Wednesday, August 08, 2012

The Futility of College Debt Bombs

"Conventional thinking" usually remains so until the model which produces the thinking is disproved in some sort of spectacular fashion. In 2000, the thought was that a person 'could not go wrong' investing in the internet or 'working with computers'. Hindsight is a harsh mistress and its revelations are often crystalline as it eventually became clear that there were such things as bad investments in the Tech Bubble. The economy subsequently crashed and the mal-investment bubble corrected somewhat. The same process repeated for the housing bubble of 2008 and countless other foolish decisions through the millenia.

The current bubble being blown in college financing reflects the same poisonous thought process that infected the other manias that blew sky high eventually. It goes roughly like this -
Education is needed to promote advances in production and general well-being. (True)
Therefore in order to grow our society, education needs to take place to create economic growth. (True) 
College is an advanced form of education. (True)

Now here is where things typically begin to break down...
Therefore, all college is an investment in economic growth. (False)
Just like and now Facebook found out, putting out just any sort of product, no matter how useful is not a guarantee of economic success. Perhaps a good question to ask is 'Is this product necessary?'. If the answer to that question is yes, then money will chase it, profits will be had and the economy will grow. However, if the answer is no, then the company will go bankrupt in short order.

It is with this thought process in mind that we consider the following -
According to government data, compiled by the Treasury Department at the request of, the federal government is withholding money from a rapidly growing number of Social Security recipients who have fallen behind on federal student loans. From January through August 6, the government reduced the size of roughly 115,000 retirees' Social Security checks on those grounds. That's nearly double the pace of the department's enforcement in 2011; it's up from around 60,000 cases in all of 2007 and just 6 cases in 2000.

Tens of thousands of retirees have fallen behind on student loans--and the feds are coming after their Social Security benefits. SmartMoney's AnnaMaria Andriotis has details on Lunch Break.

The amount that the government withholds varies widely, though it runs up to 15%. Assuming the average monthly Social Security benefit for a retired worker of $1,234, that could mean a monthly haircut of almost $190. "This is going to catch an awful lot of people off guard and wreak havoc on their financial lives," says Sheryl Garrett, a financial planner in Eureka Springs, Ark.
My favorite statement as of the last few years has been 'How are you going to pay for that?'. For decades, the American answer to that has been deferment, 'I'll pay later...' Eventually that thought gives way to 'I won't have to pay ever because the growth will cover the financing.' (8% growth - 5% interest = 3% profit)
The thought that just about everyone misses is that the cost will have to be paid eventually. The government realises this and this is why they are hitting you where it hurts now.
Initially, $200 a month is not enough to sink a families finances, but soon that number will grow. And since the cost of borrowing eventually will go back up, so will the total bill.

This is why communism doesn't work. NO ONE PAYS THEIR BILLS.

This is what causes the commune to devour more and more assets, resources and eventually countries in an attempt to prop up a failing system. We've seen this in the Soviet Union, we see this today in cities across the US, and we see this in the poisoned thinking of our kinsmen when they refer to the collective when they want their 'next greatest idea EVAH!' to be implemented. In truth, it's a failed concept that prospers in the ideological cesspools seed by....wait for it....wait for it...


Long and short. America is selling the last of its productivity in a failing attempt to protect its economy by buying communism.

Sweet Lenin's ghost the irony is delicious.

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