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.

I propose breaking this impasse - which has no positive end for too many - by combining the student loan debt problem with the home building construction sector to spearhead a practical way forward that will have a direct and immediate effect both on their lives and on the economy via a new and independent Sovereign Wealth Fund - the Fund - set up solely for the purpose of financing college education. Simply forgiving the loans would help in a generalised way but my idea is to make both the loan and the student "work" towards full repayment via homebuilding.

Home building is a very important component of the economy - the national Federation of Homebuilders estimates that one person employed building a new home provides additional work for six others in the supply chain. That chain is broad and long and includes copper miners who supply the copper for the electrical wiring to timber companies like Weyerhaeuser (NYSE:WY) whose output goes directly into the home and to furniture makers. There are many others including the banking system that provides the mortgages etc.

Home builder D.R. Horton (NYSE:DHI) sold entry level homes at an average price of $190,000 in the last quarter of 2015. The average student loan is $29,000. If that $29,000 could be converted into a healthy 15% deposit to buy one of those homes the $161,000 mortgage required for the balance - using a 30 year/4% interest rate loan - would mean a repayment of principal and interest of $769 per month. That compares very favourably with average rentals in August 2015 of $1.381 per month and tending higher at over 4% per year according to Equity Residential (NYSE:EQR). A $161,000 mortgage equates to a multiple of 3 times $53,700 annual earnings or 4 times $40,250 - either multiple should satisfy most mortgage lenders underwriting standards and be within the annual income of most working graduates.

The Fund will be financed by a hypothecated 10 cent per gallon tax on gasoline. It will independently managed and protected in every way from raids by politicians in the"national interest" and from avaricious Wall Street banks that would corrupt in their own interests. Its sole purpose will be buy-out existing student loans and for funding free college education thereafter. When that point arrives it would fund all schools except those whose students have a low rate of employment after graduation - that way those schools would improve or die.

The Fund will convert existing student loans into a Property Bond that pays off the $29,000 loan and advances an additional $29,000 to the student for the home deposit in return for taking a 10% stake in the acquired property.There would be no dividend attached to the Property Bond - the Fund's return would come from the home price appreciation that the US Census Bureau says has averaged 5% per year for the past 30 years. For those ex-students who have already purchased their own home but would still like to get rid of their debt the Fund would pay off the $29,000 in return for a 5% stake. The main owner (the ex-student) would choose later when the Fund realises its return - it could be at the sale of the first home or rolled over onto subsequently purchases until, ultimately, the death of the main owner. Mortgage lenders would maintain normal, proper mortgage lending discipline and would retain priority in the event of default but risk of default should be low given that the unemployment rate of the college educated is usually low at around 2.5%. The bond programme should be prioritised towards new-build homes to avoid inflating existing property prices. It would also take in the oldest loans first with those in the deferment period last to avoid a tsunami of money hitting the building industry and pushing up new-build prices.

Calculations for the programme indicate the following. Some 40 million Americans now have at least one outstanding student loan, up from 29 million in 2008. The Institute of College Access estimates that 858,000 college students take out loans each year with an average annual loan amount of $13,700 totaling $11.7 billion in loans each year. In 2014 the US EIA estimates gasoline consumption at around 136.78n billion gallons per year. The AAA forecasts average gas prices for 2016 at $2.35 per gallon. Assuming a constant level of consumption a 10 cent per gallon tax would yield $13.68 billion per year for the Fund. In the first instance this should go to buying out existing student debt and when all that is all gone the money will go directly to the colleges to provide future schooling free. Obviously a higher rate of tax would hasten the process but I chose 10 cents because it has a small overall effect on the gas price - a 4.25% increase - and would be unlikely to deter motorists nor hurt the poor who might anyway benefit considerably in other ways. Current levels of gasoline tax - 48.48 cents total for State and Federal taxes have remained unchanged since 1993 - and since the benefits span the political divides it should not face too much political opposition and might even have popular support.

There are many other ways of stimulating the economy such as revising the tax code to encourage corporate investment including attracting home the estimated $2 trillion held overseas by US corporations to avoid paying high US taxes but that requires a willingness by those in Washington to put the economy ahead of their preference for internecine bickering. Despite another set of "good" job numbers in December, 2015, I remained very concerned about the coming earnings season as few companies are likely to report significant, if any revenue and earnings growth. I do not see recession but don't like this near stagnation and if my idea is not adopted that stagnation could easily turn into recession by the end of this year/early 2017.

As far as my investments are concerned I will stay with beaten-up US shale oil and gas companies - so I would not be proposing a gasoline tax increase if I thought it would damage those further - as I think prices are bottoming out and especially those of NG as new demand is coming on stream this year from LNG exports and massive investment in new chemical plants in the US. I will also stay with the healthcare sector - hospital REITS, medical technology and biotechs - and with my timber companies (WY and CTT). My house builders will directly benefit especially LGI Homes, LGIH, who specialise in entry level homes and was my best investment in 2015. Getting students onto the first rung of the housing ladder will push others upwards and into my investments in Lennar (NYSE:LEN) and Toll Brothers (NYSE:TOL).

Conclusions

A Tax For All Reasons is a tax for many good reasons:

- It should lift the US economy rapidly and that will drag up sluggish EU and other economies

- There is a broad sector involvement

- Jobs will be created at all levels, incomes will increase and the FED will get a little of the inflation that it craves

- US corporations will start to invest in growth and instead of share buy-backs

- Some of those on food stamps and among the workforce drop-outs will find decent jobs and the improved tax take generally might inspire political leaders to invest in long neglected infrastructure thus giving a boost to productivity levels

- The societal benefits are enormous as students give rebirth to the the dying American Dream; a college education followed by a good job and an own home in which they will bring up similarly aspiring offspring

In short, the Funds Property Bond catalyst for growth will have a multiplier effect that has enormous positive economic and societal benefits. A tax for all good reasons.