Article in the WSJ regarding college costs....
New numbers from the U.S. Education Department show that federal student-loan disbursementsthe total amount borrowed by students and received by schoolsin the 2008-09 academic year grew about 25% over the previous year, to $75.1 billion. The amount of money students borrow has long been on the rise. But last year far surpassed past increases, which ranged from as low as 1.7% in the 1998-99 school year to almost 17% in 1994-95, according to figures used in President Barack Obama's proposed 2010 budget.
Oh oh. 25%?!
Also, the rising levels of borrowing may ironically be contributing to the accelerating cost of college, say some college-finance experts. Loans can give colleges an artificial sense of a family's ability to pay tuition. To some extent, that false sense of security gets built into the assumptions schools make when setting prices, say experts. The idea is that as prices rise, families borrow more and more, spurring prices to rise further, which in turn requires more borrowing. Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers, says this phenomenon is playing a role in why tuition grows at about twice the rate of inflation. "Instead of imposing tougher choices" on college costs, he says, it's "easier to raise prices...because this additional loan amount is made available."
Anyone need to see the "rate of change" graph again? Oh sure, why not:
Just so it's clear what this graph represents - it is a straight numerical plot of both population (blue line) and total outstanding consumer credit (consumer borrowing, including student loans, but not including mortgages secured by real estate nor any commercial and industrial borrowing such as bank debt issuance, corporate finance, etc), with both "starting points" set to the same origin in 1970 through the use of a simple divisor on the credit number sequence (red line.)
How do you think that the average house price (inflation adjusted) went from $65,300 in 1970 to $119,600 in 2000 (latest available in this inflation-adjusted series)? Why has the average price of a car gone from (not inflation adjusted) $3,176 in 1970 (Ford Galaxie 500) to $17,499 (Toyota Camry)? Why has college increased in price at far more than inflation? Medical care?
You can go on and on and on - the fact of the matter is that "easy credit" - the ability to "pull forward" demand and make people feel "wealthier" than they really are results in a price spiral that then feeds back into a demand for even more credit.
The result is on display up above, and while this seems a dandy idea for a while the fact remains that all such schemes like this are in fact Ponzi schemes.
All Ponzi Schemes mathematically will collapse; we are only arguing over "when."
So as your kid goes off to "higher education" this fall make sure you consider that by allowing this charade to continue in signing that "federal financial aid" form (FAFSA) you are in fact indoctrinating your young adult in the meme of Ponzi Finance, as well as supporting your "higher education" institution in practicing a mathematically and ethically bankrupt form of it.
When you apply for that $8,000 "tax credit" to buy a new house or the $3,500 "cash for clunkers" stimulus you are likewise engaged in the promulgation of Ponzi Finance in the desperate attempt to find just one more sucker in a long (nearly 40-year long!) line of suckers that has pumped our economy not through organic growth but through an out-and-out pyramid scheme layering debt upon debt.
Realize this folks: If I or anyone in private business ran a Ponzi Scheme like this we would do 20 years of hard time. The government, on the other hand, has been and is running literally thousands of these schemes all predicated on Ponzi Finance, all tied back to The Fed and banking non-regulation, and all of which would be FELONIES if practiced by purely-private citizens or enterprises.
Folks, we are at the end of this rope. Students are literally coming out of college with more debt than they can ever reasonably hope to amortize over their working lives, making their education a negative net equity position - that is, a guaranteed losing investment. This is out-and-out fraud committed upon our young adults by the millions each and every year, and you're a part of it.
CFC and "Homebuyer Credits" are the same thing - the auto dealers loved it, of course, as supply tightened and they simply screwed you with a higher price. But in fact you got screwed three times - you almost certainly overpaid for the car outright, you indisputably overpaid for the car if you financed it (when one considers the interest paid over the life of the loan) in addition and you got rid of your paid-in-full and cheap-to-operate vehicle and saddled yourself with more debt - yet another building block in the Ponzi Finance wall.
The accumulation of pain that we continue to pile up by doing this cannot be avoided through even more leverage - even more credit. It cannot, in fact, be avoided at all. Each and every machination intended to delay the recognition of the damage that must come simply accumulates more and more harm that our economy must and will recognize.
Where We Are, Where We're Heading (2013) - The annual 2013 Ticker
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