Relevant and even prescient commentary on news, politics and the economy.

A Wake-Up Call for Students

Guest Author: Alan Collinge, StudentLoanJustice.Org,Both Alan and I have written various posts on the student loan crisis. Alan has been featured on Angry Bear Blog from time to time.

If you are in college and looking for something worthy to fight for today; as a student, you should consider the student loan issue. Student loans and how they are administered are the national injustice of our time reaching threatening proportions and impacting the livelihood of young adults going forward. While at first glance, the problem appears complicated, confusing, and overwhelming; it is actually quite simple and its debt genesis hearkens back to the creation of this country. This problem transcends partisan and cultural divides and could serve to bring together those on the left and right on campus.

George Washington, Thomas Jefferson, and others were in debt up to their eyeballs to British banks and merchants. They came to understand how a lending system could be used against the citizens. Of course it was not just the Founders who were being exploited, many early settlers were indebted to English banks as well. John Adams famously remarked;

“There are two ways to enslave and conquer a country. One is by the sword. The other is by debt”

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When the Founders created the Constitution, they made it a point to reflect on bankruptcy rights prominently. Few people realize that a uniform bankruptcy system is called for before the power to raise an army or a navy, ahead of the power to coin currency, and even ahead of the power to declare war in Article I, Section 8 of the Constitution.
Obviously, bankruptcy rights were very important to these men.

Free men are not forced into any type of behavior by the government that We The People established and ordained. The government is to serve the people – not to force them into servitude and obedience. The people are sovereign, as the people came before the government and the Constitution that gave rise to the government.

Adam Smith, the founder of free market economics provided the basis for western economic theory, was compelled to advocate for bankruptcy protection as a means to encourage entrepreneurship, risk taking, and also a means to compel good faith in a lending relationship.

When an individual or firm goes bankrupt, a legal process is instigated to discharge debts that cannot be repaid. In former times such debtors might have been put into a debtors’ prison and languished there for years. The process weighs assets against liabilities and allows the debts to be discharged at some fraction of their nominal value, leaving the debtor free of the burden, albeit subject to rules of financial behaviour and with a blemish on their credit record which can last for years.

Student loans violate longstanding economic principles and as such the beliefs of the Founders. Today, Congress has placed conditions on student loan bankruptcy so severe; that of 169,000 people with student loans who filed for bankruptcy in 2014, fewer than 20 received relief. When our legislators first restricted the right to student loan bankruptcy in the 70’s, some members warned that such a move had dire constitutional implications, but their concerns went unheeded. As one University of Connecticut expert Philip Schuhman testified to Congress:

” students should not be singled out for special and discriminatory treatment. I have the further very literal feeling that this is almost a denial of their right to equal protection of the law. Nor do I think any evidence has been presented that these people, these young people just beginning their years on the whole should be singled out for special, and as I view it, discriminatory treatment. I suggest to you that this may at least in spirit be a denial of their right to equal protection with the virtual pole star of our constitutional ambit.”

Today, student loans are the only type of loan in this country from which bankruptcy rights have been removed leading to consequences so severe as to result in a form of peonage. Despite peonage being made illegal after the civil war in 1867, it still flourished in the form of sharecropping with former slaves and poor farmers farming plots of land owned by others. Sharecroppers supposedly received a percentage of the profits from sale of grown crops. The sharecroppers were forced to take out relatively large loans just to get by and meet daily expenses, buy seed, rent land, and pay the interest rates imposed on them by landlords.

Also in the past African Americans could be accused of falsely owing money or trivial sums, given sham trials and quickly sold off by the courts into a privatized system of debt slavery to pay back debt. The peonage contracts contained enslaving terms and conditions, allowing the employer to trade, confine, whip and beat workers as long as the debt was deemed unpaid, which could practically last forever.

While not as severe as peonage, students in default are denied access to federal programs and unemployment benefits. Social Security and employment wages can be garnished leading to diminished lifetime earnings and poverty. All of these conditions have a severe impact upon the overall economy as younger workers do not achieve their full earning potential.

The student loan industry is willfully predatory and profitable for the banks who lobbied intensely for the removal of bankruptcy protections and work hard to keep their monetary advantage. As Mr. Potter would say; “The bank always get paid” and this comes no matter what the terms or conditions of the loan are.

(run75441) In my own discussion with a former University of Michigan lobbyist who was regaling me after I dared to make a statement to Michigan Senator Debbie Stabenow about what her stance and actions were with regard to student loans. “There is IBR and Repaye which are programs allowing payment back on student loans based upon income.” These programs are mostly failing because of one rule requiring the yearly application to the program rather than an automatic re-up into the program. The re-up is required to report income a factor which is automatically done for Medicare via computer systems. The manual yearly application for the programs was bound to be a failure just by this alone.

It was not just the banks cashing in on the removal of consumer protections. In 2012, the federal government booked over $50 billion in profit on the lending system and this has increased in more recent years. What is disturbing is White House Budget data showing a profit being made on defaults. Think about this: where a credit card company is thrilled to get back a dime on the dollar for their defaulted accounts; the federal government is actually getting back more than a dollar in return. This is a defining hallmark of a predatory lending system and unfortunately for the students, the Department of Education sits on top of it all doing everything it can to perpetuate this situation. Department of Education lawyers fight tooth-and-nail behind the scenes to deny legitimate bankruptcy. This form of government enforced peonage spans many presidents and Congresses and both political parties going back to the seventies.

In 1998, when Congress made bankruptcy permanently unavailable for the overwhelming majority of borrowers, the nation owed roughly $100 Billion in student loans. Today that has exploded to $1.5 Trillion. By the end of this year, nearly one in four borrowers will have defaulted on their loans. People’s lives are being devastated. Families are being torn apart, particularly where cosigners are put on the hook for their kid’s exploded loans. People are fleeing the country, and some are even committing suicide as a result of their student loan debt.

If you think you don’t need to worry because there are forgiveness programs in place, you are wrong. With 57% already kicked out of them income based repayment programs are failing misrably. Assuming the programs are not ended by Secretary of Education Betsy DeVos, I estimate only 10% will be successful and have their loans forgiven and still potentially taxed as income. The rest will be disqualified from the program and left owing far more than when they graduated.

Alan Collinge is the Founder of Student Loan Justice Org and author of “The Student Loan Scam” (Beacon Press).

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How to kill Social Security in 2 easy steps

How to kill Social Security in 2 easy steps
Here’s Kevin Drum advocating for step 1:

 the best way to address retirement security is to continue reforming 401(k) plans and to expand Social Security—but only for low-income workers. Middle-class workers are generally doing reasonably well, and certainly as well as they did in the past. We don’t need a massive and expensive expansion of Social Security for everyone, but we do need to make Social Security more generous for the bottom quarter or so of the population that’s doing poorly in both relative and absolute terms. This is something that every liberal ought to support, and hopefully this is the bandwagon that President Obama in now on.

Step 2:
Now that 3/4 of the population will be paying into a system to transfer their income to the bottom 1/4, you have instantly created a majority constituency that will benefit from killing the now-welfare program.
Why does Kevin Drum want to kill Social Security?

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Why a Case Against a Dark Money Charter School Group Is Great News for Democracy

Via Alternet:

Why a Case Against a Dark Money Charter School Group Is Great News for Democracy

Billionaire charter school backers in Massachusetts wanted their identities kept secret. In one of the most important decisions ever about dark money in politics, a Massachusetts charter school advocacy group has been ordered to make the names of its donors public, and pay the largest campaign finance fine in state history. The case is likely to reverberate across the nation.

This week, the Massachusetts Office of Campaign and Political Finance (OCPF) exposed the charter school advocacy group Families for Excellent Schools, not as the education reform group of its own masquerade, but as a dark money front designed to hide millions in contributions from plutocrats. The donors, who sought to keep their identities secret, spent big on a ballot question to dramatically expand charter schools in the state; voters rejected itby a wide margin in November.

OCPF reached a Disposition Agreement with Families for Excellent Schools that required the organization to register as a ballot committee and to admit that it had raised (and spent through the Great Schools Massachusetts ballot committee) over $15 million from donors “without disclosing the contributors, and by providing funds to the GSM Committee in a manner intended to disguise the true source of the contributions.” (Press release here).

“Intended to disguise the true source of the contributions.” Marinate in that phrase for a bit.

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Deficits Do Matter, But Not the Way You Think

Dan here…a reminder about our federal deficit.

Deficits Do Matter, But Not the Way You Think
07.20.10    Roosevelt institute  L. Randall Wray

In recent months, a form of mass hysteria has swept the country as fear of “unsustainable” budget deficits replaced the earlier concern about the financial crisis, job loss, and collapsing home prices. What is most troubling is that this shift in focus comes even as the government’s stimulus package winds down and as its temporary hires for the census are let go. Worse, the economy is still — likely — years away from a full recovery. To be sure, at least some of the hysteria has been manufactured by Pete Peterson’s well-funded public relations campaign, fronted by President Obama’s National Commission on Fiscal Responsibility and Reform — a group that supposedly draws members from across the political spectrum, yet are all committed to the belief that the current fiscal stance puts the nation on a path to ruinous indebtedness. But even deficit doves like Paul Krugman, who favor more stimulus now, are fretting about “structural deficits” in the future. They insist that even if we do not need to balance the budget today, we will have to get the “fiscal house” in order when the economy recovers.

In fact, MMT-ers NEVER have said any such thing. Our claim is that a sovereign government cannot be forced into involuntary default. We have never claimed that sovereign currencies are free from inflation. We have never claimed that currencies on a floating exchange rate regime are free from exchange rate fluctuations. Indeed, we have always said that if government tries to increase its spending beyond full employment, this can be inflationary; we have also discussed ways in which government can cause inflation even before full employment. We have always advocated floating exchange rates — in which exchange rates will, well, “float”. While we have rejected any simple relation between budget deficits and exchange rate depreciation, we have admitted that currency depreciation is a possible outcome of using government policy to stimulate the economy.

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Hurricane adjusted initial claims for week of Sept. 2: 239,000

Hurricane adjusted initial claims for week of Sept. 2: 239,000

Last week I promised I would repeat an exercise I first undertook in 2012 when Superstorm Sandy disrupted the initial claims data: estimating what the initial jobless claims would have been, but for the hurricane.

In 2012 I created that adjustment by backing out the affected states (NY and NJ) from the non-seasonally adjusted data.  That gave me the number of initial claims filed in the other 48 states.  I compared that with the same metric one year earlier, and multiplied by the seasonal adjustment.

What that does is give me the number if the affected states had the same relative number of claims during the given week, as all of the unaffected states.  In 2012, it showed that Sandy was not masking any underlying weakness in the economy.

The state by state data is released with a one week delay.  So what follows is the analysis for the week of September 2, the number for which was reported one week ago. This week I only had to back out Texas.  Next week I will undoubtedly have to back out Florida as well.

Here is the table for the Week of September 3 in 2016 vs. September 2 this year:

Metric                              2016                   2017

Seasonally adjusted:       257,000              298,000

Adjustment for total:       1.18%                1.19%

Not seasonally adjusted: 217,715              250,621

Texas claims:                     15,707                63,788

NSA claims ex-TX           202,008              186,833

TX as % of total:              7.2%                   n/a

2017 w/ TX adjustment:  n/a                      201,405

If we use the 2016 weekly seasonal adjustment of 1.18% for the adjusted 201,405 total, this gives us ~238,000.

If we use the 2017 weekly seasonal adjustment of 1.19% for the adjusted 201,405 total, this gives us ~240,000.

Thus the hurricane-adjusted initial jobless claims number for the week of September 2, 2017 is 239,000.

The underlying national trend in initial jobless claims remains very positive.

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Who owns the Wealth in Tax Havens?

WHO OWNS THE WEALTH IN TAX HAVENS?, an NBER working paper, points to following the money:

Drawing on newly published macroeconomic statistics, this paper estimates the amount of household wealth owned by each country in offshore tax havens. The equivalent of 10% of world GDP is held in tax havens globally, but this average masks a great deal of heterogeneity—from a few percent of GDP in Scandinavia, to about 15% in Continental Europe, and 60% in Gulf countries and some Latin American economies. We use these estimates to construct revised seriesof top wealth shares in ten countries, which account for close to half of world GDP. Because offshore wealth is very concentrated at the top, accounting for it increases the top 0.01% wealth share substantially in Europe, even in countries that do not use tax havens extensively. It has considerable effects in Russia, where the vast majority of wealth at the top is held offshore. These results highlight the importance of looking beyond tax and survey data to study wealth accumulation among the very rich in a globalized world.

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It Is Monday, And WaPo Bashes Social Security Again

It Is Monday, And WaPo Bashes Social Security Again

What a surprise, the Washington Post is at it again, and it is the usual culprit, Robert J. Samuelson. Of course he has his attack buried under a title that appears to point more broadly, “The deficit is everybody’s fault,” although not if “everybody” includes people who die before they become eligible for Social Security and Medicare (and those parts of Medicaid that go to old people).  He even has further cover in that the new numbers come from the “left-leaning” Center on Budget and Policy Priorities in a report issued on Sept. 6 written by Paul van der Water, and I grant that the numbers he shows do come from that report, which makes projections out to 2035, the year when the adjustment for baby boomers going onto elderly entitlement programs will have been largely completed.

While in fact the report shows a slightly lower budget deficit as percent of GDP in 2035 than now (3.0% to 3.1%), that does involve a tax increase of 2.7% of GDP, along with cuts in spending on numerous categories of the budget.  These are in place to offset increases on four items: Social Security at the top of the list with an increase of 1.3% of GDP (from 4.9% to 6.2%), followed by Medicare with an increase of 1.2% (from 3.2% to 4.4%), interest on the national debt of 1.1% (from 1.3% to 2.4%), followed by “other health” (mostly Medicaid) of 0.5% (from 2.3% to 2.8%).  With maybe 60% of the latter not being due to more old people, and interest payments also not due to them, that leaves those aging baby boomers responsible for about 2.7%, just equal to the amount of the tax increase assumed to have the budget deficit decline by 0.1% of GDP, and although it is implied otherwise, some of that tax increase presumably would be paid by those elderly.

OK, I agree that old people will increase as a percentage of the population.  The number that appears in the CBPP report shows them rising as a percentage of the population from 15% today to about 20% in 2035, an increase of a third, or 33 and 1/3%.  But the increase in Social Security spending is only a 26% increase, not as much as the increase in the share of old people in the population. The underlying report notes that indeed cuts in Social Security spending already passed will be responsible for this gap, but Samuelson somehow does not note this, and calls for more cuts.  It is the one item he specifically mentions.

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“If you tax investment income what will people do? Stuff their money in the mattress?”

“If you tax investment income what will people do? Stuff their money in the mattress?”

Steve Roth | October 15, 2012 9:25 pm

Richard Thaler asks exactly the right question. This from the latest IGM Forum poll of big-name economists, on the effects of taxing income from “capital.”

I’ve been over this multiple times before, but it’s nice to see the thinking validated by a real economist. If you’ve got money, there is no (practicable) alternative to “investing” it. (Those are irony quotes: referring to “buying financial assets,” as opposed to “buying/creating real [fixed] assets,” which is the technical meaning of “investing” in national-account-speak.)

Or actually — there is one alternative to “investing” your money: spending it.

Are the neoclassicals really going to argue that if we tax returns on financial assets at a higher rate — so “investors” have less after-tax income — they’re going to spend more? I don’t think I have to cite sources to prove that they consistently argue exactly the opposite.

But just for grins, let’s say they will spend more. That would be great! They’d increase the volume of private money circulation (P*T, or M*V, your choice) — boosting demand for real goods and services, stimulating production, and goosing GDP.

And if we’re lucky, they’ll use it for investment spending instead of consumption spending. They get to write off those real investment expenditures against their taxes, after all. Not true with consumption expenditures, much less purchases of financial assets.

In which case — this seems kind of obvious when you think about it — taxing “investment” income will increase investment (while reducing the federal deficit). What’s not to like?

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Why Economists Don’t Know How to Think about Wealth (or Profits)

by Steve Roth (originally published at Evonomics 2016)

Why Economists Don’t Know How to Think about Wealth (or Profits)

Until 2006, they quite literally weren’t playing with a full (accounting) deck. Most still aren’t.

By Steve Roth

In the next evolution of economics taking shape around us and among us, perhaps no school has been so transformational over recent decades as a loose, worldwide group best described as “accounting-based” economists. Modern Monetary Theory (MMT), with its central tenet of “stock-flow consistency” (or stock-flow coherence) is at the center and forefront of this group.

These accounting-based economists more than any others managed to accurately predict our recent Global Great Whatever. And Wynne Godley, rather the pater familias of MMT, predicted the current Euro crisis in amazingly precise and accurate detail — in 1992, before the project was even launched. These economists’ nerdy and businesslike, green-eyeshade and steel-tipped-pen approach gives them unique and accurate insights into the state of the economy, and its likely futures.

Given these decades of focus on national accounts, it’s amazing that almost no economists are aware of a pretty remarkable fact:

Before 2006, the U. S. didn’t even have complete, stock-flow-consistent national accounts. That was the year that the BEA and the Fed released the Integrated Macroeconomic Accounts (IMAs; also presented as the “S” tables at the end of the Fed’s quarterly Z.1 report). They provided annual tables extending back to 1960, based on the latest international System of National Accounts (SNAs). Think: Generally Accepted Accounting Practices (GAAP), but for countries. We didn’t get quarterly tables in these accounts until 2012, only four years ago. And even today, we don’t have quarterly tables for subsectors of the financial sector.

In June 2013, the Z.1 report was renamed, from the Flow of Funds Accounts of the United States to the Financial Accounts of the United States, and the IMAs’ comprehensive data has been steadily more fully incorporated throughout the report — notably in the up-front Page i table, “Growth of Domestic Nonfinancial Debt,” which is now “Household Net Worth and Growth of Domestic Nonfinancial Debt.” See also Table B.1, “Net National Wealth,” which was added in the September 2015 release.

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Another Assault on the PPACA/ACA Coming in 2017

The Present

If you thought it was over, it is not. Now that Schumer/Pelosi have removed the debt limit issue in front of Republicans with a Trump agreement, one more impediment to assaulting healthcare has been cleared away. John, I have cancer and have healthcare, McCain has come out to support a bill proposed by Senators Lindsay Graham and Bill Cassidy to repeal Obamacare. Maybe Trump knew and maybe he did not know; but, he did a nice pivot with Schumer and Pelosi with Ryan and McConnell shocked by his abandonment of Republican partisan values. A good friend of Graham, John McCain, who has a guarantee of healthcare anyway he wants it through federal government insurance or the VA, has thrown his support to Graham on healthcare.

The Graham-Cassidy legislation would essentially dismantle much of Obamacare’s federal infrastructure, turning over federal dollars to the states to do with what they wish, though that flexibility at the state level would come at a sharp cost. Judith Solomon, vice president for health policy at the Center on Budget and Policy Priorities, told Politico on August 1 that she estimated it would result in 16 percent less federal spending in 2020 versus the Obamacare status quo’s spending on Medicaid expansion and market subsidies.

The Recent Heroics

Who can forget the noble, cancerous Senator from Arizona with a scar above his left eye marching into the Senate to make a deciding vote? Such bravado . . . Unfortunately, it was all about getting even with Trump and supposedly Senate Order for McCain.

“We don’t answer to Trump no matter how much he stomps his foot. We answer to the American people regardless of how much our decisions will impact them. We must be diligent in discharging our responsibility to serve as a check on his power and screw them in our own way. And we should value our identity as members of Congress more than our partisan affiliation.”

That last sentence is priceless. Value your identity as a senator, a step above the citizenry so we do not engage in partisan affiliation. The Republican persona has been about party affiliation “uber alles.” Amongst themselves the Republicans are split along partisan lines and no longer represent the citizenry they lay claim too. McCain is about using a proper order in screwing the constituents in favor of partisanship.

Some History and Procedure

It was Aaron Burr in 1806 who recommended “the Previous Question” Motion (call for a vote or end debate) be discontinued as senators were gentlemen and knew when to end debate and when to move on to the next question. The motion was rarely used. Of course, that was then and today is today. So what happened? The “Previous Question” motion was eliminated and being gentlemen in the Senate without party affiliation died with it as the age of the filibuster came to be. This is want McCain alludes to in his Senate Order comment. It is so far in the Senate past an few senators would understand Aaron Burr’s comment.

Under today’s rule, the Republicans will have to repeal portions of the ACA using Reconciliation; which requires a majority of 51 votes, can only impact budgeting, and not create a deficit 10 years out (think the sunset of the 2001/2003 tax breaks). Unless there is a special session called by Ryan, the House is in session for 12 days in September and this year’s budget ends this month. There can only be one Reconciliation per budget year.

Pessimism

Trump seized the moment to solve the potential debt limit crisis approaching EOM September. It also appears he has resolved some other issues politically with the support of the Democrats and has moved one step closer to his goals of killing the ACA and Tax Reform. The issues remaining on the table are:

1. Revising the ACA in 2017 before EOM September using Reconciliation.
2. Create a 2018 Budget with Reconciliation Rules for Tax Reform.
3. 12 congressional days to accomplish these two tasks.

Democrats gave up an impediment to Republicans, the passage of the debt limit, too early in the remainder of the 2017 budget year. McCain is on board for revising the ACA, the ultra conservatives will support it as it has block grants to states, and it will create the budget surpluses needed to do tax reform. To get Tax Reform in 2018, they need surpluses, which the revision of the ACA will provide and a new budget with Reconciliation Rules.

Can Republicans get both of these tems accomplished in 12 days? I am sure McConnell and Ryan will increase the rowing tempo of the drum this close to the goal. If Republicans pull it off, Democrats are going to look mighty dumb in helping them along.

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