President Ronald Reagan, April 20, 1983

So said Presidents Carter and Reagan, but that was before 1996, when Congress voted to allow federal agencies to offset portions of Social Security payments to collect debts owed to those agencies. (31 U.S.C. §3716). Now we read of horror stories like this:

I’m a 68 year old grandma of 2 young grandchildren. I went to college to upgrade my employment status in 1998 or 1999. I finished in 2000 and at that time had a student loan balance of about 3500.00.

Could not find a job and had to request forbearance to carry me. Over the years I forgot about the loan, dealt with poor health, had brain surgery in 2006 and the collection agents decided to collect for the loan in 2008. 

At no time during the 6-7 year gap did anyone remind me or let me know that I could make a minimum payment on the loan. Now that I am on Social Security (have been since I was 62), they have decided to garnishee my SS check to the tune of 15%. 

I have not been employed since 2004 and have the two dependents . . . . I don’t dispute that I owed them the $3500.00 but am wondering why they let it build up to somewhere around $17,000/20,000 before they attempted to collect.

Her debt went from $3500 to over $17,000 in 10 years! How could that be?

It seems that Congress has removed nearly every consumer protection from student loans, including not only standard bankruptcy protections, statutes of limitations, and truth in lending requirements, but protection from usury (excessive interest). Lenders can vary the interest rates, and some borrowers are reporting rates as high as 18-20%. At 20%, debt doubles in just 3-1/2 years; and in 7 years, it quadruples. Congress has also given lenders draconian collection powers to extort not just the original principal and interest on student loans but huge sums in penalties, fees, and collection costs.

The majority of these debts are being imposed on young people, who have a potential 40 years of gainful employment ahead of them to pay the debt off. But a sizeable chunk of U.S. student loan debt is held by senior citizens, many of whom are not only unemployed but unemployable. According to the New York Federal Reserve, two million U.S. seniors age 60 and over have student loan debt, on which they owe a collective $36.5 billion; and 11.2 percent of this debt is in default. Almost a third of all student loan debt is held by people aged 40 and over, and 4.2% is held by people over the age of 60. The total student debt is now over $1 trillion, more even than credit card debt. The sum is unsustainable and threatens to be the next debt tsunami.

Some of this debt is for loans taken out years earlier on their own schooling, and some is from co-signing student loans for children or grandchildren. But much of it has been incurred by middle-aged people going back to school in the hope of finding employment in a bad job market. What they have wound up with is something much worse: no job, an exponentially mounting debt that cannot be discharged in bankruptcy, and the prospect of old age without a social security check adequate to survive on.

Gone is the promise of earlier presidents of a “commitment to the belief that workers should not live in dread that a disability, death, or old age could leave them or their families destitute.” The plight of the indebted elderly is reminiscent of the Irish immigrants who came to America after a potato famine in the 19th century, who were looked upon in some places as actually lower than slaves. Plantation owners kept their slaves fed, clothed and cared for, because they were valuable property. The Irish were expendable, and they were on their own.

It is obviously not a good time to raise interest rates on student debt, but they are set to double on July 1, 2012, to 6.8%. Many lawmakers in both parties agree that the current 3.4% rates should be extended for another year, but they can’t agree on how to find the $6 billion that this would cost. Republicans want to take the money from a health care fund that promotes preventive care; Democrats want to eliminate some tax benefits for small business owners.

Congress cannot agree on $6 billion to save the students, yet they managed to agree in a matter of days in September 2008 to come up with $700 billion to save the banks; and the Federal Reserve found many trillions more. Estimates are that tuition could be provided free to students for a mere $30 billion annually. The government has the power to find $30 billion — or $300 billion or $3 trillion — in the same place the Federal Reserve found it: it can simply issue the money.

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Congress is empowered by the Constitution to “coin money” and “regulate the value thereof,” and no limit is set on the face amount of the coins it creates. It could issue a few one-billion dollar coins, deposit them in an account, and start writing checks.

But wouldn’t that be inflationary? No. The Fed’s own figures show that the money supply (M3) has shrunk by $3 trillion since 2008. That sum could be added back into the economy without inflating prices. Gas and food are going up today, but the whole range of prices must be considered in order to determine whether price inflation is occurring. Housing and wages are significantly larger components of the price structure than commodities, and they remain severely depressed.

There is another way the government could find needed funds without raising taxes, slashing services, or going further into debt: Congress could re-finance the federal debt through the Federal Reserve, interest-free. Canada did this from 1939 to 1974, keeping its national debt low and sustainable while funding massive programs including seaways, roadways, pensions, and national health care. The national debt shot up only when the government switched from borrowing from its own central bank to borrowing from private lenders at interest. The rationale was that borrowing bank-created money from the government’s own central bank inflated the money supply, while borrowing existing funds from private banks did not. But even the Federal Reserve acknowledges that private banks create the money they lend on their books, just as central banks do.

U.S. taxpayers now pay nearly half a trillion dollars annually to finance our federal debt. The cumulative figure comes to $8.2 trillion paid in interest just in the last 24 years. By financing the debt itself rather than paying interest to private parties, the government could divert what it would have paid in interest into tuition, jobs, infrastructure and social services, allowing us to keep the social contract while at the same time stimulating the economy.

For students, at the very least the bankruptcy option needs to be reinstated, usury laws restored, predatory practices eliminated, and the cost of education brought back down to earth. One possibility for relieving the burden on students would be to give them interest-free loans. The government of New Zealand now offers 0% loans to New Zealand students, with repayment to be made from their income after they graduate. For the past twenty years, the Australian government has also successfully funded students by giving out what are in effect interest-free loans. The loans in the Australian Higher Education Loan Programme (or HELP) do not bear interest, but the government gets back more than it lends, because the principal is indexed to the Consumer Price Index (CPI), which goes up every year.

Predatory lenders are keeping us in debt peonage through misguided economics and bank-captured legislators. We have people who desperately want to work, to the point of going back to school to try to improve their chances; and we have mountains of work that needs to be done. The only thing keeping them apart is that artificial constraint called “money”, which we have allowed to be created by banks and let out at interest when it could have been created by public institutions for public purposes, either by direct issuance or through publicly-owned banks. We just need to recognize our oppressors and throw off their yoke, and the good times can roll again.

Ellen Brown is a monetary reform activist and advocate of public banking. She is the author of eleven books including Web of Debt and she’s the president of the Public Banking Institute, and runs the websites WebofDebt.com and EllenBrown.com.

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Stephen Lendman, Contributor
Activist Post

This writer’s recent book titled How Wall Street Fleeces America: Privatized Banking, Government Collusion and Class War includes a chapter on America’s student loan racket. It discusses the issue in detail.

It explains a disturbing government/corporate partnership. Students are exploited for profit. Providers are enriched. For many, rising tuition and fees make higher education unaffordable. Others need large loans to attend. As a result, they become debt entrapped.

Some face burdens up to $100,000 or higher. If unpaid after 30 years, it’s a $500,000 obligation. If one defaults or declares bankruptcy, it’s unforgiven. Bondage is permanent.

Lenders thrive from defaults. Wages can be garnished. So can portions of Social Security and other retirement benefits. A conspiratorial alliance of lenders, guarantors, servicers, and collection companies derive income from debt service and inflated collection fees.

Education today grows more unaffordable. Many students are priced out and can’t attend. Others become debt entrapped. Growing numbers remain there for life. A predatory system fleeces them.

Principal, accrued interest, late payment and collection agency penalties create enormous burdens to repay.

Once entrapped, escape is impossible. Unless repaid, future lives and careers are impaired. Today’s economic crisis exacerbates conditions. Job opportunities are scarce. Ones for higher education grads are even fewer.

Around year-end 2011, student debt exceeded $1 trillion. It’s staggering. It increases nearly $3,000 per second. It exceeds credit card and auto loan obligations. It’s second only to outstanding mortgage debt. It’s rising exponentially.

A lost generation threatens.

It’s part of the grand scheme to transfer maximum wealth to America’s super-rich. It’s been ongoing for decades. Under Obama, it has accelerated.

On May 12, The New York Times addressed the issue. Titled “A Generation Hobbled by the Soaring Cost of College,” writers Andrew Martin and Andrew Lehren overall did a credible job worth reading.

Ohio Northern University’s Kelsey Griffith was mentioned.

To start paying off her $120,000 in student debt, she is already working two restaurant jobs and will soon give up her apartment here to live with her parents. Her mother, who co-signed on the loans, is taking out a life insurance policy on her daughter.

Griffith knew college costs were high. She never imagined owing $900 a month after graduating. “No one told me that,” she said.

Nearly every baccalaureate candidate borrows to attend. Most can’t imagine a future “unprecedented financial burden.”

Ninety-four percent of students who earn a bachelor’s degree borrow to pay for higher education — up from 45 percent in 1993.

According to Consumer Financial Protection Bureau deputy director Rajeev Date:

If one is not thinking about where this is headed over the next two or three years, you are just completely missing the warning signs.

He compares student loans to risky mortgages. Its extraordinary growth surprised many. Its roots, in fact, are deep. Its “cast of characters” includes college marketing officers, state and federal lawmakers, administration officials, and predatory lenders, guarantors, servicers, and collection companies.

Loans are easy to get. They’re tough to service. They’re not forgiven. For many in today’s job market, they’re impossible. Onerous debt escalates to greater amounts. A vicious circle entraps graduates and dropouts, many for life.

Since crisis conditions erupted, states and cities nationwide slashed budgets. Education paid heavily. Adjusted for inflation, spending per college student reached a 25-year low.

At the same time, tuition and fees keep rising exponentially. If current trends continue “through 2016, the average cost of a public college (education) will have more than doubled” in the last 15 years.

Students and parents are unprepared. So-called experts claim not attending college is worse than graduating with debt. They, of course, have none to repay, and feel secure in well-paid jobs in an unfriendly environment for new grads.

Obama let a bad situation fester. Last October, he offered pathetic relief. Repayment schedules were relaxed slightly. Only federal loans are affected. Students in default don’t qualify. Moreover, for everyone who does, two or more fall behind in payments. A bad situation grows worse.

At most for the few qualifiers, savings are miniscule. At most, they’re about one-half of 1% on interest.

Nearly 10% of borrowers who began repayments in 2009 defaulted in two years. It’s double the 2005 rate. Some worry about the student loan system replicating the housing crisis. Doing so would have enormous economic implications.

Economists say the issue “hangs over the (economy) like a dark cloud for a generation of college graduates and indebted dropouts.”

Major purchases are delayed or abandoned. At issue is repaying student debt forever, according Bowling Green State University dropout Chelsea Grove. She owes $70,000. She’s working three part-time jobs. She’s not going back. She can’t afford it.

Twenty-three-year old Chistina Hagan is an Ohio lawmaker. She also attends Malone University. She’ll graduate shortly with over $65,000 in debt. Despite earning $60,000 a year, she’ll take a waitress job to service her $1,000 a month obligation. For her, it includes credit card debt.

Nationwide from 2001 – 2011, state and local per student financing dropped 24%. Over the same period, state school tuition and fees rose 72%.

Ohio State University gets 7% of its budget from Columbus. A decade ago it was 15%. In 1990, it was 25%. Decades earlier at some state universities, students attended free.

Today’s financial reality creates enormous burdens. At issue is handling costs and repayment obligations. Then it’s about finding decent jobs too few in number.

Few understand what they’ll face. Colleges recruit students aggressively. Financial aid is touted. Fine print language is a “minefield” to understand.

Some are written in a manner that suggests the student is getting a great deal, by blurring the line between grants and loans or not making clear how much the student may have to pay or borrow.

What’s portrayed as “doable” and “normal,” in fact, becomes onerous and unmanageable. Annual tuition increases aren’t factored in. Neither is inflation and high interest rates.

College admissions staff don’t explain.

While there are standardized disclosure forms for buying a car or a house or even signing up for a credit card, no such thing exists for colleges.

College costs are complex. Besides rising tuition and fees, “a vast array of grants and loans and a financial-aid system that discounts tuition for most students (use hard to understand) opaque formulas.”

Moreover, colleges avoid discussing affordability issues and possible future debt obligations. Growing numbers are like Wanda McGill. She “stopped opening her student loan bills.”

She’s not sure how much she owes but thinks it’s about $100,000. She can’t service it. After exhausting her funds, she dropped out of DeVry University’s Columbus branch. Now she earns $8.50 an hour.

‘I was promised the world and was given a garbage dump to clean up,’ she said. ‘Like my life was not already screwed up with welfare and all.’

She’s not alone. Epidemic conditions rage across America. An Occupy Student Debt protest joined other OWS campaigns.

Its website “What You Need To Know” section says:

We did what we were told to do and ‘followed our dreams,’ but we are now trapped by what was meant to be an investment in our futures, not a noose. 

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Obama’s recent student loan ‘reform’ has done nothing for those in default, or those of us with private (bank-backed) loans through Sallie Mae, Citibank, and so on. 

If we default, we cannot rent or buy homes, or even find jobs with the 60% of employers that check credit. Our professional licenses (i.e. nursing/teaching) can be revoked. And with the fees assigned to defaulted loans that double the amount owed, getting back on one’s feet is nearly impossible. 

Not only would voluntarily defaulting do nothing to solve the underlying problem of out-of-control student loan debt, but defaulting can result in any number of detrimental outcomes, including, but not limited to the consequences listed above.

Today’s crisis spread from for-profit institutions to others. However, former ones represent the worst problem. Students complain they’re mislead. Lawsuits charge fraud, deception, doctoring attendance records, or offering near-worthless degrees.

As a result, their students are twice as likely to default. Among baccalaureate candidates, only 22% succeed in six years. At non-profit private schools, it’s 65%, and at public ones it’s 55%.

According to American Association of Collegiate Registrars and Admissions Officers associate executive director Barmak Nassirian:

Mainstream higher ed can really self-righteously look at the big problem out there and say, ‘The problem lies with the other guy. 

But there are all kinds of unfortunate practices in traditional higher education that are equally as problematic that are reaching the crisis point.

Political Washington largely ignores the problem. It’s done little to curb abuses. Action belies lip service. A sinkhole of trouble deepens. A lost generation threatens.

Higher education today involves crushing debt burdens too onerous to repay. Rising poverty, unemployment, few job prospects, and a system sucking wealth to America’s super-rich makes today’s crisis unmanageable.

Education beyond secondary school once meant brighter futures. Today it ensures debt entrapment too demanding to repay. Neoliberal harshness polarized American society along class lines. It also affects Europe.

In modern times, it’s harder than ever to cope. For growing numbers of deeply indebted students it’s impossible. Their dreams became no-escape nightmares.

Stephen Lendman lives in Chicago and can be reached at lendmanstephen@sbcglobal.net. His new book is titled How Wall Street Fleeces America: Privatized Banking, Government Collusion and Class War

Also visit his blog site at sjlendman.blogspot.com and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.

http://www.progressiveradionetwork.com/the-progressive-news-hour/

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Michael Snyder, Contributor
Activist Post

The U.S. government has stolen $15,876,457,645,132.66 from future generations of Americans, and we continue to add well over a hundred million dollars to that total every single day day.

The 15 trillion dollar binge that we have been on over the past 30 years has fueled the greatest standard of living the world has ever seen, but this wonderful prosperity that we have been enjoying has been a lie. It isn’t real. We have been living way above our means for so long that we do not have any idea of what “normal” actually is anymore.

But every debt addict hits “the wall” eventually, and the same thing is going to happen to us as a nation. At some point the weight of our national debt is going to cause our financial system to implode, and every American will feel the pain of that collapse. Under our current system, there is no mathematical way that this debt can ever be paid back. The road that we are on will either lead to default or to hyperinflation. We have piled up the biggest debt in the history of the world, and if there are future generations of Americans they will look back and curse us for what we did to them. We like to think of ourselves as much wiser than previous generations of Americans, but the truth is that we have been so foolish that it is hard to put it into words.

Whenever I do an article about the national debt, Democrats leave comments blaming the Republicans and Republicans leave comments blaming the Democrats.

Well you know what? Both parties are to blame. Both of them get a failing grade.

If the Republicans really wanted to stop the federal government from running up all this debt they could have done it.

If the Democrats really wanted to stop the federal government from running up all this debt they could have done it.

So let’s not pretend that one of the political parties is “the hero” in this little drama.

The damage has been done, and both parties will go down in history as being grossly negligent on fiscal issues during this period of American history.

Sadly, neither party is showing any signs of changing their ways.

Neither Barack Obama nor Mitt Romney is promising to eliminate the federal budget deficit in 2013. They both talk about how the budget will be balanced “someday”, but as we have seen so many times in the past, “someday” never comes.

I didn’t mean to get political in this article, but the truth is that the national debt threatens to destroy everything that previous generations have built, and our politicians continue to give us nothing but excuses.

The following are 27 things that every American should know about the national debt….

#1 It took more than 200 years for the U.S. national debt to reach 1 trillion dollars. In 1986, the U.S. national debt reached 2 trillion dollars. In 1992, the U.S. national debt reached 4 trillion dollars. In 2005, the U.S. national debt doubled again and reached 8 trillion dollars. Now the U.S. national debt is about to cross the 16 trillion dollar mark. How long can this kind of exponential growth go on?

#2 If the average interest rate on U.S. government debt rises to just 7 percent, the U.S. government will find itself spending more than a trillion dollars per year just on interest on the national debt.

#3 If right this moment you went out and started spending one dollar every single second, it would take you more than 31,000 years to spend one trillion dollars.

#4 Since Barack Obama entered the White House, the U.S. national debt has increased by an average of more than $64,000 per taxpayer.

#5 Barack Obama will become the first president to run deficits of more than a trillion dollars during each of his first four years in office.

#6 If you were alive when Jesus Christ was born and you spent one million dollars every single day since that point, you still would not have spent one trillion dollars by now.

#7 The U.S. national debt has increased by more than 1.6 trillion dollars since the Republicans took control of the U.S. House of Representatives. So far, this Congress has added more to the national debt than the first 97 Congresses combined.

#8 During the Obama administration, the U.S. government has accumulated more new debt than it did from the time that George Washington became president to the time that Bill Clinton became president.

#9 If Bill Gates gave every single penny of his fortune to the U.S. government, it would only cover the U.S. budget deficit for 15 days.

#10 As Bill Whittle has shown, you could take every single penny that every American earns above $250,000 and it would only fund about 38 percent of the federal budget.

#11 Today, the government debt to GDP ratio in the United States is well over 100 percent.

#12 A recently revised IMF policy paper entitled “An Analysis of U.S. Fiscal and Generational Imbalances: Who Will Pay and How?” projects that U.S. government debt will rise to about 400 percent of GDP by the year 2050.

#13 The United States already has more government debt per capita than Greece, Portugal, Italy, Ireland or Spain does.

#14 At this point, the United States government is responsible for more than a third of all the government debt in the entire world.

#15 The amount of U.S. government debt held by foreigners is about 5 times larger than it was just a decade ago.

#16 The U.S. national debt is now more than 22 times larger than it was when Jimmy Carter became president.

#17 It is being projected that the U.S. national debt will surpass 23 trillion dollars in 2015.

#18 Mandatory federal spending surpassed total federal revenue for the first time ever in fiscal 2011. That was not supposed to happen until 50 years from now.

#19 Between 2007 and 2010, U.S. GDP grew by only 4.26%, but the U.S. national debt soared by 61% during that same time period.

#20 The U.S. government has total assets of 2.7 trillion dollars and has total liabilities of 17.5 trillion dollars. The liabilities do not even count 4.7 trillion dollars of intragovernmental debt that is currently outstanding.

#21 U.S. households are now actually receiving more money directly from the U.S. government than they are paying to the government in taxes.

#22 The U.S. government is wasting your money on some of the stupidest things imaginable. For example, in 2011 the National Institutes of Health spent $592,527 on a study that sought to figure out once and for all why chimpanzees throw poop.

#23 If the federal government used GAAP accounting standards like publicly traded corporations do, the real federal budget deficit for last year would have been 5 trillion dollars instead of 1.3 trillion dollars.

#24 The Federal Reserve purchased approximately 61 percent of all government debt issued by the U.S. Treasury Department during 2011.

#25 At this point, the U.S. national debt is more than 5000 times larger than it was when the Federal Reserve was first created.

#26 If the federal government began right at this moment to repay the U.S. national debt at a rate of one dollar per second, it would take over 480,000 years to completely pay off the national debt.

#27 The official government debt figure does not even account for massive unfunded liabilities that the U.S. government will be hit with in the years ahead. According to Professor Laurence J. Kotlikoff, the U.S. government is facing a future “fiscal gap” of more than 200 trillion dollars.

As the U.S. economy continues to crumble, even more Americans are going to become financially dependent on the federal government.

For example, spending on food stamps has doubled since 2008. Millions of Americans have lost their jobs and have needed some assistance from the government. Since Obama became president the number of Americans on food stamps has gone from 32 million to 46 million.

But the Obama administration believes that a lot more Americans should be enrolled in the food stamp program. The Obama administration is now spending millions of dollars on ads that urge even more people to sign up for food stamps. In fact, their efforts to get even more Americans to sign up for food stamps have become very creative….

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The government has been targeting Spanish speakers with radio ‘novelas’ promoting food stamp usage as part of a stated mission to increase participation in the Supplemental Nutrition Assistance Program (SNAP), or food stamps. 

Each novela, comprising a 10-part series called ‘PARQUE ALEGRIA,’ or ‘HOPE PARK,’ presents a semi-dramatic scenario involving characters convincing others to get on food stamps, or explaining how much healthier it is to be on food stamps.

I’m all for helping those that cannot feed themselves, but do we really need to run ads urging more people to become dependent on the government?

Of course Obamacare is going to cause our debt to balloon in size as well. It is being projected that Obamacare will add more than 2.6 trillion dollars to the U.S. national debt over the first decade alone.

So where are we going to get all this money?

We can’t keep spending money that we do not have. We have got to prioritize. Every single category of government spending needs to be cut.

But instead we feel like we can keep ripping off future generations of Americans and that we will always be able to get away with it.

What we have done to our children and our grandchildren is beyond criminal.

The truth is that we should have listened to the warnings of our founding fathers about government debt. For example, Thomas Jefferson once said that if he could add just one more amendment to the U.S. Constitution it would be a complete ban on all borrowing by the federal government….

I wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its Constitution; I mean an additional article, taking from the federal government the power of borrowing.

Where would we be today if we had taken the advice of Thomas Jefferson?

That is something to think about.

You can support this information by voting on Reddit HERE

This article first appeared here at the Economic Collapse Blog.  Michael Snyder is a writer, speaker and activist who writes and edits his own blogs The American Dream and Economic Collapse Blog. Follow him on Twitter here.

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Michael Snyder, Contributor
Activist Post

Every single year, millions of young adults head off to colleges and universities all over America full of hopes and dreams. But what most of those fresh-faced youngsters do not realize is that by taking on student loan debt they are signing up for a life of debt slavery. Student loan debt has become a trillion dollar bubble which has shattered the financial lives of tens of millions of young college graduates. 

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Eric Blair
Activist Post

I’m thrilled that the trillion dollar coin idea is being taken seriously by the establishment. Not because I think it is a viable solution to the national debt, necessarily, but because it shows just how close our monetary system is to reform.

First, for those not familiar with the trillion dollar coin; the idea is that the U.S. Treasury can coin any monetary value they want for whatever purpose they choose.

In this case the idea has been floated to Obama to avert the mandatory raising of the debt ceiling by coining a trillion dollar coin. In other words, Obama can use the coin to pay off a trillion in debt to allow an increase in federal spending without Congress’ approval.

Some economists argue that it is essentially creating more money out of thin air and thus will cause inflation. Other economists claim that since no new money is being put into circulation, no inflation will result. So who’s right?

They’re both right to a certain degree. Inflation occurs when there’s an expansion in the supply of money. The two best examples of how this works are the housing bubble and the college tuition bubble (and soon-to-be healthcare bubble).

In both these cases unnatural (not free market) amounts of money were injected directly into those sectors of the economy and the result was massive inflation. Put another way, there was a rapid expansion in the supply of money to those industries.

Housing Bubble: With restrictions loosened on the banks and the government guaranteeing loans, incredible amounts of easy subprime money flooded the real estate market in the mid-1990s resulting in an unprecedented increase in property prices until the bubble popped in 2007.

College Tuition Bubble: Since the US government took over student loans from the free market and made them readily available to any warm body who desired to go to college, the price of tuition exploded compared to the general rate of inflation due to new but previously nonexistent “demand”.

But, you may ask, the Fed has been printing incredible amounts of money including trillions in bailouts, so why haven’t we seen runaway inflation in the overall economy?

New 1oz Silver Coin

The answer is that that money never reached the real economy. It was just absorbed by toxic paper and used to scrub the books at the banks. Sure, some of that money crept into the economy (mostly in the form of banker bonuses) and some inflation has occurred from the bailouts.

This is the concept behind why the trillion dollar coin will not cause inflation; because it will simply be absorbed by the government’s toxic debt and not enter the real economy. However, the purpose of the coin is to allow the government to increase spending by a larger margin than they previously would be permitted, thus eventually resulting in inflation when that new money is spent.

In summary, bailouts of debt do not cause inflation by themselves; spending of new money into the real economy causes inflation. That is why they can’t directly bailout the people without causing massive inflation.

Supporters of big government spending like Paul Krugman hail the coin as a creative way to “solve” the debt ceiling problem. Meanwhile, deficit and inflation hawks call the idea stupid and point to inflation.

Interestingly, during the last debt ceiling debate, leading inflation hawk Ron Paul proposed a similarly creative solution that received far less attention. Paul suggested that the Federal Reserve just write off their nearly $2-trillion part of the national debt that they hold. Paul stated that since the Fed is our central bank we essentially owe the money to ourselves.

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Funny, I don’t remember any Austrian economists calling Paul’s idea stupid even though it accomplished the exact same thing that the trillion dollar coin does. In truth Paul’s idea was more about revealing the Ponzi nature of the monetary system and the true nature of the Fed than as an actual solution.

Both cases of the coin or a Fed write-off reveal the fraudulent nature of the so-called debt crisis or even the urgency in having to raise taxes. If these tools exist, why do we need to pay taxes at all? That is an important question Michael Snyder addressed in a recent article.

The point is that our monetary system in relation to government spending is so broken that fringe ideas like the trillion dollar coin are actually being taken seriously. It represents a signpost of approaching monetary reform.

Yet the motivation is to allow even more government spending, which is in just as much need of reform as the monetary system. We can’t fix one without the other.

Most of all, the trillion dollar coin represents an opportunity for the public to learn how phony the entire system is; that crises aren’t really crises at all, and that austerity is unnecessary enslavement.

When that sinks in people may begin to wonder why the monetary system works the way it does and what it could be replaced with.

Read more articles by Eric Blair Here.

Stephen Lendman

Activist Post

For growing numbers of American youths, higher education is increasingly out of reach. High tuition and fees make it unaffordable. So does a disturbing government/corporate partnership.

Millions of students need financial aid. They’re exploited for profit. Providers are enriched. Higher education involves debt entrapment.

Students graduate tens of thousands of dollars in debt. Some post-graduates face burdens up to $100,000. If unpaid after 30 years, it’s multiples higher. If default or declare bankruptcy, it’s unforgiven. Bondage is permanent until repaid.

Loan providers thrive from defaults. Wages can be garnished. So can unemployment benefits, disability payments, tax refunds, as well as Social Security and other retirement benefits.

A conspiratorial alliance of lenders, guarantors, servicers, and collection companies derive income from debt service and inflated collection fees. College marketing officers, state and federal legislators, and administration officials are complicit with them.

Principle, accrued interest, late payment and collection agency penalties create enormous burdens to repay. Private lenders are exempt from federal fair debt collection requirements. Federal loans have minimal safety net protection.

Lenders operate virtually risk-free. The system is rigged against borrowers. Loans are easy to get. They’re tough to service. They’re not forgiven. Burdensome debt escalates higher. A vicious circle entraps graduates and dropouts. For many it’s permanent.

Once entrapped, escape is impossible. Unless repaid, future lives and careers are impaired. Today’s economic crisis exacerbates conditions. Job opportunities are scarce. High-pay/good benefit ones are fast disappearing.

A lost generation threatens. At issue is exploiting ordinary people for profit, transferring maximum wealth to corporate favorites and super-rich elites, as well as thirdworldizing America. A race to the bottom defines it.

What began decades earlier, Obama accelerated. He’s beholden to monied interests. He spurns populist ones. He’s done so throughout his tenure.

He’s waging class war. He’s in lockstep with Republicans and most Democrats. He’s gutting America’s social contract en route to eliminating it altogether.

For millions of higher education aspirants, affordability puts it increasingly out of reach. Others attaining it face onerous debt repayment burdens.

From 1971 – 1989, Robert Stafford was Republican Senator from Vermont. He was considered moderate compared to bipartisan extremists now running things.

In 1988, Congress renamed the Federal Guaranteed Loan program in his name. It did so for his work on higher education. Eligible students in accredited US institutions may apply for Stafford Loan help.

They’re federally guaranteed. Lower interest rates are offered. As explained above, repayment is mandatory. Debt bondage on all student loans remains until repaid.

If default or declare bankruptcy, it’s unforgiven. It’s the only loan obligation mandated this way.

PLUS Loans are offered to parents. They’re committed to repay. They’re for students enrolled at least half time.

They must be in eligible undergraduate or post-graduate institutions. Currently, fixed 7.9% interest rates are charged. They’re from initial disbursement until final loan repayment.

On July 1, Stafford rates will double. PLUS Loan rates will increase. They’ll do so unless Congress intervenes. Republicans, most Democrats and Obama agree in principle.

In 2012, bipartisan agreement was reached. It was for one year only. Subsidized Stafford Loan rates remained 3.4%.

At issue now is what follows. The fate of million of students hangs in the balance. Both parties claim they want rates kept from doubling. Rhetoric differs from policy. Republicans control the House.

On May 23, they passed HR 1911: Smarter Solutions for Students Act. Smarter for whom wasn’t explained. Not for students for sure. Passage reflects greater debt bondage.

Obama and most Democrats rhetorically distanced themselves from Republicans. Doing so differs from what they support. Both parties largely agree.

Republicans want interest rates tied to 10-year Treasury note yields + 2.5% and 4.5% for Stafford Loans and PLUS loans respectively. They’d be capped at 8.5% and 10.5%.

In December 2008, the Fed cut its overnight federal funds rate to a range of zero – 0.25%. Banks can borrow short-term for virtually nothing.

They can keep doing so by borrowing to repay what’s owed. At the same time, the Fed pays interest on required reserve balances. It does so for amounts held at Reserve Banks.

The Fed is privately owned and controlled. Major Wall Street banks do so. Reserve Banks issue stock shares to members. It’s conditional of being part of the system.

They can’t be sold, traded or pledged for loans. Why bother in today’s near-zero rate environment? Banks alone benefit. Dividends are guaranteed. By law, they’re 6% annually. It’s sure money. It accrues to bottom line profits.

Borrowing for virtually nothing helps maintain them. Republicans wants student loan rates up to 10.5%. Democrats aren’t much better. Obama’s plan may be worse.

It offers short-term relief only. He’s comfortable with much higher long-term costs. Republicans want rates capped.

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Obama excludes doing so. He wants market forces setting them. He wants them based on when loans were issued. Eventually rates will rise. From past experience, they could be well into double digits at some point.

With no cap, the sky’s the limit. In 1979, the fed funds rate averaged 11.2%. In June 1981, it peaked at 20%. Savers were well compensated. Today they’re cheated.

Borrowers were severely penalized. They still are via credit cards, other consumer rates, and student loans. Bipartisan complicity wants them more made more onerous.

Debt entrapment already is policy. It’s long-term or permanent. Obligations can’t be erased. Raising interest rates exacerbates today’s burden.

Regardless of inflation changes, tuition and fees rise annually. Future costs become less affordable. Greater burdens are created. For many students, higher education’s out of reach entirely.

Worse still is how few good jobs await graduates. Desired careers become unattainable. Low-pay employment makes debt service and loan repayments harder.

For many, permanent debt bondage is certain. There’s no escape. Around 38 million borrowers face loan repayment burdens. About 10% default within two years. Many more do thereafter. Doing so means added penalties.

Last March, student debt topped $1 trillion. Currently it’s over $1.1 trillion. It increases by about $3,000 per second. Only home mortgage debt exceeds it. Some economists call it a dangerous bubble. Bursting would impact economic conditions significantly.

The student loan crisis grows increasingly worse. Relief is badly needed. Nothing ahead appears promising. America’s ownership society is heartless. Popular interests don’t matter. What’s ahead looks grim.

Stephen Lendman lives in Chicago and can be reached at lendmanstephen@sbcglobal.net. His new book is titled How Wall Street Fleeces America: Privatized Banking, Government Collusion and Class War Also visit his blog site at sjlendman.blogspot.com and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening. http://www.progressiveradionetwork.com/the-progressive-news-hour/

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Dees Illustration

Michael Snyder
Activist Post

Anyone who thinks that the U.S. economy can keep going along like this is absolutely crazy.  We are in the terminal phase of an unprecedented debt spiral which has allowed us to live far, far beyond our means for the last several decades.  Unfortunately, all debt spirals eventually end, and they usually do so in a very disorderly manner.

The chart that you are about to see is one of my favorite economic charts.  It compares the growth of U.S. GDP to the growth of total debt in the United States. Yes, U.S. GDP has certainly grown at a decent pace over the years, but our total debt has absolutely exploded.

40 years ago, the total amount of debt in our system (government debt + corporate debt + consumer debt, etc.) was about 2 trillion dollars.  Today it has grown to more than 56 trillion dollars.  Our debt has grown at a much, much faster rate than our economy has, and there is no way in the world that we will be able to continue to do that for long.

Posted below is the chart that I was talking about.  The blue line is our total debt, and the red line is our GDP.  As you can see, this chart kind of speaks for itself…

So how did we get here?

Well, of course the federal government has been the biggest offender.  It would be a tremendous understatement to say that the politicians in Washington D.C. have been reckless.  Since the year 2000, the size of the U.S. national debt has grown by more than 11 trillion dollars.

Posted below is a chart that demonstrates the dramatic growth of the national debt as a percentage of GDP.  In particular, our debt has absolutely exploded as a percentage of GDP since the financial crisis of 2008…

Does that look sustainable to you?

Of course it isn’t.

Right now, the mainstream media is very excited that the federal budget deficit for this year might be less than a trillion dollars, but they are really missing the point.  The debt of the U.S. government is still growing much, much faster than the economy is, and the United States already has more government debt per capita than Greece, Portugal, Italy, Ireland or Spain.

What we are doing to future generations is absolutely criminal.  We are piling up mountains of debt that will haunt them for the rest of their lives just so that we can make the present a little bit more pleasant for ourselves.

As I noted in another article, during Obama’s first term the federal government accumulated more debt than it did under the first 42 U.S presidents combined.  And now we are entering a time period when demographic forces are going to put a tremendous amount of pressure on the finances of the federal government.

The Baby Boomers have started to retire, and they are going to want to start collecting on all of the financial promises that we have made to them.

As I have written about previously, the number of Americans on Medicare is projected to grow from a little bit more than 50 million today to 73.2 million in 2025.

The number of Americans collecting Social Security benefits is projected to grow from about 56 million today to 91 million in 2035.

Where are we going to get the money to pay for all of that?

Boston University economist Laurence Kotlikoff has calculated that the U.S. government is facing unfunded liabilities of 222 trillion dollars in the years ahead.

There is no simply no way that the U.S. government is going to be able to meet those obligations without wildly printing up money.

And of course the federal government is not the only one with massive debt problems.  We just saw the city of Detroit go bankrupt, and there are lots of other communities all over the nation that could soon follow.

Posted below is a chart that shows the growth of state and local government debt over the years.  In particular, please take note that the total amount of state and local government debt has grown from about 1.2 trillion dollars in the year 2000 to about 3 trillion dollars today…

But the chart posted above does not even take into account the massive unfunded pension obligations that state and local governments are facing.  According to the Detroit Free Press, state governments are facing unfunded pension obligations of nearly a trillion and a half dollars…

From Baltimore to Los Angeles, and many points in between, municipalities are increasingly confronted with how to pay for these massive promises. The Pew Center for the States, in Washington, estimated states’ public pension plans across the U.S. were underfunded by a whopping $1.4 trillion in 2010.

And many large cities are dealing with similar situations.  Detroit was the first to go down, but could Chicago or Los Angeles eventually be forced to declare bankruptcy too?…

Chicago recently saw its credit rating downgraded because of a $19-billion unfunded pension liability that the ratings service Moody’s puts closer to $36 billion. And Los Angeles could be facing a liability of more than $30 billion, by some estimates.

According to a report that was released earlier this year, the largest U.S. cities are facing hundreds of billions of dollars in unfunded pension liabilities at this point…

Early this year, the Pew Center released a survey showing that 61 of the nation’s largest cities — limiting the survey to the largest city in each state and all other cities with more than 500,000 people — had a gap of more than $217 billion in unfunded pension and health care liabilities. While cities had long promised health care, life insurance and other benefits to retirees, “few … started saving to cover the long-term costs,” the report said.

So where will all of that money come from?

That is a good question, and nobody has an easy answer at this point.

Meanwhile, U.S. consumers have been racking up staggering amounts of debt over the past several decades.  Just consider the following numbers…

-Total home mortgage debt in the United States is now about 5 times larger than it was just 20 years ago.

-Car loans just keep getting longer and longer, and approximately 70 percent of all car purchases in the United States now involve an auto loan.

-The total amount of student loan debt in America recently surpassed the one trillion dollar mark.

-One study discovered that approximately 41 percent of all working age Americans either have medical bill problems or are currently paying off medical debt, and according to a report published in The American Journal of Medicine medical bills are a major factor in more than 60 percent of the personal bankruptcies in the United States.

-Consumer debt in the United States has risen by a whopping 1700% since 1971, and 46% of all Americans carry a credit card balance from month to month.

Sadly, most people don’t realize how damaging credit card debt can be.  If you just carry an “average balance” on your credit cards each month, and those credit cards have just an “average” interest rate, you could end up paying millions of dollars to the credit card companies by the end of your life…

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Let’s say you are an average American household, and you carry an average balance of $15,956 in credit card debt.

Also, as an average American household, let’s assume you pay an average current rate of 12.83%.

Finally, let’s assume you carry this average balance for 40 years, between ages 25 and 65.  How much did your credit card company make off of you and your extreme averageness?

Answer: $2,629,618.64

Incredibly, a large percentage of the population does not seem to understand these things.  An astounding 43 percent of all American families spend more than they earn each year.

Are you starting to understand why approximately half of all Americans die broke?

We are a nation that is completely and addicted to debt.

If you do not believe that it will ever catch up with us you are being delusional.

We have piled up the biggest mountain of debt in the history of the planet, and a day of reckoning is fast approaching.

This article first appeared here at the Economic Collapse.  Michael Snyder is a writer, speaker and activist who writes and edits his own blogs The American Dream and Economic Collapse Blog. Follow him on Twitter here.

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