Tuesday's Musing - 04-09-2013

Good Morning World  -- 6:00 AM PDT in this part of the world...

Opening Viewpoint - 04/09/2013

• The German Market is rallying and at least at this point, the S&P appears to be going to open up.  
• China's CPI declined to 2.1% from 3.2% that is a huge decrease in an economy this large.  
• German Imports declined to -1/5% The German trade surplus widened to 16.8 billion euros from a revised 13.6 billion euros in Jan, which was a slightly supportive factor for the euro.  Germany's Feb current account surplus rose to 16.0 billion euros from 9.7 billion euros in Jan.
  
  
• North Korea continues to threaten war on the USA and South Korea.  North Korea specifically told Russia to close their embassy in the North, and for Russian nationals to flee South Korea.  They are declaring a "sacred" war.  
• UK industrial production rose more than expected and reversed at least part of the January decline.  UK Feb. manufacturing production rose in Feb.  
• USA -  
• Treasury will sell $32B in 3 year T-notes.  The Feds will increase T-note auction this week to $66 Billion.  
• Atlanta Fed President Jeffrey Lacker describes the Federal Reserves actions as "holding a tiger by the tale"...  That is not comforting...
• Futures are up a bit on European trading, but being held back by Alcoa's earnings.  (Alcoa always starts off earning season.)
• Economists are expecting moderate growth in 2013 despite last week's payroll report.
• At the moment this appears to be a Risk-Off day.  This will decrease the price of T-Notes, US dollar and any risk-on investment.  
• I would expect this to be another wait-and-see until 10:00 AM EDT when the wholesale Trade report is issued.

Student Debt

There is a new report out from the Federal Reserve Bank of New York on student debt (well, not that new, but I just read it).  http://www.newyorkfed.org/studentloandebt/

When the young people were not able to get jobs in the US economy after Obama was elected the first go around, they went back to school.  All consumer debt, except student loans, have declined since 2008.  

At this point, student loans have eclipsed credit cards and auto loans in amount owed by the borrower.  Only mortgages have more consumer debt than Student loans.

Student loans are nearing $1 trillion dollars, and the delinquency rate over 90 days is skyrocketing.  

double click image to get a larger view

 



As the Federal Reserve points out: "delinquency rates for student loans are likely to understate actual delinquency rates because almost half of these loans are currently in deferment or in grace periods"

In a recent blog entry by NY, they indicate that the student loan issue is putting a drag on the US economy as the young-first-time-buyers cannot afford houses with this kind of debt.  They also correlate this to the BLS (Bureau of Labor Statistics) where BLS shows the downward trend of college graduates entry incomes not being able to pay off student loans or afford housing. 

The statistics should give everyone of my readers in the USA (and Canada since they are our largest trading partner) pause.  The statistics are dismaying at the very least.

1. The number of borrowers (student loans) is approaching 40 million people. 
2. 40%+ of the borrowers are 25 years old,
3. The average balance of these loans of this group has risen to $25,000
4. > 17% of all borrowers are delinquent 90 days or more...  Now please relate this to credit ratings...  How will this affect one's credit rating if one becomes delinquent?  Negative, right?  Then in the current credit environment, how will new home buyers qualify for a mortgage?  Through the new Obama plan, which shifts even more debt to people who cannot get jobs.  (Margret Thatcher knew this.  She was hated by the economic progressives in the UK, but you have to admire her speeches on the common UK citizen must have jobs and save for the future.  I will miss you Margret along with your ally Ronald Reagan.) 
5. "More than Half of Student Loans are Now in Deferral Or Delinquent"  http://www.forbes.com/sites/moneybuilder/2013/02/01/alarming-number-of-student-loans-are-delinquent/ "One cause for the deferments may be that more than half of the college graduates under the age of 25 are unemployed or underemployed, according to the study’s analysis of government data."

(My wife warns me I should not say this, but here goes).  What possible reason could there be for the cost of a college education to continue to rise faster than inflation (even real inflation as shown by shawdowstats.com).  Here is my reason:

1. The study also shows the disparity between federally backed student loans–those guaranteed by the government–and private student loans. Between 2007 and 2012, federal loan balances jumped 97% while private loan balances only rose 4%. During that time, federal student loan delinquencies rose 27%, while private loan delinquency rates actually dropped 2%. The delinquency rate for federal loans was 12.31% as of March 2012 while it was only 5.33% for private loans.
2. Margret Thatcher again -  "“"the problem with socialism is that you eventually run out of other people's money", and make no mistake - using taxpayer's money to subsidize education is a social program. 
3. Or in other words, the only way Colleges and Universities do not have to decrease costs and increase productivity is because they pile government sponsored money on the students.  While writing this, I'm refraining from commenting on the value of such education. 
4. And lest you quote old studies that show people who received college education make much more money than non-educated, you have to research with correlation to the business cycle one is under right now - where quoting the government when you invest "the past does not guarantee future returns.  There is substantial risk in investing..." 

There is much more that we should worry about with student loans.  However, gentle reader, deflation -- the reduction of debt -- is still very much in play, and the Economic Judge of USA economy running under the Obama-nation is very much in question.  (Given that Mr. Obama did not start the programs -- even health care -- that has put the USA and the USA citizen in such peril.)  However, if falls to the Obama-nation to manage the exit.