Mar 262012
 
 March 26, 2012  Posted by at 3:05 am Finance
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Tyler Durden quotes Fitch and other sources to make the case that US student loan debt is a bubble about to pop with a loud bang. 27% of loans are in effect delinquent, and that number is set to spiral higher.

This will have bad consequences for the students carrying the debt: they will be weighed down by it for what will probably amount to the rest of their lives, since not even declaring bankruptcy can clear you from student loan debt in America.

And because there are, relatively speaking, very few students who can pay off their debt, while lenders will want to see it paid off, the US taxpayer is on the hook for the difference.

Durden: [..] one bubble which the Federal Government managed to blow in the meantime to staggering proportions in virtually no time, for no other reason than to give the impression of consumer releveraging, was the student debt bubble, which at last check just surpassed $1 trillion, and is growing at $40-50 billion each month. However, just like subprime, the first cracks have now appeared. In a report set to convince borrowers that Student Loan ABS are still safe – of course they are – they are backed by all taxpayers after all in the form of the Family Federal Education Program -Fitch discloses something rather troubling, namely that of the $1 trillion + in student debt outstanding, "as many as 27% of all student loan borrowers are more than 30 days past due." In other words at least $270 billion in student loans are no longer current. That this is happening with interest rates at record lows is quite stunning and a loud wake up call that it is not rates that determine affordability and sustainability: it is general economic conditions, deplorable as they may be, which have made the popping of the student loan bubble inevitable. It also means that if the rise in interest rate continues, then the student loan bubble will pop that much faster, and bring another $1 trillion in unintended consequences on the shoulders of the US taxpayer who once again will be left footing the bill.

From Fitch:

Fitch believes most student loan asset-backed securities (ABS) transactions remain well protected due to the government guarantee on Family Federal Education Program (FFELP) loans. The Federal Reserve Bank of New York recently reported that as many as 27% of all student loan borrowers are more than 30 days past due. Recent estimates mark outstanding student loans at $900 billion- $1 trillion. Fitch believes that the recent increase in past-due and defaulted student loans presents a risk to investors in private student loan ABS, but not those in ABS trusts backed by FFELP loans.

Why is the bubble starting to pop now?

Several macroeconomic factors are putting pressure on student loan borrowers. The main ones are unemployment and underemployment. The Bureau of Labor Statistics estimates the current unemployment rate for people 20 to 24 years old at nearly 14% and for those 25 to 34 years old, 8.7%. Underemployment is difficult to measure for these demographics, but it is likely having a negative impact.

Actually, no: the unemployment for 18-24 year olds is 46%. Yup: 46%.

A month ago, Zero Hedge readers were stunned to learn that unemployment among Europe's young adults has exploded as a result of the European financial crisis, and peaking anywhere between 46% in the case of Greece all they way to 51% for Spain. Which makes us wonder what the reaction will be to the discovery that when it comes to young adults 18-24) in the US, the employment rate is just barely above half, or 54%, which just happens to be the lowest in 64 years, and 7% worse than when Obama took office promising a whole lot of change 3 years ago.



And while technically this means 46% are unemployed, or the same percentage as in Greece, the US ratio, which comes from Pew, shows the ratio as a % of the total population: a very sensitive topic now that every month we see another 250,000 drop off mysteriously from the total labor force. However, unlike those on the trailing age end, young adults by definition are the labor force in their age group demographic, so it would be difficult to explain away this horrendous number by claiming that ever more 24 year olds are retiring. Although, yes, we agree that some may be dropping out of the labor force in order to go to college, incidentally the locus of the latest credit bubble, where they meet a fate worse even than secular unemployment: they become debt slaves of the Federal System, with non-dischargable debt at that, which even assuming they can get a job would take ages to pay back!

 

But wait: there's more – of all age groups, this is the one that has actually seen its wages drop the most under the Obama administration.

So not only are they unemployed, young adults are at least poor.

Net result: double the change, zero the hope.

Read more at ZeroHedge

 

Home Forums $270 Billion In US Student Loans Are Delinquent

This topic contains 0 replies, has 0 voices, and was last updated by  Raúl Ilargi Meijer 2 years, 4 months ago.

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March 26, 2012 at 3:05 am #8578

Raúl Ilargi Meijer

Tyler Durden quotes Fitch and other sources to make the case that US student loan debt is a bubble about to pop with a loud bang. 27% of loans are in
[See the full post at: $270 Billion In US Student Loans Are Delinquent]

March 26, 2012 at 5:35 am #2043

Reverse Engineer

I read this article on Zero Hedge earlier today, and of course it does not surprise me. The Student Loan Ponzi is just another one in the panopoly of debt creation mechanisms that have been built up here to keep the Merry Go Round spinning another day.

I do not agree with Ilargi though that the Student-Borrowers will be carrying this Chain around their necks for the rest of their lives. The system will collapse well before the Repo man can catch up with them.

Stop for a minute and think about it. $270B in Student Loans. If each student has an average of say $10K in loans outstanding, that means there are 27M Deadbeats out there. How many Repo Men would it take to try to put the squeeze on 27M Deadbeats?

Just like the Mortgages, regardless of what the legal code reads, these folks are not EVER going to pay back those loans. Hold their feet to the fire, throw them in Debtors Prison, WHATEVER, the loans just are not going to be paid back. Not by those folks anyhow.

So the Taxpayer will pay them back? No, these folks ARE the Taxpayers of the future in theory. If they cannot pay back the loans, they certainly cannot pay the taxes levied to pay back the loans EITHER.

The system is TOAST Ilargi. Nobody is ever paying back Irredeemable debt, it will get washed one way or the other. There is quite a bit of Safety in Numbers. There just is no way Da Goobermint is going to imprison 27M Student Debtors, and even if you decided to Hang ‘em High for their Debts, you STILL would not get paid back here.

27M students are not ging to be Debt Slaves for the rest of their lives, count on it. All the Banks will go up in flames long before the Repo Men can collect on that debt. These questions are not resolved in any other way than Violence, so I suggest in order for a more complete coverage you consider this a bit more carefully. JMHO.

RE

March 26, 2012 at 11:03 am #2046

scandia

How much debt are Cdn students carrying? I don’t know how to get that number. Does anybody know?
I know many young people carrying far more that $10 grand in student debt. More like $40,$70, even $100 depending on how long they stay in the system to get an Masters or Phd…
There is still an unassailable belief in ” higher ” education to secure one’s future.The concept is simple. A degree can be traded for a well paying,secure career and an extra dash of glowing social status. The realities on the ground are ignored. Trades are generally considered ” dirty work “. So what’s wrong with a little sweat and dirt I wonder? Particularly when a pay cheque pays for soap and a shower stall.
As on other issues I have capitulated, stopped issuing warnings. Canada is still fast asleep and snarly at any attempts to disturb the slumber.

March 26, 2012 at 11:56 am #2048

Golden Oxen

Not even bankruptcy can clear you from student loan debt. What a sad situation indeed, not even adults yet and the banksters have signed them up for a life of bondage and servitude, and paid off the politicians to change the laws so there is no escape. Something is terribly wrong about this mess, and it will not end on a happy note.

March 26, 2012 at 12:55 pm #2050

pipefit

What the deflationists fail to grasp is that the default of student loan debt will be inflationary, not deflationary. Since the taxpayer will ultimately pay, and since the people defaulting on the debt are, to a large extent. the taxpayer, you have a William C. Escher type of semi-closed loop. Only in this case it is a financial one, not a stairway in a painting.

On a GAAP accounting basis, the ANNUAL amount of fiscal deficit is about $6 trillion (according to shadowstats), which is 40% of GDP. This explains why gasoline is so much higher in price, even as demand is falling through the floorboards. Nobody, even Saudi Arabia, can sell crude oil for less than the cost of production for very long.

The government cannot afford a collapse in the USA’s university system. It is a crucial part of the Orwellian group think apparatus, particularly in terms of economic doctrine (Keynes good, Marx, Austrians bad, lol). So student debt will eventually be forgiven, and paid by Bernanke, as the fed expands their balance sheet by yet another trillion, at some point.

March 26, 2012 at 1:02 pm #2051

ashvin

RE wrote: 27M students are not ging to be Debt Slaves for the rest of their lives, count on it. All the Banks will go up in flames long before the Repo Men can collect on that debt. These questions are not resolved in any other way than Violence, so I suggest in order for a more complete coverage you consider this a bit more carefully. JMHO.

I believe you raise some valid points, but you also raise the question – how long is the rest of our lives? At least, what is the chance that the average life expectancy for these borrowers will be the same as what it was for the previous generation? If we go straight from debt deflation into systemic social breakdown, some students may very well be paying off debt for the rest of their [meaningful] lives. Either way, borrowers and/or taxpayers will be forced to pay in one form or another for as long as its possible for the system to remain coherent, and that could be long enough to completely enslave/impoverish quite a few people.

March 26, 2012 at 1:38 pm #2052

Greenwood

One of the main tools in the kitbag of TPTB to keep the unwashed masses from tearing them to shreds like mad dogs is divide and conquer.

In the past it was along religious or ethnic lines or even just income brackets

History’s rhyme this time will be a new wrinkle on an old game.

The divide and conquer will be generational this time, with a vengeance.

The Boomer are caught between several rocks and hard places simultaneously.

First, very few (1-10%) will have enough funds left in their 401k/retirement funds after the Kleptocrats ‘MFGlobal’ their nesteggs into omelets.

Second, because of step one above, they will have to keep working “until dirt hits the lid”, as the old graveyard expression goes.

Third, because of step two above, the younger generation will never advance up what’s left of “the pay scale”, trapping this younger generation in even more under-achievement than they where going to be in anyway with all their debts from student loans/car loans/credit card debts.

Fourth, because of step three above, the younger generation will increasing view the “older generation” with enormous contempt and pronounced lack of Respect, on a grand multitude of levels.

Sure, some kids still love their parents but at least 50% where raised in broken and/or divorced settings and do not have a warm fuzzy familial vibe about them.

Taking care the two or more sets of parents/step parent in old age is not in the cards anymore than paying off the student loans.

As soon as ‘the older generation’ is too old to produce meaningful work in a long emergency subsistence survival setting, they will be feed into the wood chipper to provide mulch for the Victory Garden compost pile or left on the Ice Floe for the polar bears to recycle, if there are any left.

~

March 26, 2012 at 3:23 pm #2053

jal

This whole business of borrowing to live today, (as a Greek, or a student), does not make any financial sense if there is no way out or any gain for society.

Whoever, bank or gov., that lends money to someone for none wealth creation, ie. second hand recycled liquor, has just seen his loan disappear.

To think that the smartest educated people in our system/society would subjected themselves to become slaves to the interest gathering lenders without having found a way out of the predicament tells me that they really are not very smart or they are very gullible.

Both scenario does not reflect very well on the future of our society.

Therefore, a way must have been found to avoid debt slavery and save our society.

Rather than give you an analyst of the complexity of how money flows in the education system I’m going to tell you a simple story and you will be able to figure out how it applies.
STORY
Grubstaking
It is impossible for a merchant to do grubstaking if he does not have any surplus.
A merchant grubstakes a prospector for 20 year. The prospector never found any gold. For 20 years, the merchant used his surplus to support the prospector. For 20 years the surplus was consumed by the prospector. After 20 years the merchant does not have any surplus and must stop grubstaking the prospector.

At the end of 20 years, there is no way that the prospector can or would pay back the merchant for his grubstake. The expectation of both party was going to be the discovery of new wealth that both of them would be able to share.

Pretending that the grubstake was a loan with interest does not change the fact that it cannot be paid back.

A society that does not have any surplus or cannot or will not grubstake the education of its population will be a society of child labor. The amount of education that a society can do is limited to the surplus that it has.

March 26, 2012 at 3:51 pm #2057

Bukko Canukko

Reverse, you say that 27 million loan-owing students cannot be put in debtors prison, which is true. But they can be hounded for years, have wages garnished and otherwise be controlled. Debt serfdom has been a feature of human civilizations since Biblical times, and it’s a fact of daily life in places like Pakistan today.

Debt collectors are persistent like bedbugs. Let me tell you a funny story from my life.

In 2004, when I was still living in San Francisco, I got a couple of calls from someone asking for me by name. They wouldn’t say who they were at first, just asked in a slightly hostile way if my name was “_____ ______.” That tactic rang a bell with me, because years before I had worked at a psychiatric halfway house and one of the patients with money problems used to get similar calls.

On the second or third occasion, I got the caller to tell me where they were from — a debt collection agency. That was odd, because I didn’t owe anybody anything except for our house mortgage, which was always up to date. I persuaded the ominous male voice on the other end of the phone to tell me what it was about. Turns out it related to student loan debt for a guy with my same first and last names, but a different middle name and birth date. He had gone to college in Minnesota and welshed on his student loan (among other debts.)

It seemed REAL important to the debt collector that he should establish what my name was. I was hacked off about being bothered, so I decided to game HIM. I would not outright deny that I was this Minnesota guy, but I wouldn’t admit it, either. That would be lying. It would also spoil the fun. So I played the role of a surly scofflaw deadbeat, challenging the debt collector to do his worst.

“How are you going to get this money from me? You say you’ll garnish my wages? Do you know where I work, smart guy? You say you have my Social Security number? What is it?” (I eventually conned them into telling me this similarly-named fellow’s SSN, his date of birth, names of all sorts of relatives — just a ton of personal information.) “How do you know that I haven’t found a job using a fake SSN? Go ahead and try to garnish me! You say you’re going to come to my house? Just try it!”

I did some research online about what the federal regulations are that pertained to debt collecting. For instance, they can’t threaten to tell a debtor’s relatives about what they owe, but debt collectors can insinuate that they will. That’s how I learned the names of this debtor’s parents and grandparents. The collector would say things like “If your Grandpa So-and-So found out how much you owe, wouldn’t you be ashamed?” I would throw it back at them: “The law says you can’t do that, so don’t pretend you will.”

This went on for months! I had a great time with it. Instead of hanging up, like most of the deadbeats probably did, I’d try to keep the debt collectors on the line as long as possible. I figured the more of their time I wasted, the less time they’d spend harassing real debtors. I wouldn’t curse, just act all recalcitrant. I got to know the voices of several debt collectors — one would get assigned to bug me and after a few weeks give up and hand me off to someone else. Several were shrill and nasty — I liked hoaxing them best.

I finally stopped when I got a sympathetic debt collector. (He sounded like a black dude — maybe they have more empathy.) Because he was nice, I told him the truth, what my real middle name and birthdate was. No more calls!

From that agency, that is. About six months later, a different mob started phoning. I guess this Minnesota guy’s file was sold to a new debt collection agency, and they retraced the same steps the first one did. (Apparently I was found by a check on the name of my nursing licence.) I was still playing the “Maybe I am that guy, and maybe I’m not” game with them when I left the country.

Anyway, these blood-sucking ticks don’t drop away easily. They don’t need to lock people up, they just need to keep leeching them off. It’s employment for some people, and if companies are buying bad debt for 5¢ on the dollar and collecting 10¢ of it overall, they’ve got a 100% return. I reckon the $270 billion prize package is enough of an incentive to keep the Inspector Javerts busy pour longtemps.

March 26, 2012 at 4:18 pm #2058

Reverse Engineer

ashvin post=1651 wrote: Either way, borrowers and/or taxpayers will be forced to pay in one form or another for as long as its possible for the system to remain coherent, and that could be long enough to completely enslave/impoverish quite a few people.

The system has already gone incoherent, that is why you have a Hockey Stick here.

As far as the borrowers are concerned, the reason they are not paying back the loans is they have no job. Said borrower is equally poor with the debt or without it, the only time it makes a difference is if he ever does get a paying job, which for many is highly unlikely at this point.

As far as the lenders are concerned, they will get paid by Da Goobermint. As far as Da Goobermint is concerned, they will roll another $27B or so a year into the deficit to cover the interest payments on the $270B pricipal owed here. Chump change! Nobody will notice another $27B/year as the liabilities climb into the Trillions/Quadrillions!

This is how it will go until the wheels fly off the bus. You are immersed in a system of irredeemable debt of essentially fictitious money to begin with. It can’t even be paid off with Slave Labor, because the Slaves are themselves a liability.

As to the overall lifespan of these borrowers, its probably going to on average be shorter, but for how ever long it will be, one thing here is for certain. The vast majority of these folks will never pay these odious debts, nor is it likely they will be enslaved to pay for it either. Slaves cost too much to feed and clothe. They will simply be abandoned and impoverished, but that would have been true whether they took on the debt or not.

Eventually after a whole lot of dieing, some new economy will rise from the ashes, much like the legendary Phoenix. One can only hope that it is not an economy based on money. For money is the enabler of great Evil, and must be expunged from the community of Homo Sapiens if we are to avoid going the way of the Dinosaur.

For all who seek to perpetuate this system, they will all Burn in Everlasting Damnation in the Fire and Brimstone of Hell. I for one suggest handing them all a First Class Ticket to Hell right now.

RE

March 26, 2012 at 4:45 pm #2061

ashvin

Reverse Engineer post=1658 wrote: As far as the borrowers are concerned, the reason they are not paying back the loans is they have no job. Said borrower is equally poor with the debt or without it, the only time it makes a difference is if he ever does get a paying job, which for many is highly unlikely at this point.

As far as the lenders are concerned, they will get paid by Da Goobermint. As far as Da Goobermint is concerned, they will roll another $27B or so a year into the deficit to cover the interest payments on the $270B pricipal owed here. Chump change! Nobody will notice another $27B/year as the liabilities climb into the Trillions/Quadrillions!

This is how it will go until the wheels fly off the bus. You are immersed in a system of irredeemable debt of essentially fictitious money to begin with. It can’t even be paid off with Slave Labor, because the Slaves are themselves a liability.

Disagree, especially with regards to student loan debt, which cannot be discharged and will be fully recourse for all practical purposes (unlike some mortgage debt). Even student borrowers without a job will have accumulated savings/assets that can be stripped of them, and/or parents who have acted as guarantors on the loan. Many of the students will be forced into low-wage corporate slavery that will be just enough to keep some portion of the debts current, or perhaps qualify for re-negotiated terms, i.e. re-formulated debt slavery.

Those debts which must be made completely or partially whole by the government will most certainly cost the taxpayer through higher taxes and reduced spending on public services, entitlements and social safety nets. Even if we assume that none of these trends will last long before the currency is hyperinflated and sociopolitical structures completely break down, that itself is a HUGE price to pay for all savers, debtors, workers and, generally, all citizens/residents who are not among the relatively insulated 1%.

In the end, someone/something always pays, and most likely it will be a combination of debtors, savers, workers, retirees and society as a whole over the course of a few decades. If the collective has taken on debts so excessive that they cannot be worked off even through asset forfeitures and slave labor before HI, anarchy and/or totalitarianism sets in, then it’s hard to argue that everyone in society is not being made to pay the ultimate price.

March 26, 2012 at 4:47 pm #2062

jal

The B.C. gov. and the teachers union are at a stalemate.
The gov. is saying that they will not put in more “surplus” into the system and the teachers are saying we need more at the front line.

BOTH are incapable of proposing or reducing or re-allocating any of the “surplus” from the top of the education budget to the bottom, front line, where it is needed.

March 26, 2012 at 5:34 pm #2065

Reverse Engineer

ashvin post=1661 wrote:
In the end, someone/something always pays

Disagreed. That which is mathematically impossible to repay will not be repaid.

In the End Ash, Monetary Systems DIE. Always.

RE

March 26, 2012 at 5:52 pm #2067

pipefit

Jal said, “Therefore, a way must have been found to avoid debt slavery and save our society.”

There is a way. It is called ‘hyper inflation’. This is the way every prior financial mania has ended, and it is how this mania will end. As Ashvin noted above, it might be slow in coming, especially for those folks on the verge of bankruptcy. But within a few years, you will be able to pay off your student loan with a burger flipping job.

You might not be able to feed yourself, without stealing food from your employer, but you will easily be able to pay off ten’s of thousands in student loans with minimum wage work. I just don’t know if it will be next year, or five years from now.

March 26, 2012 at 7:10 pm #2070

istt

To Ashvin and/or Ilargi, could either or both of you respond to the idea that the stock market will continue to go higher and higher as the US dollar is debased. Just as in Zimbabwe, as the Zimbabwe dollar tanked the market soared. Certainly the US is not and never will be Zimbabwe, aren’t we seeing the same thing play out in the US and European stock markets? Some would say it is the same as putting your money in gold but the stock markets continue to soar even as gold stabilizes. I would love to hear your thoughts on this. Thank you.

March 26, 2012 at 7:24 pm #2072

ashvin

Reverse Engineer post=1665 wrote: [quote=ashvin post=1661]
In the end, someone/something always pays

Disagreed. That which is mathematically impossible to repay will not be repaid.

In the End Ash, Monetary Systems DIE. Always.

RE

I did not question that all monetary systems eventually die, but that in no ways means that there is no payment, i.e. reduction/transfer of material wealth. Debts will be (are being) paid through one of the following methods or, more likely, a combination of them – debtor pays down the value in current currency savings, debtor pays down the value in current assets and future cash flows/assets, lender writes down the value of loans or the value of loans evaporates through currency devaluation. All of those methods are very destructive to fiat credit economies and will lead to prolonged depression, very high unemployment, violent social unrest, etc.. HI will arguably the most disruptive, as it completely wipes out the value of savings and makes it very difficult for most people to acquire critical resources (especially in a net energy importing nation), although deflation is no walk in the park either.

When we add in the natural violent/repressive responses by both the people and the corporate governments…

how exactly can we say that no one is paying for these debts (I’d say death is the ultimate transfer of material wealth)?

The reason I think it’s important to make the distinction is that, through your argument, it makes it seem like there are no negative, long-term consequences to these students taking on boat loads of debts, or any other borrower for that matter. Yet, there they are.

March 26, 2012 at 7:52 pm #2076

Reverse Engineer

ashvin post=1672 wrote: The reason I think it’s important to make the distinction is that, through your argument, it makes it seem like there are no negative, long-term consequences to these students taking on boat loads of debts, or any other borrower for that matter. Yet, there they are.

Oh, there are plenty of Negative Consequences. You can read all about them in the Book of Revelation

Revelation18:11-13 wrote:

And the merchants of the earth shall weep and mourn over her; for no man buyeth their merchandise any more: 12The merchandise of gold, and silver, and precious stones, and of pearls, and fine linen, and purple, and silk, and scarlet, and all thyine wood, and all manner vessels of ivory, and all manner vessels of most precious wood, and of brass, and iron, and marble, 13And cinnamon, and odours, and ointments, and frankincense, and wine, and oil, and fine flour, and wheat, and beasts, and sheep, and horses, and chariots, and slaves, and souls of men.

The consequence here Ash is the collapse of the Civilization we live in. TEOTWAWKI. “Its all going up in smoke”, as I wrote on Peak Oil 4 years ago, “in the Greatest Bonfire of Paper Wealth in All of Recorded History”.

There are consequences to be sure. Many Dead People for one. Dead People do not pay back debts. EVER.

RE

March 26, 2012 at 8:07 pm #2077

ashvin

Reverse Engineer post=1676 wrote: There are consequences to be sure. Many Dead People for one. Dead People do not pay back debts. EVER.

Tell that to their spouses/children/beneficiaries who are not only left in the world without them, but have to fork over their potential inheritance to a fascist government or a ruthless debt collector.

The only thing that is almost certain in this Universe and its various systems is the conservation of energy, and that is something we cannot escape, even in death.

March 26, 2012 at 8:16 pm #2078

ashvin

istt post=1670 wrote: To Ashvin and/or Ilargi, could either or both of you respond to the idea that the stock market will continue to go higher and higher as the US dollar is debased. Just as in Zimbabwe, as the Zimbabwe dollar tanked the market soared. Certainly the US is not and never will be Zimbabwe, aren’t we seeing the same thing play out in the US and European stock markets? Some would say it is the same as putting your money in gold but the stock markets continue to soar even as gold stabilizes. I would love to hear your thoughts on this. Thank you.

If the idea is put your money in the market and wait to collect some phenomenal returns, then it’s a very bad one. Even if/when the dollar is debased into oblivion, the currency valuation of stocks will be outpaced by the devaluation in purchasing power. In a deflation, of course, the nominal value of stocks will plummet. The only way stocks are good for returns is if you are a very short-term speculator or you think that we are returning to a healthy and productive economy soon, after the bad debts are all cleared out, and that’s not something you should be thinking.

March 26, 2012 at 9:00 pm #2080

Reverse Engineer

ashvin post=1677 wrote:
Tell that to their spouses/children/beneficiaries who are not only left in the world without them, but have to fork over their potential inheritance to a fascist government or a ruthless debt collector.

Well Ash, I don’t think people should be allowed to inherit anything at all. Inheritance is part of what creates the classes of Haves and Have Nots. In any event, Debt collectors may try to go after assets held by those remaining alive, except the assets aren’t worth anything. Their labor is not worth anything. There is nothing to collect, and there never will be. So the debt is irredeemable. It CANNOT EVER be repaid. You are down a Rabbit Hole here which you just don’t seem to get, or perhaps are just willfully ignoring because it doesn’t fit your narrative of debt slavery.

Anyhow, by no means am I making the case that people are escaping from problems that come from debt repudiation. There will be many. Just not really likely to be the sort of problems you paint a picture of. At least not IMHO.

RE

http://www.doomsteaddiner.org

March 26, 2012 at 9:09 pm #2081

istt

By no means do I believe we are moving toward a healthy economy, in the US or elsewhere around the world. However, stock markets have soared since the bottom in March of 2009, despite the fact that nothing has improved. It seems currency debasement is the only plausible explanation. I have watched Nicole’s presentation and it is very persuasive. What I find confusing, though, is the real value of things. She shows how values adjust relative to other groups as market conditions change. But it is not clear as to what that translates to in terms of holdings and especially timing. She, Ilargi and you could be spot on but if it happens when we are all deceased it will do us little good.

March 26, 2012 at 9:28 pm #2082

vk

Hey Ilargi! You sure it’s $270 Billion? What I had read was that the 27pc figure was from older loans i.e. not counting recent ones made as recent graduates and current students aren’t counted. But those recent and current grads are in deep doo doo once they actually have to start repaying.

March 26, 2012 at 9:45 pm #2084

scandia

Hey vk, good to see your post. Been wondering how you are etc…

March 26, 2012 at 10:16 pm #2086

ashvin

Well Ash, I don’t think people should be allowed to inherit anything at all.

I can agree with you that, theoretically, it would be nice to have systems of socioeconomic organization without private property, and, therefore, without inheritance of said property. OTOH, I recognize that many people have structured their lives around a completely different system, and it will be extremely painful for them when those sand castles are washed back into the sea. Not to mention the injustice of their property becoming the property of someone else in the 1%, rather than returning to aid any common good.

Reverse Engineer post=1680 wrote: In any event, Debt collectors may try to go after assets held by those remaining alive, except the assets aren’t worth anything. Their labor is not worth anything. There is nothing to collect, and there never will be. So the debt is irredeemable. It CANNOT EVER be repaid.

Care to explain those blanket statements? I find it very unlikely that productive assets and resources, human labor being one of many, will be worth nothing, to anyone. Or maybe I just forgot how energy is harnessed, food grown, water cleaned, shelters built, etc. If we are talking about “assets” such as money/cash flow/investments/etc., then they will most certainly be worth something until the monetary system completely collapses, never to return.

You are down a Rabbit Hole here which you just don’t seem to get, or perhaps are just willfully ignoring because it doesn’t fit your narrative of debt slavery.

I brought up debt slavery as one possible scenario that people may find themselves in (and many around the world already do). You, however, have constructed a narrative in which there is only one outcome that will arrive with certainty, and it involves a mass die-off within relatively short order. Oh yeah, and, those who have the luck/skill to survive will be free to “start over”, because the cost of using any productive assets they possess, including their own labor, will be too much for anyone to handle.

March 27, 2012 at 3:51 am #2091

Reverse Engineer

ashvin post=1686 wrote:
Care to explain those blanket statements? I find it very unlikely that productive assets and resources, human labor being one of many, will be worth nothing, to anyone. Or maybe I just forgot how energy is harnessed, food grown, water cleaned, shelters built, etc. If we are talking about “assets” such as money/cash flow/investments/etc., then they will most certainly be worth something until the monetary system completely collapses, never to return.

Sure.

On the asset side here, first off more than 50% of the population has no more than 2 months worth of bills in savings, no pension, no investments. If they are living in a McMansion, they are likely underwater, its not an asset.

Of the remaining population the main 2 assets any of them have is their House and their Car. If both are paid off, these probably are not people with student loans.

Even if both are paid off, as gas becomes unavailable, neither the car nor the McMansion are worth anything at all. The suburban ring road model doesn’t work without the automobile, so suburbia essentially ends up a Ghost Town. The car is just worth its scrap metal value.

Insofar as the worth of Human Labor goes, in an overshoot situation all people are liabilities, not assets. It costs more to feed and clothe them than you can get return in value added labor. Like a Car that has no value because the Gas is too expensive to feed it, a Human Being in Overshoot has no value if the food is too expensive to feed it. Dead People hold more value than slaves do, because dead people don’t eat.

Far as this being the only possible outcome, no I do not make that case; I just make the case I think it is the most likely outcome. I also cannot fix an absolute timeline to this. As I have said before, I think we will be going through a period of extreme Fascism here that could last quite some time, 20 years maybe even more though I doubt it. During this period in order to survive you probably have to make yourself useful to the Fascist state in some manner, probably as Soldiers which of course under Conscription is a form of Slavery itself.

Will there be Chain Gangs of Debtors in this scenario? Perhaps, but I don’t think its all the irredeemable debt of the past that matters, many people even non-debtors who did not take out Student Loans will also be so impoverished that their only options will be to serve the State in some sort of low paid job which just provides enough for subsistence living.

The debt system is so oversaturated with debt at all levels here that once Da Fed stops supporting the TBTF, they are not going to be able to replace that money through taxation or slave labor of debtors, its simply too great a debt in Energy terms, not monetary terms. If Da Fed perpetually prints new Debt to keep the TBTF solvent, then the money to roll over all the old debt is not coming from the labor of J6P, its just being conjured up out of thin air on a perpetual basis, further running up the numbers. So under neither paradigm does J6P ever actually pay off this debt, because as I said in Energy terms it cannot be repaid. The stuff is just well and truly gone here, at least the High EROEI stuff.

Its all in how you look at it Ash. I take a fairly long view of things, I’m generally looking 50-100 years down the line here, but I think much of this will become evident inside the next 20 years. I don’t see any way a significant Die Off will be avoided, and by significant I mean on the order of 50% or more of current world population. Under such a situation, I do not see how anything resembling our current monetary system will be perpetuated, so maost of the debt, Sovereign, Corporate and Public will simply be incinerated. The FSofA is never going to pay back its Trillions in unfunded liabilities, McMansion Debtors are not going to repay their mortgages, and Student Borrowers are not going to pay their Student Loans. The system has reached the end of the line, or at least it is very close to it. We will get Political Upheaval, Nation States as they exist now will disintegrate, they will be no more. Property Titles and Deeds issued under these Sovereign States will not be honored, any more than Confederate Dollars were honored after the Civil War.

Is this going to happen tomorrow or the next decade? Probably not, but its the writing on the wall that I read and I think it is the most likely outcome.

RE

March 27, 2012 at 7:22 am #2101

Reverse Engineer

Ash, this debate was so entertaining I dropped the last 3 comments onto DD as a Feature Post :-)

http://www.doomsteaddiner.org/blog/2012/03/26/point-counterpoint-student-debt/

Jane, you IGNORANT SLUT! LOL

RE

March 27, 2012 at 12:16 pm #2103

ashvin

RE,

After your last post, I’m not sure there’s actually much of a debate. Like you said, you are taking the very long view of things (I consider 20-100 years the “very long view” in this environment), while I am talking within the next 50 years at most. If students graduating now are either 22 or about 25-26 when they finally get out of school (perhaps older for med students and others who started their “higher education” late), then I’d say the consequences they reap from that debt will last over the better part of their lifetimes.

I do understand what you’re saying about the the value of assets belonging to students (or perhaps their parents), including their labor, in the very long-term, and believe it is a valid point. I have never argued that TPTB will be able to maintain complexity at the scale of a nation-state such as the US in the very long-term, regardless of how much slave labor they have. One must wonder, though, how that changes as we move down to smaller political entities, which may continue to be corrupt/oppressive in their own ways?

Anyway, good discussion!

March 27, 2012 at 4:06 pm #2105

Golden Oxen

A debt will always be paid, either by the lender or borrower.

March 27, 2012 at 6:24 pm #2108

Reverse Engineer

ashvin post=1704 wrote: RE,

After your last post, I’m not sure there’s actually much of a debate. Like you said, you are taking the very long view of things (I consider 20-100 years the “very long view” in this environment), while I am talking within the next 50 years at most. If students graduating now are either 22 or about 25-26 when they finally get out of school (perhaps older for med students and others who started their “higher education” late), then I’d say the consequences they reap from that debt will last over the better part of their lifetimes.

I do understand what you’re saying about the the value of assets belonging to students (or perhaps their parents), including their labor, in the very long-term, and believe it is a valid point. I have never argued that TPTB will be able to maintain complexity at the scale of a nation-state such as the US in the very long-term, regardless of how much slave labor they have. One must wonder, though, how that changes as we move down to smaller political entities, which may continue to be corrupt/oppressive in their own ways?

Anyway, good discussion!

Good discussion indeed :-)

There’s a difference in the timelines we are talking about, but there is crossover also. A lot of this could play out inside 20 years, at least the beginnings.

In the near term,again say the next 20 years, what can we expect? Here in the FSofA, debtor’s prison seems unlikely since the prisons are already overfilled. Wht seems most likely is the same old dunning phone calls with threats of litigation, garnisheering paychecks etc. Except how likely is that litigation? I have experience with Bankruptcy court, and unless you have some really big debts the bank doesn’t even bother to show up. Now,student debt can’t currently be discharged in a bankruptcy, but in order to garnisheer your salary (if you actually had one), the bank does have to show up in court.

Why doesn’t the bank show up? Because it’s more costly to send in the corporate lawyers than they can generally get a return on. They know that statistically speaking most of their deadbeat borrowers don’t have jobs or assets they want. If parents co-signed the loan, do they want to take the parent’s house? No, they already are overflowing with foreclosures, they dont need to add to their inventory with McMansions repoed to cover student loans!

So, here we are today where many of the recent graduates are UE, have no assets and also have debts which in theory can’t be discharged. You also have the fairly high likelihood that inside the next 20 years said debtors will not be getting any kind of decent paying job that could touch these debts, nor will they be accumulating any assets that could be repoed, nor is it cost effective to litigate the debts, nor is it cost effective to imprison them, since in prison they certainly can’t pay the debt. Sense a problem here? LOL.

Of course you do, and so do the Banksters and Da Goobermint. The answer of course is to paper over the problem and Extend-Pretend. The trick is for Da Goobermint to fill the hole in the Banks’ Cash Flow problem by covering the interest on the Debt not being paid by the deadbeat students while not seeming like they are “forgiving” any loans. How long can they keep doing this? Well, if what they are doing with respect to the deadbeat housing borrowers is any kind of yardstick here, a minimum of 5 years at least, so you are already 1/4 way through the 20 year timeline there.

To be honest, I don’t think the student borrower is all that much worse off than his counterpart who eschews further education in favor of staying out of debt. Said non-debtor is ALSO going to be broke with no job, the main difference I see is one person got a few years of living on debt while banging some co-eds; while the other one played nintendo in Mom’s basement.

Insofar as the further future following a one to many breakup of current Nation-States? One thing I think is pretty certain is that local Warlords will not have Internet access to banking databases containing debtor information. As to what form local economies will take in the aftermath of systemic monetary collapse, that is a topic all its own, and a huge one to say the least. Leave that for another day.

RE

March 28, 2012 at 12:15 am #2118

ashvin

RE,

At this point, you are tap-dancing all over the place with your logic in order to reach a pre-determined conclusion – that people who have taken on massive amounts of student debt really shouldn’t be worried any more than the average, debt-free person. When you were talking in terms of what’s most likely to happen after 30,40,50-100 years, your argument held weight. Now you are back-tracking and making blanket generalizations about how students with debt will have no jobs, no assets, no parents with assets and basically nothing that can be stripped of them by their creditors or third party debt collectors.

Sorry, I don’t see it. In fact, I see the opposite already occurring to people I know who are working jobs and struggling to pay off their student debts, along with bills and sometimes mortgages. They still have assets that can be stripped in the near future (within 10-20 years). If you want to claim that not ALL of those debts will be repaid to lenders in any form, then I’m with you on that, but a good portion of it will, in one form or another.

March 28, 2012 at 3:39 am #2121

Reverse Engineer

ashvin post=1719 wrote: RE,

At this point, you are tap-dancing all over the place

That’s why they call me “Bojangles RE”. :-D (sure wish I could drop in a pic or vid here of Bill “Bojangles” Robinson, but the text would disappear so no multimedia :-(

Ashvin, I have a track record on this one. Back in 2009 I told my nephew and a couple of other friends who were having diffculty making their mortgage payments to just stop paying. All 3 have been living Rent Free for 3 years.

If you have friends struggling to make their student loan and mortgage payments, tell them to STOP PAYING! With $270B in delinquent payments out there, its going to be quite some time before your friends ever get on the docket. When the Bank calls, reply with the old standby, “the check is in the mail.” LOL

If you think most of this will be paid back, I think you are quite wrong. Of the people who owe this $270B, I doubt they have half of that in assets to strip, and that would INCLUDE their parents. The same people got these loans as got sub-prime mortgages, its tons of the underclass kids of the country, they just got no assets to strip NOW, not in 30 years, and they are not going to have any more in 30 years either.

OBSERVE what is actually occuring here Ash, if Banksters could recoup their losses in sub-prime by asset stripping the debtors, they would be doing that. But they are not because the Numero Uno asset that probably 80% of J6Ps out there have just isn’t really worth much and if they try to auction it off they’ll get pennies on the dollar.

Athough the law reads that Student Loans cannot be discharged in BK, the situation is still worse because there is NO collateral directly backing those loans like a McMansion. The product that the student debtor bought with the loan cannot be repoed at all, and hitting on cosigners would take some significant Lawyering which would be very costly.

At some point in the future if they start lining up Student Deadbeats at the Courthouse I might change my advice, but I don’t see it happening in the next 5 years anyhow. It doesn’t match the tactics they have been pursuing at all. Da Goobermint will paper it over, there will be renegotiation of principle and interest, payment schedules will be lengthened into the 22nd Century and they’ll keep this up until the wheels fly off the Bus.

RE

http://www.doomsteaddiner.org

March 28, 2012 at 6:27 am #2123

Reverse Engineer

Mr Bojangles

March 28, 2012 at 7:25 am #2127

Reverse Engineer

Bojangles RE

Look for it in the Kitchen Sink at the Diner.

http://www.doomsteaddiner.org

RE

March 28, 2012 at 3:29 pm #2134

ashvin

RE,

The courthouse dockets are filled with robo-lawsuits for payment on outstanding consumer debts, and usually it is the debtor who doesn’t show up (perhaps they mysteriously never received the summons that was “mailed” to them). It really isn’t that expensive for a large creditor or debt collector to plant an attorney in the courthouse and go through a bunch of lawsuits each day, most of which don’t last more than a few minutes before the judge. The only reason this isn’t pursued more for student loans is because the bubble is only now starting to falter. Give it a few years, and I think we’ll be seeing just how well the legal process can work for private creditors in this country.

OTOH, I think it is clear that the MO of creditors right now is to find ways of keeping people in debt and milking them for all their worth, without necessarily foreclosing on all their under-secured assets, like you say. When the ability of the central government to extend and pretend is significantly diminished (most likely in the very near future), that MO can start changing rapidly. I think many of the people living “rent free” right now will find themselves out of a home. Once the debtors/taxpayers/investors have been squeezed dry, the benefits of keeping those homes “off the market” will not be so great for the banks.

Advice to completely stop paying off debts might be good in specific contexts involving specific people, but I would never generally advise that to anyone, without knowing a lot more first. The idea that any such actions are risk-free for most people right now, let alone in the near future as financial repression is forced into higher gears by necessity of the system’s survival instinct, baffles me.

March 28, 2012 at 4:12 pm #2135

Reverse Engineer

Well of course they will eventually be out of the McMansion, since once they can’t get Gas or it becomes unaffordable the place is a White Elephant anyhow. At $4+/gallon, far flung suburbs are ALREADY White Elephants, this isn’t some distant projection for the future. Meanwhile, long as the Banksters do not want to write down the losses and stop the merry-go-round, you live rent free and use the cash to buy a used Bugout Machine ready for the day you have to abandon the McMansion.

Is stepping off the treadmill by stopping your debt payments a risk-free option? Obviously not, since you pretty much have to stop working with the Banking Biz entirely, assuming you are still employed you have to cash your paycheck at Walmart and operate entirely in Cash.

I don’t find this to be baffling at all because the system may have a a”survival instinct”, but it is terminal and will not survive. Once you grasp that it is heading for the Great Beyond, there are choices that can be made which in other circumstances would not seem logical, but in fact can be better choices.

The whole Banking Biz depends on a critical mass of people “playing by the rules”. When MANY people stop playing by the rules, the system collapses.

RE

April 1, 2012 at 4:19 pm #2216

TINW

Why in the world does TAE continue link to or quote that nonsensical rightwing crank (e.g. “taxes = theft”), Zerohedge/Dyler Turden? All you’re doing is attracting and validating his braindead trolls.

You couldn’t find someone reputable to quote on the student loan issue?

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