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Personal spending and new home sales: restrain your enthusiasm!

by New Deal democrat

Personal spending and new home sales: restrain your enthusiasm!

 We got the last two significant data points of the year this morning: personal spending and new home sales.  Both rose significantly. BUT there are big drawbacks to each.
First of all, take a look at the personal savings rate:
It just made a new low, at 2.9%, for this expansion.  On the one hand, this is a concrete measure of consumer confidence, in that consumers are comfortable spending more of their income. But at the same time, a big decrease in the savings rate, such as we have had over the last 16 months, tends to happen later in expansions, and makes consumers more vulnerable to any inflationary shock.

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Republicans Attempt to Block State’s Student Bill of Rights

Even though most states have done little to improve access to healthcare, it is ok for states to regulate ACA and Medicaid as states are supposedly closer to their constituent’s needs. If the Federal government steps in and tries to regulate voting registration requiring ID, planned parenthood, ACA, etc. because certain state(s) give a damn about discrimination, children, and human rights; then, it is a supposed violation of state rights. For once, states have gone the other way. Student loan regulation of servicers has worsened in the last two decades under the Federal Government, states have taken notice and stepped in voluntarily to rein in the abuses of the student loan servicers.

It is a well-known and voiced complaint amongst student borrowers; the loan servicers are difficult to deal with, the regulators over bearing as borrowers have no recourse with them or in court, the laws and procedures are not accurately told, and any penalties assessed for delinquency or recasting loans in default are usurious. Deciding enough is enough with the Federal Government, legislators doing little to remedy the issue, and servicers being abusive; some states have taken action.

Recounting his experience and interaction with a student loan servicer’s staff, one state’s General Council had this to say:

The situation is so challenging that even a state banking regulator (financial attorney) struggled to figure it out. Bruce Adams, the general counsel for Connecticut’s department of banking, recounted his exasperation in dealing with a servicer when discussing his wife’s student loans in a recent interview. After multiple calls to the company where he heard different answers to the same question, Bruce Adams (43 years of age) had finally had enough.”

Bruce Adams: “I expressed my frustration and said I am a financial lawyer and I understand the words that you’re using. I don’t understand what you’re telling and if it does not make sense to me, how is it going to make sense to anyone who is not in this field?”

In a Connecticut legislative hearing to address the challenges facing student loan borrowers, Bruce Adams told his version of what took place during his conversation with a student loan servicer. The story was convincing enough to Democrat and State Representative Matt Lesser for him to spearhead legislation. That conversation with a few other Connecticut state legislators and Matt Lesser actions led to the first state sponsored Student Loan Bill of Rights in the nation.

Why is this so important? According to the agency Trump placed under the direction of Mick Mulvaney, the CFPB stated:

Former CFPB Director Richard Cordray: “One out of four student loan borrowers are struggling to repay their loans or are already in default, cleaning up the servicing market is critical, today’s report underscores the need for market-wide student loan servicing reforms to halt harmful practices and boost assistance for distressed borrowers.”

If you think this will happen under Mick Mulvaney, then you probably thought the Republican Tax Bill will skew much of the relief to middle and lower income taxpayers too.

It has been two years since Market Watch’s Jillian Berman wrote about Connecticut’s Student Loan Bill of Rights. Since then Betsy DeVos is heading up the Department of Education and advocating for less regulation of student loans, pushing for privatization of public education, and favoring Charter Schools regardless of quality. Since Jillian’s article, I am confident the student loan dynamics have edged closer to the 1 in 4 being in default as also claimed by Alan Collinge of the Student Loan Justice Organization.

So, what is happening today?

Jillian and Market Watch points us to recent state activities in loans for education. Other states have started to or put in place similar bill of rights to protect student borrowers. Then President Obama placed additional restrictions on nonprofit and for-profit schools. However in 2017, the dynamics changed with the election of Trump to the presidency as he, McConnell, Ryan, and Republicans are attempting to rollback or change Obama’s accomplishments threatening the nation’s younger citizens with becoming indentured more so than previously to the servicer and loan industry.

The House Education and Workforce Committee leadership released a Republican sponsored 540 page bill called PROSPER or “Promoting Real Opportunity, Success, and Prosperity through Education Reform,” HR4508. It is the House proposal reauthorizing the Higher Education Act and contains a plethora of promises to the financial industry and limits Federal and State Government’s intervention in regulating colleges, student loans, and repaying student loans.

Republicans have been big on limiting Federal regulation of States under the guise of states rights. Progressive states have moved to provide protections for the welfare of students borrowing money for college and conservative states have moved in the opposite direction to lessen their protection. Republican US Representative Virginia Foxx bill’s intentionally eliminates any state intervention.

Tucked away deep inside the bill on page 464 of 540 pages is the wording doing so;

PROSPER, line 10: (d) FEDERAL PREEMPTION, the Republican bill reverses the trend of state regulation.

Promoting Real Opportunity, Success, and Prosperity through Education Reform (PROSPER) Act: HR 4508: Sponsors: US Representative Virginia Foxx NC (R) and US Representative Brett Guthrie KY (R)
To support students in completing an affordable postsecondary education that will prepare them to enter the workforce with the skills they need for lifelong success.
Page 464
“(1) DISCLOSURE AND COMMUNICATIONS.—An entity awarded a contract under this section for the origination, servicing, and collection of loans made under this title shall not be subject to any law or other requirement of any State or political subdivision of a State with respect to :

“(A) disclosure requirements; or
“(B) requirements or restrictions on the time, quantity, or frequency of communications with borrowers, endorsers, or references with respect to such loans.

“(2) SERVICING AND COLLECTION.—The requirements of this section with respect to the serving or collection of loans shall preempt any law or other requirement of a State or political subdivision of a State to the extent that such law or other requirement would, in the absence of this subsection, apply to a loan servicer, or the servicing or collection, of a loan made under this title.
“(3) LIMITATION.—This subsection shall not have any legal effect on any other preemption provision under Federal law with respect to this title.”

The House bill effectively eliminates any and all regulation by states existing today, going forward, and including Connecticut’s Bill of Students (to be redundant). It appears, Republicans do not believe in state rights when it comes to the regulation of student loans, private servicers, loan repayment, collection of student loan debt, and the lending institutions making these loans.

Some Issues with PROSPER HR4508:

The bill also limits the Federal government regulation of nonprofit and for-profit colleges and universities.

The bill increases the limits of federal loans made for education; but, colleges can limit the federal loan amount and potentially force students to go to the private lending institutions if they do not have enough fundings from college loans. A difficulty also arises in consolidating private and Federal loans as it can not be done. Another potential problem with colleges administering loans surfaced 10 years ago when some colleges had favorite servicers/banks and directed loans to them. Colleges were given favorable pricing, kickbacks, or gifts if they used particular lending institutions such as JP Morgan Chase, Citibank, Bank of America, Wachovia, Wells Fargo, National City, Sallie Mae, CIT/Student Loan Xpress, etc.

Loan interest rate caps for these loans will also increase.

Undergrad student loans are capped at 8.25% or 10-year Treasury Rates + 2.05%; Graduate Students and Professional student loans are capped at 9.5% or 10-year Treasury Rates + 3.6%; and Parent One Loans are capped at 10.5% or Treasury Rates + 4.6%. My argument against such high rates has revolved around the need for a highly educated work force and more graduate and doctorate graduates to do the required doctoring, research and development, and teaching. Instead of increasing interest rates and eliminating deductions for interest, the nation should be reducing the cost of going to college by lowering interest rates to cover cost alone. 3% maximum sticks in my mind.

The length of a loan repayment is limited unless approved for an IBR plan (IBR plans have been difficult to administer with 1 in 4 students dropping out of them and eventually going into delinquency.)

The length of the payment plan shall be no more than 120 months or 10 years unless an Income Based Repayment Plan is offered. Under PROSPER, the IBR 20-25-year limit still exists but the loan forgiveness is eliminated. Today and with the IBR, loan forgiveness can be achieved after 20-25 years. The payments under PROSPER are also higher and a student borrower can be making payments till the grave.

For-Profit colleges no longer have to put their own funding up and can use taxpayer money as a basis to be in business or have “skin in the game”.

The elimination of the 90/10 rule which required for-profit institutions to put up 10% of their own funds up besides federal funds for loans. Taxpayers are funding for-profit school lending again with 100% funding using taxpayer funding. Taxpayers are funding loan companies.

Students are penalized if a loan goes into default and reactivated. These loans are profitable in default and more so.

Reactivation of a student loan today with a private server comes with a rate as high as 16%. This happens with a loan which can not be discharged through bankruptcy or disability unless 100% disabled (including military) as called out in the House bill. As Alan Collinge has stated; “More profit is made on student loans in default than in repayment.”

US Representative Virginia Foxx’s HR4508:

Ben Miller of the Center for American Progress: “We see a decimation of key consumer protections for students. The ‘business of higher education over students’ is just one of the themes that emerged from the more than 540-page bill.”

It is hard to get to something worse than today’s IBR and Repaye plans plus student loans without Bankruptcy protection something our Twitterer-in-Chief enjoyed 6 or 7 times; but, it appears the Republican PROSPER bill put forth by US Representatives Virginia Foxx, Brett Guthrie, and Republicans has established a new level of debasement of students and indenturing them for life to student loans.

My own Opinion?

I have helped my sons and daughter with their loans, being adamant in what would be acceptable and as well advise other potential college students. All student loans should never have exceeded 3% interest annually to encourage more to go to college. Low interest rate loans promote the nation’s investment in their citizens and give graduates the ability to start life less hindered than what they are today. As one older University of Michigan lobbyist who wanted to have a discussion with me concerning my statement to Senator Stabenow on student loans and the IBR programs, the attitude was “I got mine” and today’s students should get over it and live with it. My answer is; “the ability to gain an education should not hinder those who are seeking education with high interest rates and usury penalties administered by commercial interests. It is beneficial for the country to cause graduates to become as productive as possible as soon as possible. Neither should any person be indentured to the nation financially.” The dynamics have changed over the years.


One State’s Effort to Tackle the Student Debt Crisis Jillian Berman, Market Watch. January 10, 2016.

House Republicans Seek to Roll Back State Laws Protecting Student Loan Borrowers Jillian Berman, Market Watch, December 2017.


HR4058 PROSPER Bill as introduced Sec 493E It is easier to do a search for Federal Preemption.

CFPB Student Loan Servicing September 2015

CFPB Concerned About Widespread Servicing Failures Reported by Student Loan Borrowers

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What is the GOP goal? A return to the “gilded age” (or worse)

What is the GOP goal? A return to the “gilded age” (or worse)

When right-wing Roy Moore said that the time when America was great was during slavery, he revealed something key to the current GOP members of Congress and state legislatures–their primary goal is to return to a time when owners of property held all the keys to the kingdom and workers were just serfs expected to do as told and whose lives didn’t really matter much to the boss capitalists.

Historian Nancy MacLean suggests that this is the reason for the tax bill’s largesse to corporatists and the wealthy, the reason the GOP wants to undo Medicaid, Medicare, Social Security and essentially all the progressive programs introduced in the twentieth century to form the basis for a thriving middle class and surging democratic union.  See Cahuncey DeVega, Historian Nancy MacLean on the right’s ultimate goal: rolling back the 20th century, (Dec. 13, 2017).

Here are some key points from the article.

1) “[T]he Democratic Party is terrible at translating complex questions of public policy into simple narratives that evoke emotion and, in turn, action from the American people.” Id.

Indeed, having an able, sympathetic messenger who can translate the issues that truly matter into terms that make sense to ordinary people is something the Democratic Party lacked in the last election.  The tone deafness of Debbie Wasserman Schultz and, much of the time, Hillary Clinton, meant that ordinary people didn’t understand that Trump is merely a blowhard capitalist who doesn’t care if he cheats or lies or exploits other people so long as he gets notoriety and money, while the Democrats have been the party working for a decent sustainable economy, environmental protection and preservation, protection from pollution and diseases, and working wages for ordinary folk.

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The Poland Peoblem: How A Good Economy Does Not Guarantee A Good Politics

The Poland Peoblem: How A Good Economy Does Not Guarantee A Good Politics

This is personal and professional.  My wife and I have the third edition of our comparative economics textbook now in press at MIT Press.  We have chapters on transition economies, and one is on  the Polish economy.  The standard story is that Poland has been the great success story of transition (now accepted to be over pretty much everywhere for awhile now).  It adopted largely western market capitalist institutions successfully, while avoiding mistakes made by other transition economies.  It avoided dismantling its social safety net.  It was careful about privatizing state-owned enterprises, and in fact continues to have a higher percentage of its output run by them compared to most other such economies, with this tied to its lower rate of corruption than many of them.  While it joined the EU, it avoided giving up its currency, which allowed it to devalue and preserve economic growth even as EU nations fell into recession.

Indeed, the ultimate economic success of Poland came during the Great Recession when it was the only nation that did not go into recession at all, steadily growing even through the pit of 2009.  It was the first Soviet bloc transition nation to come out of its transition recession, with a reasonably functioning parliamentary democracy, and it has outperformed all the rest economically.  In 2007, its president, Lech Kaczynski of the conservative Law and Justice Party, signed the Lisbon Treaty, which allows the EU to enforce judicial independence and other features of western democracy.  Later he would die in a plane crash in Russia, which led to his twin brother, the party’s current leader to formulate conspiracy theories that Russia was behind the crash.  A souring of attitudes came over the party as it went into a period out of power.  But Poland would become one of the most respected members of the EU, with a former president, Donald Tusk, now an EU leader.

On returning to power the Law and Justice party has followed a new track, obsessed by conspiracy theories, it has turned against Russians, Muslims, and Jews, but loves Donald Trump as well as the also neo-authoritarian regime of Victor Orban in Hungary (who is pro-Russia in contrast with the Poles).  Both now thumb their noses at the EU and its rules.  The latest for Poland is a new law that allows the government to remove half the judges and otherwise take firm control of the judicial system in a way violating Section 7 of the Lisbon Treaty.  The EU has formally condemned this move under the treaty, with tis setting up a possible loss of voting rights in the EU for Poland.  But the government seems not to care and is more committed to pursuing its nationalistic and authoritarian policies.

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All I Want for Christmas is No Bombing

Its almost Christmas.  What seems to be different in the last couple of years is that we now have to contend with the joy of violent Christmas plots of one sort or another.  Just the other day, some $#%& with a scheme to shoot up San Francisco for the holidays was arrested.  Not that the growing terrorism in parts of the West is a seasonal thing, mind you.

Putting up bollards seems to be a growth industry these days. But there has to be a better way than waiting around for the the next group of jihadis to find a better way to slaughter them some infidels. I can think of a few ways cause some real carnage with items most of us have at our disposal provided one is willing to be a $#%&. It is only a matter time before one of those $#%&s stumbles on one of them. Not all of them are stupid, after all.

If waiting around doesn’t work, placating doesn’t either. Heck, even countries that reliably condemn Israel at the UN, haven’t had a colony in hundreds of years, and offer generous assistance to causes and people dear to the average jihadi, not to say to the average jihadi himself (and most are male), find themselves targeted these days. Perhaps, in fact, such countries are disproportionately targeted.

Now, while it isn’t hard to find someone who will complement a pig for its tasteful make-up, the fact is, there are no positives to this state of affairs. And if nothing changes, things won’t get better on their own. But there will be more dead victims.

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GDP: Falling Short

by Diane Coyle,  Professor of Economics at the University of Manchester in the United Kingdom,

GDP: Falling Short  (from IMF website here )

Gross domestic product, or GDP, has been used to measure growth since the Second World War when economies were all about mass production and manufacturing. In this podcast, economist Diane Coyle, says GDP is less well suited to measure progress in today’s digital economy.

“I think the issue for GDP comes if the pace or scope of innovation is changing as much as it seems to be at the moment,” says Coyle. “So, that gap between what we’re measuring and the welfare effect seems quite large.”

Coyle, Professor of Economics at the University of Manchester in the United Kingdom, says while economists argue GDP was never meant to measure welfare, nearly everyone assumes it does just that.

“GDP is shorthand for welfare,” says Coyle. “So, if it’s becoming a less good indicator, that really matters.”

Another aspect of the economy that Coyle says GDP misrepresents is productivity. With all the technological advances in recent years one would expect that economies have become more productive. But GDP suggests the opposite is true. Coyle refers to this phenomenon as the productivity puzzle and says the mismeasurement of digital activities within the economy has a lot to do with it.

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Tax Rates v. Real GDP Growth Rates

by Mike Kimel   (from 2012)

Tax Rates v. Real GDP Growth Rates, a Scatter Plot  

This post was submitted by Kaleberg.

In this post, I will look at the relationship between top marginal income tax rates and real GDP growth using a scatter plot.

I am inordinately fond of scatter plots. The nice thing about a scatter plot is that you can present a lot of data in a fairly small space, so rather than just comparing tax rates at time period t against real GDP growth rates from period t to t+1, I can also show real GDP growth rates from period t to t+2, from t to t+3, and from t to t+4. (I.e., the scatter plot shows tax rates at any given time, and the growth rates over one year, two years, three years, and four years.)

The vertical axis is the GDP growth rate, the geometric average for multiple years. The horizontal average is the top marginal tax rate. The one year comparison is shown in dark blue, and each subsequent year is shown with a paler color and a smaller marker.

Figure 1

Data is for the period from 1929 to 2009 (i.e., all the years available from the BEA.)

Lower top marginal tax rates seem to limit economic growth with a rate of about 60% seeming to divide the restricted growth phase from the unrestricted growth phase. There might be a little falloff when the tax rate passes 90%, or there might not. There are lackluster growth rates associated with higher and lower top marginal tax rates. Mediocre growth is not all that hard to achieve. Finally, if high top marginal tax rates had a multi-year effect, we’d see a distinctive pattern in paler blue in this chart, but we don’t. The paler blue, longer term comparisons seem bounded by the single year effect.

The data used in this scatterplot is the same data used to build the bar chart in this this post.

Note from Mike Kimel – as always, if you want the spreadsheet (I have a copy of Kaleberg’s work), send me an e-mail. I’m at my first name dot my last name at, and my first name is “mike.” My last name has only one “m.”

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Why Would Anybody Invest When Capacity Utilization is This Low?

by Hale Stewart  (originally published at Bonddad blog)

Why Would Anybody Invest When Capacity Utilization is This Low?

A central selling point of the tax bill is that it will encourage investment.  But that assumes that high tax rates were the primary reason why business wasn’t investing.  Instead, the data says business investment is weak because the U.S. has a ton of spare capacity.

First, let’s look total capacity utilization:
It has peaked at lower levels in each of the last three expansions.
Let’s break the data down into durable and non-durable CU:

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GOP Congress: my (wealthy) donors made me do it

GOP Congress: my (wealthy) donors made me do it

The GOP’s tax-complicating, deficit-increasing, wealthy-subsidizing, Arctic destroying, Health Care damaging, $1.5 trillion tax “reform” package is unpopular with most Americans, destructive to the government’s ability to fund needed programs from disease prevention to FEMA to basic research to needed infrastructure improvements, and wildly popular with the wealthy GOP donors like the (oil-rich) Koch Brothers, the Mercers, the Wal-Mart heirs, etc.

So why did GOP representatives and senators vote for this bill that most of them hadn’t read and didn’t understand? Back in early November, one Republican in the House was surprisingly honest about his reason: his wealthy GOP donors told him to get the tax bill (that favors the wealthy) passed or don’t ask for campaign assistance. See Bob Bryan, Top GOP Congressman: my donors told me to get the tax bill passed or ‘don’t ever call me again’, Business Insider (Nov. 7, 2017).

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