A Tax For All Reasons

My article Student Loan Property Bonds Will Restore Growth And Prosperity, published on November 12, 2015, in which I suggested the Fed convert student loans into property bonds, remains a sound concept but I doubt the Fed is able to broaden its way of acting, so the student loan problem will remain unless otherwise fixed.

Many students have graduated into this weak economic environment and have been unable to find decent paying jobs that enable them to pay back the loans that financed their college education meaning they also have less money available to spend on other goods and services including taking out a mortgage to buy a home. This situation has been compounded by more young people seeking college education in order to give themselves a better chance to get decent jobs only to find that goal elusive resulting in their debt mountain reaching a record high. That mountain is now over $1 trillion and now exceeds all other forms of debt except mortgage debt. Unable to afford their own homes three million more 18-34 year olds are living with parents than in 2008. Others are paying high priced rentals. This has had a negative impact on home construction. Consequently, students are part of the decline in home ownership that, according to US Census figures, went down from 43.3% in the first quarter of 2005 to 34.6% in the first quarter of 2015, and is still worsening having reached record lows later in 2015. Perhaps it is no coincidence that durable goods orders and the manufacturing sector generally are weak. Nor is there an emergency exit as the bankruptcy code does not allow student loan debt to be worked out under its protection.

Apart from the economic damage there have been some awful societal side effects too with some students resorting to sex work via sugar daddies, escort services and even outright prostitution in a desperate attempt to pay off their loans. Many others have suffered mental illnesses, such as depression, that can lead to suicide. Other negative side effects include over 46 million Americans - nearly 15% of the population - being on food stamps. Perhaps some of these poor people are also part of the reason for workforce participation being at its lowest level since the 1970s. These people are a further drag on the economy and on government debt and their plight, together with many student's depressing descent into poverty, has no place in a supposedly civilized society that likes to project itself as a beacon of hope and virtue to the rest of the world.

None of this is new and there have been many calls for forgiveness of student loan debt including from Democratic Congressman Hansen Clarke in as long ago as 2011, but nothing happened. Today some prominent economists, including Lawrence Summers, have been urging the Fed to take on some risk to stimulate the economy - my idea for the Fed to issue Student Loan Property Bonds would have entailed some, albeit small risk. But the Fed sadly seems paralysed in a tinkering with interest rates charade while putting too much emphasis on job statistics that show undoubtedly good growth but are clouded by the low quality of those jobs and work force participation. Thus there is a deep underlying problem that is being masked by modestly improving official GDP growth and job statistics and being ignored - or not recognised - by political leaders, the Fed and corporations.

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Disclosure: I am long LHIG, LEN, TOL, WY.

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