Tag Archives: financial advice

5 Republican Campaign Promises

My Comments: Campaign promises are usually pretty hollow expressions of what a candidate ‘would like’ to have you believe. If you win, then you can be held accountable. If you lose, then they are typically forgotten.

Last evening, President Obama gave us his 2015 State of the Union address. I did not watch it. My brain had been overly exercised earlier in the day and I simply didn’t have the stomach to participate in any more churning. From what I read this morning, I’m OK with who he is and where the country is at the moment.

As we start the new year, with an expectation that the news media will be rampant with gibberish from and about the various national candidates, here are five promises made by GOP hopefulls during the last cycle. They might wish them to be forgotten.

One can argue persuasively that ‘deficit reduction’ has not happened given the federal debt will increase by about $1T, but federal outlays vs federal receipts has improved significantly since 2010 ( $1,294B vs $483B in 2014 ). It is a significantly lower % of the Gross National Product than it was in 2008. That’s a very good thing.

Deficit Reduction

“We will curb Washington’s spending habits and promote job creation, bring down the deficit, and build long-term fiscal stability.”—2010 GOP Pledge to America.
When Republicans took control of the House in 2010, they repeatedly stressed that reducing the federal budget deficit was a matter of peak national importance. Which makes their repeated proposals to blow up the deficit by billions rather odd. But thankfully for the GOP, with President Obama and Democrats blocking budget-busting proposals like Paul Ryan’s tax plan, the deficit has steadily dropped throughout Obama’s presidency.

Economic Growth

“Well, if China can have 5 percent growth, and India can have 5 percent growth, and Brazil can have 5 percent growth, the United States of America can have 5 percent growth”—Tim Pawlenty, June 18, 2011
As Politico reported at the time, forgettable 2012 candidate Tim Pawlenty’s pledge to spur 5 percent GDP growth was “mocked by some economists and Republican critics as unachievable in a country this large.” But in the third quarter of 2014, the Obama economy hit Pawlenty’s benchmark (for their part, Republicans greeted the news with as much enthusiasm as they showed toward Pawlenty’s campaign).

Gas Prices

“I’ve developed a program for American energy so no future president will ever bow to a Saudi king again and so every American can look forward to $2.50-a-gallon gasoline.”—Newt Gingrich, February 22, 2012.
By Gingrich’s standards, President Obama has been stunningly successful: The national average gas price is now $2.32 per gallon, marking the lowest level since May 2009. Of course, gas prices have tumbled due to a wide range of factors, few of which involve Obama — but none of which involved bowing to a Saudi king.

Medicare

“Mitt Romney and I will protect and strengthen Medicare so that the promises that were made that people organize their retirements around, like my mom, will be promises that are kept.”—Paul Ryan, August 19, 2012
There’s some reason to doubt that Rep. Paul Ryan (R-WI) was sincere when he promised to protect Medicare, given that he has repeatedly proposed plans to end the program as we know it. But if the 2012 vice-presidential nominee does genuinely want to ensure that Medicare remains strong, then he’ll surely be glad to learn that President Obama’s Affordable Care Act has significantly improved the program’s financial outlook. Since Obamacare became law, Medicare’s Hospital Insurance trust fund’s solvency has been extended by 13 years.

Unemployment

“I can tell you that over a period of four years, by virtue of the policies that we’d put in place, we’d get the unemployment rate down to 6 percent, and perhaps a little lower.”—Mitt Romney, May 23, 2012.
Mitt Romney’s vow to reduce unemployment to 6 percent by the end of his first term in office was almost universally hailed as bold and ambitious. But under President Obama’s stewardship, the economy improved much quicker than Romney promised: The unemployment rate has dropped steadily since the 2012 election, and dipped to 5.9 percent in September. President Obama has also blown Rick Perry’s vague promise to create 1.25 million jobs out of the water.

Supply Shock and Awe

oil productionMy Comments: The driving economic story these days is about the price of oil. That the sudden and dramatic drop will have global repercussions is a given. The challenge for financial planners is how to help clients take advantage of these repercussions.

Right now, having a few hundred extra bucks to spend on something else or to save is very satisfying. But it will come to an end and the landscape will have changed. This has happened before and when it did, some people profited and others lost money. What will be your fate?

Commentary by Scott Minerd, Chairman of Investments and Global Chief Investment Officer, Guggenheim Partners – January 17, 2015

If the mid-80s’ supply-driven oil crisis is a guide, we should expect further declines and a prolonged period where oil prices remain depressed.

In just one week, oil prices skidded by more than 10 percent, sparking a sell-off in U.S. equities of 3.5 percent, a Treasury rally of more than 20 basis points, and global headlines of growth fears and tumult. Surprisingly, I’m not talking about this week. The week I’m referring to was in early December, and it is rather similar to the present oil price action and market response.

During the week of Dec. 8, oil fell 12.2 percent to around $58 a barrel, the yield on U.S. 10-year Treasuries approached 2 percent from around 2.30 percent, and equities declined over 3.5 percent. At that time, I published a commentary establishing a downside target for oil at $50 a barrel and said that the yield on the U.S. 10-year note would slip further to around 1.9 percent. Many of those predictions seemed pretty extreme at the time, but here we stand. At the time of writing, oil is around $48 per barrel, and the yield on U.S. 10-year Treasuries is 1.96 percent.

Technically speaking, after breaking through the support level of $50 a barrel, the measured move for oil is now $34 a barrel (based on the minimum downside potential price according to the rules used by market technicians). I believe we are in for a prolonged period where oil trades in the $40 to $50 range and possibly lower. In fact, I have the investment teams running stress tests based on oil trading at $25 a barrel for an extended period of time.

Twenty-five dollars a barrel? Isn’t that a bit extreme? I would guess, but so were our stress tests in 2008, which assumed short-term rates could go to zero for an extended period of time. The current bear market for oil is the result of a supply shock brought on by fracking. Based on the unwillingness of global oil producers to reduce production, the current supply shock will take a while to work its way through the system, and oil prices have yet to find a bottom. Better to evaluate the downside scenarios now than to be unprepared.

The difference between this bear market in black gold and the bear market of 2008 or the 1998 experience, which was associated with the Asian crisis, is that both of those were demand shocks. The best historical comparison to what we’re witnessing today in oil prices is actually the supply-shocked world of the mid-1980s.

The 1985-86 bear market in oil was the result of oversupply—too much oil was brought online relative to demand. During that period, prices declined more than 67 percent over four months or so. When oil prices started to rise again in April 1986, credit spreads started to tighten a few months later and within 12 months, the stock market was up over 20 percent. If history is any guide—and in this instance, I believe it may be—we are likely to see a similar situation play out today.

But investors beware in the near-term. Even at $48 per barrel, oil is still a falling knife—I believe there remains another significant downside move. If we hit the $34 a barrel price target, which I believe we could, that would be another 30 percent decline in oil prices. Typically, people would rightly characterize a 30 percent decline as a bear market. We’ve already had a decline of over 55 percent from the high, so we’ve already been in a bear market, but if we started over today we’re going to have another one.

With the development of fracking, we’ve had a huge increase in the supply of oil. By most estimates, fracking ceases to be profitable when oil prices hit somewhere in the neighborhood of $40 a barrel. Once the frackers stop drilling new wells, the following 24 months should see oil output gradually declining, allowing for prices to stabilize and ultimately rising to something viewed as normal above $60. Until supply begins to contract, oil will continue to languish. Between now and then, anything energy output-related should continue to suffer from weak oil prices.

Over the past 30 years, there have been six major declines in the price of oil (defined as a greater than 50 percent cumulative decline). The current decline now stands at around 55 percent, matching the magnitude of some of the worst historical oil crashes. However, most of the past declines have been due to faltering global demand, whereas the current slump is due to a glut of oil. Therefore, the best comparable decline is that of 1985-86, when a supply shock caused the West Texas Intermediate price to plunge by more than 67 percent over the course of four and a half months. With no near-term signs of supply letting up, oil prices could continue to fall.

Economic Data Releases

US economyMy Comments: These data points come from Guggenheim Partners. For some of you this is meaningless nonsense; for others, a quick review is intented to give you a glimpse of what is happening in the world, including the US.

To put some of this in perspective, I saw an article this weekend that compared the results of the DOW Industrial Average, from its theoretical inception in 1817, to now. When Obama became president in 2008, it was roughly 9,000. By the end of this past December, it was roughtly 18,000. The point was it took 190 years to get halfway to where it is now the other half happened since Obama was elected.

My point of this is no President is entitled to the credit for this nor is he entitled to the blame. It generally happens regardless of who is in the White House. However, I urge you to remember that market declines can happen and do happen regardeless of who is in the White House, and happen even when the economy is relatively strong. We are due for a correction.

Continued Strength in Payrolls but Wage Growth Falters
• Non-farm payrolls increased by 252,000 in December after an upwardly revised 353,000 in November.
• The unemployment rate fell by 0.2 percentage points in December to 5.6 percent, in part due to a lower labor force participation rate.
• Average hourly earnings slowed to 1.7 percent year-over-year growth in December, the slowest 12-month rate since October 2012.
• The ISM manufacturing index was weaker than expected in the December reading, falling to 55.5 from 58.7, a six-month low.
• The ISM non-manufacturing index missed expectations in December, falling to a six-month low of 56.2.
• Factory orders dropped in November, down 0.7 percent. Orders have now fallen for four straight months, the first such streak since 2012.
• The S&P/Case-Shiller 20-City Home Price Index showed continued slowing home price growth in October, with the year-over-year reading declining to 4.50 percent from 4.82 percent.
• Pending home sales rose 0.5 percent in November, slightly better than expectations.
• Construction spending fell in November for the first time since June, down 0.3 percent. Public construction spending led the drop.
• The Conference Board’s consumer confidence index ticked up in December, rising to 92.6 from an upwardly revised 91.0. The present situation index experienced a large gain, but expectations fell.
• The trade deficit narrowed in November, contracting to -$39.0 billion, a nearly one-year low.

Euro Zone Enters Deflation

• The euro zone Consumer Price Index fell into deflation in December at -0.2 percent year over year, lower than forecasts had expected. The core CPI inched up to 0.8 percent.
• The euro zone manufacturing Purchasing Managers Index was revised lower in the final December estimate, but still recorded an increase from the prior month at 50.6.
• Euro zone retail sales beat expectations in November, up 0.6 percent for a second consecutive month.
• Germany’s December CPI dropped more than expected on a year-over-year basis, falling to a five-year low of 0.1 percent.
• German industrial production unexpectedly declined in November, down 0.1 percent.
• German exports decreased for a second consecutive month in November, falling 2.1 percent.
• Industrial production in France was down 0.3 percent in November. Production has not risen since July.
• The U.K. manufacturing PMI unexpectedly fell in December, down to 52.5 from 53.3.
• The U.K. services PMI dropped much more than expected in December, falling to a 19-month low of 55.8.
• China’s official manufacturing PMI fell for a third straight month in December, reaching an 18-month low of 50.1.
• China’s non-manufacturing PMI ticked up in December, increasing to a four-month high of 54.1.
• China’s HSBC services PMI ticked up for a second consecutive month in December, reaching a three-month high of 53.4.
• The Chinese Producer Price Index dropped more than expected in December, falling to 3.3 percent year over year.
• Chinese consumer prices inched up in December to 1.5 percent year over year.

Hedge Fund Manager Who Remembers 1998 Rout Says Prepare for Pain

1994-2015My Comments: This is another example of an article that talks about what might happen to our investments in 2015. For many of us advisors, there is an increasingly pervasive odor surrounding the markets. It has nothing to do with the solid economy developing here in the US. The odor, however, is giving me an increased incentive to move clients away from the markets in general and place money where there is zero chance of a dramatic decline.

I’m reluctant to use fear as a motivator, but looking at the S&P 500 chart since 1994 suggests that something bad is likely to happen soon, if not in 2015. Couple this with the fact that all of us are older than we once were. What this means is we have less time to live through a recovery if it takes several years.

There are many people who have yet to recover from what happened in 2008-2009. For some, they are still traumatized and have money in Certificates of Deposit, or bond funds, thinking they are now safe.

Regardless of your circumstances, realistic choices can be made to minimize the upcoming pain. It may be caused by the current collapse of oil prices or something entirely different, but it will happen.

December 16, 2014 • Bloomberg News

Stephen Jen landed in Hong Kong in early January 1997 as Morgan Stanley’s newly minted exchange-rate strategist for Asia.

He was soon working around the clock when investors began targeting the region’s currency pegs, first felling Thailand’s in July. The rout spread through Asia before rocking Brazil and Russia. It led to the collapse of Long-Term Capital Management, an event that introduced the Federal Reserve-brokered bailout.

If the 48-year-old native of Taiwan, with a PhD from Massachusetts Institute of Technology, sounds a little jaded now, it’s not without some reason. He worries that many Emerging-Market analysts are too young to remember the late 1990s. Instead they learned the ropes in an era dominated by the rise of Brazil, Russia, India and China — a supposed one-way bet to prosperity.

“Many became EM specialists after the term ‘BRIC’ was coined in 2001 and don’t know any serious crisis,’’ says Jen, who now runs the London-based hedge fund SLJ Macro Partners LLP.

The youngsters are about to be schooled. Jen says echoes of 1997-1998 may be at hand.

Investors woke up today to Russia’s 1 a.m. interest-rate increase to defend the ruble. There’s the mounting likelihood of a Venezuelan default. Stocks from Thailand to Brazil are reeling. The Fed hasn’t even begun raising interest rates.

Jen is bracing for more pain. “At some point, the risk of fractures in parts of EM will rise sharply,” said Jen.

Currency Dangers
While unwilling to draw up a blacklist for now, he says exchange rates reveal emerging-market dangers. Russia’s ruble, Brazil’s real, Mexico’s peso, Turkey’s lira, the South African rand and Indoniesian rupiah have all hit the skids.

The biggest causes for worry, bigger than a recession in Russia or the oil-price plunge: the slowdown in China, which has already upended commodity prices, and the likelihood U.S. growth will propel the dollar higher and suck assets out of emerging markets.

Sounding a similar alert, the Bank for International Settlements has warned an appreciating dollar could have a “profound impact” on the world economy. It estimates that international lending to non-financial companies totalled $9.5 trillion at the end of June. Claims on China alone have been growing at an annual rate of 50 percent to reach $1.1 trillion.

International Monetary Fund economists also reported this month that the frequency of sovereign debt crises is 15 percent higher at the start of a U.S. monetary tightening cycle.

“My long-standing view on EM currencies is that they could melt down because there has simply been way too much cumulative capital flows,” said Jen. “Nothing the EM economics can do will stop these potential outflows as long as the U.S. economy recovers.”

2015 PPACA Compliance Checklist

health-is-wealthMy Comments: It’s hard to believe the PPACA has been around for so long. And in spite of the new Congress making lots of noises about making it go away, it’s not going to go away.

Will it change? Most definitely. Are changes necessary? Most definitely. But the overall intent to bring millions of Americans into the health insurance pool will not go away. It’s in everyone’s best interest that we be a healthier and more productive society going forward. Getting to that point is going to be hard, and controversial. Remember, members of Congress have loyalties divided between us and their source of re-election money.

A CPA friend recently told me that the small business community now most affected is looking at premium increases of 30% and more. I wonder how much of this is real or an effort to cover their ass. The analogy that comes to mind is the current price of gasoline. If oil companies and distributors can make a living with gas at $2.00 per gallon, someone had to be getting very wealthy when it was $4.00 per gallon. Just know it wasn’t the local gas station owner.

The vast majority of small businesses in this country are businesses with fewer than 100 employers. But that still leaves millions of people employed in larger businesses. Over the years I’ve not had any clients of the “larger” size, but many large enough to have employee health plans. If you don’t now have a health plan, this may be helpful.

By Juliette Meunier / December 8, 2014

More Patient Protection and Affordable Care Act group health provisions are supposed to begin taking effect in 2015.

The current schedule calls for a transitional version of the PPACA “play or pay” employer coverage mandate to apply to employers with 100 or more full-time employers, and to some employers with 50 to 99 employees.

Employers will have to keep track of which employees were offered health coverage in any given month, and large employers will have to put the employee count data they collected in 2014 into Internal Revenue Code Section 4980H “employer shared responsibility” reports.

Meanwhile, some of your employee clients may still be scrambling to create, and understand, their PPACA compliance checklists. What should those clients be doing to make sure they’re ready for 2015? Here are five action items to think about.

1. Review existing measurement systems.
Are your clients equipped to determine employee status, while considering measurement and stability periods, to provide coverage as soon as an employee becomes eligible?

2. Determine excise tax penalty risk by entity.
Your clients should identify potential full-time employees not offered coverage.

3. Assess reporting systems.
Are your clients’ reporting systems capable of gathering and aggregating the required information for IRS reporting – by employee, on a by-month and by-entity basis? Reports are due to the IRS in 2016, but data collections begins January 1, 2015. How do companies manage data residing in multiple locations? This is especially difficult for employers with a contingent or variable workforce.

4. Prepare for marketplace/exchange notices.
In November, open enrollment begins and even businesses offering affordable care to employees are likely to receive Marketplace notices. Notices must be analyzed for accuracy and any erroneously issued notices must be appealed within the designated timeframe – which can vary by state (typically 90 days).

5. Develop a plan for IRS assessments.

Will your clients be able to provide supporting analysis and documentation to defend against erroneous assessments?

Student Debt Poised To Crimp U.S. Economy

financial freedomMy Comments: I received my undergraduate degree in 1963, which was a long time ago. I had a part time job and my parents covered the rest. Selfishly, I never even thought about any sacrifice they might have been making. It was never an issue.

Since then, I’ve spent most of my adult life in the financial world. Even so, I’m don’t fully understand the impact of student debt, both on individuals and on the economy at large, in what is a very different world than what existed in 1959-1963.

But there is little doubt there will be an impact as the next decade rolls by. This article will help you better understand there is a need to address this problem, and bring a better future for not just those affected, but all of us.

By Shohini Kundu / Dec. 14, 2014

In 2013, the newly created Consumer Financial Protection Bureau (CFPB) began issuing a series of warnings about a mounting student debt problem. The bureau reported that in just two years, from 2011 to 2013, the cumulative student debt increased from $1 trillion to $1.2 trillion. To put that in perspective, according to Federal Reserve data, the total housing mortgage debt in the second quarter of 2013 stood at $10.8 trillion.

The rapid increase in student debt mirrored rapid growth in housing mortgages between 2003 and 2005 in which the number of loans increased by 20%. The aftermath of that run-up was not pretty, as GDP shrank by 6.2%. When the housing bubble burst in 2008, it created the worst financial crisis since the Great Depression. With the exception of a few perennial doomsday sayers, no one saw the crisis coming-not even the much vaunted chairman of the Federal Reserve Board, Alan Greenspan. On June 9, 2005, Greenspan appeared before a congressional testimony and insisted that there was no bubble, simply “froth.” He was so sure that it was merely “froth” that he repeated this no less than three times.

In the aftermath of the crisis, in hindsight, it is clear that Greenspan had sorely misjudged the bubble. He is not the only one – the greedy financiers, the naïve borrowers, the complicit bankers, the inept rating agencies and the overhyping financial news media all played a certain role in their mistaken belief that in this digital age, in the era of “big data”, number-crunching and quantitative analysis had taken all financial risks off the table.

Economists have studied the financial crisis in great depth and have found multiple building blocks that led to the crash in 2008. Stable growth during the Clinton-era banished the budget deficit, creating a glut of cash that depressed interest rates and forced investors to seek higher return alternatives. Financiers bundled low quality mortgages with high quality ones, issuing bonds of dubious quality to unsuspecting investors. Rating agencies were unable to adequately rate such complex securities. Regulators underestimated the risk associated with such products.

With easy money rolling in, banks suspended rigorous checks on borrowers, doling out mortgages to those who had little ability to pay. The banks were also encouraged by politicians, who wanted an increase in homeownership, fueling the growth in housing mortgages. Analyzing the build-up of the last financial crisis brings into question, what is fueling this latest bubble. What exactly are the factors driving the increase in student loans?

CPFB reports indicate that most of the student loans are held by the Federal Government – $1 trillion out of the total $1.2 trillion in outstanding student loans. CPFB also reports that there are 39 million borrowers with federal student loans as of mid-2013. According to Department of Education, in 2014, subsidized student loans to undergraduates carry a 4.66% interest rate, while the interest rate on unsubsidized loans is 6.21%. All graduate students are currently borrowing at a rate of 6.21% to 7.21%. This is a pretty substantial interest rate, considering the current 30-year home mortgage rate is only 3.8%.

WHY THE INCREASE?
How can one explain the 20% increase in student debt between 2011 and 2013? There are three myths surrounding the increase in student debt: increases in enrollment, tuition, and the number of for-profit institutions.

Student enrollment? One plausible explanation for increase in student debt is the increase in student enrollment. However looking at enrollment data from insidehighered.com, we find that the total student enrollment, in fact, declined by almost 4% during that same period. This certainly does not explain the total increase in student debt.

Increasing Tuition? On the surface it is true that college tuition has been rapidly rising. However, like student enrollment, this growth does not justify the growth in student debt. For example, in 2010-2011, Cornell’s tuition was listed at $39,666 while in the 2012-2013 it was $43,413, an increase of about $3,747 or about 9.45%. Cornell, however, tends to be on the higher end of tuition hikes. In fact, according to the U.S. Department of Education, the average tuition that students paid at Cornell, after all financial aid is taken into consideration was $24,249 in 2010-2011 and $25,652 in 2012-2013, an increase of only $1,403 or 5.8%. Thus, increase in tuition alone cannot justify a 20% increase in cumulative student debt.

Increase in the number of for-profit institutions? According to the U.S. News, for-profit institutions have poor graduation rates and account for more than 50% of student debt default. Student debt default at for-profit institutions affects students elsewhere by raising the cost of borrowing, because as Congress envisioned, the student loan program must be self-sustaining. While it is true for-profit institutions contribute most to the current nominal portion of student debt, their enrollment actually declined sharply during that period – by almost 16%.

Changing Demographics: According to the National Science Foundation, enrollment for whites is projected to decrease from 63% in 2008 to 58% in 2019, whereas the same percentages for Blacks and Hispanics are projected to increase from 14% and 12% in 2008 respectively, to 15% in 2019 for both groups. A 10% change in composition of student body indeed explains the increase in student debt. Statistically, minority students are poorer, so according to my hypothesis, they need to borrow more, which drives up student debt.

ANOTHER BUBBLE?

Increased student borrowing should not be seen as a bad thing, if students can find gainful employment at the end of their graduation. However, several warning signs indicate that there may not be enough jobs at the end of graduation due to the impact student debt has on the future national economy. I will dare to make some gross forecasts here, based on some back-of-the-envelope calculations:
Reduction in spending per household will shave at least 1.5% from GDP: A recent report estimates that the number of households under age 40 that owe $250 or more each month in student loans has nearly tripled since 2005, to 5.9 million. If you pay $250 a month for student loan, it takes away $250 a month that you could pay towards your home mortgage. This reduces home purchasing power by $44,000 at today’s interest rates. When multiplied by the number of debt-holders, it gives the magnitude of money that will not be spent on real estate.

Indirectly, homes contribute to 15% of the U.S. GDP. A 10% reduction in aggregate home value will shave 1.5% from GDP.

Reduction in number of households, an even bigger worry: Record numbers of young adults are living with their parents. According to the Pew Research Center, 3 out of 10 young adults under the age of 35 live with their parents today. Sociologists have found that as loans accumulate, students stay at home to cut their costs. This invariably delays formation of new households. Since much of the economy such as home purchases and spending related to rearing children is dependent on marriage, a postponement in marriage will further shave the GDP. According to 2010 census, children now make up 24% of nation’s population, down by nearly 2% in last 10 years. This trend is accelerating sharply. Fewer children today means fewer households tomorrow. This could easily shave another 2% of GDP in next 10 years.

Student debt trend: 41% of women who gave birth in 2013 are single compared to 5% in 1960. Statistically, children born into families with two parents are economically better-off than children raised in single parent households. Students from lower income families have greater need to borrow. As we have seen in previous calculations, a 10% change demographics, resulted in a 20% increase in student debt. Thus, the forecast of another 20% increase based on changing demographics will further increase the cumulative student debt with all the implied perils.

Debt spillage into skill base: A recent report shows that as debt for medical students increase, they flock to specialty professions with higher pay leading directly to shortage of family practitioners which in turn increase costs. Similar shortages have been observed among high school teachers. Students with debt are less likely to go into low paying teaching jobs creating a shortage. Shortage of teachers diminish the skill base of the next generation of students. Lower skills means lower income, which erodes the economy further in a knock-on effect.

So far, we have seen that an increase in student debt will result in loss of GDP. Loss of GDP will invariably lead to fewer jobs, which will lead to more student debt defaults. If such a trend continues, this could lead to an increase in the interest rate – fueling a vicious cycle with pernicious effects on the economy.

WHAT CAN WE DO?
Unlike the real-estate bubble, which was fueled by a glut of cash looking for higher return, the student debt is fueled entirely by federally guaranteed loans. Since the problem originates in the government, a viable solution must come from the government. The Department of Education has begun this task, by setting up a website to allow college cost comparison for students. However, Professor Susan Dynarski of University of Michigan has pointed out a major flaw in such comparisons – informed consumers lack realistic choices. Even if in-state tuition in South Dakota is cheaper than in New Hampshire, a student in New Hampshire cannot realistically access this tuition.

Many argue that loans should be outcome-based. If for-profit colleges are driving up the loan default rate, then the government should raise the barrier of securing loans in such institutions. This solution can work well. Another proposal is to increase the length of high school by one additional year for the college bound students. This would help students but hurt many colleges, leading to large-scale consolidation. Such loans would surely be opposed by college administrators.

WHERE DOES THAT LEAVE US?

In the current political climate, any solution that diminishes the presence of for-profit colleges is unlikely to pass Congress. Thus, a decline in the potential GDP of at least 5% over the next decade with 1.5% directly from loans, 2% from fewer households and 1.5% from loss of skill base is highly likely. While this may not have the feel of a precipice like 2008, it will still be significant, albeit without the drama of the last crisis.

The Joy of Being Older…

1942 RAK in hat@CuyuniMy Comments: It’s a cold, gray day here in Gainesville, Florida. The rest of the country, except perhaps the West coast, is suffering too but at least we have no snow. Maybe I can add a little levity to what has so far been a frantic week. BTW that’s me on January 1, 1942.

1. Sometimes I’ll look down at my watch 3 consecutive times and still not know what time it is.

2. Nothing sucks more than that moment during an argument when you realize you’re wrong.

3. I totally take back all those times I didn’t want to nap when I was younger.

4. There is great need for a sarcasm font on computers.

5. How the hell are you supposed to fold a fitted sheet?

6. Was learning cursive really necessary?

7. Map Quest really needs to start their directions on # 5. I’m pretty
sure I know how to get out of my neighborhood.

8. The first testicular guard, the “Cup,” was used in Hockey in 1874
and the first helmet was used in 1974. That means it only took 100
years for men to realize that their brain is also important.

9. I can’t remember the last time I wasn’t at least kind-of tired.

10. Bad decisions make good stories.

11. You never know when it will strike, but there comes a moment when
you know that you just aren’t going to do anything productive for the
rest of the day.

12. Can we all just agree to ignore whatever comes after Blu-ray? I
don’t want to have to restart my collection…again.

13. I’m always slightly terrified when I exit out of Word and it asks
me if I want to save any changes to my ten-page technical report that
I swear I did not make any changes to.

14. I keep some people’s phone numbers in my phone just so I know not
to answer when they call.

15. I think the freezer deserves a light as well.

16. I disagree with Kay Jewelers. I would bet on any given Friday or
Saturday night more kisses begin with Miller Light than Kay.

17. I have a hard time deciphering the fine line between boredom and hunger.

18. How many times is it appropriate to say “What?” before you just
nod and smile because you still didn’t hear or understand a word they
said?

19. I love the sense of camaraderie when an entire line of cars team
up to prevent some jerk from cutting in at the front. Stay strong,
brothers and sisters!

20. Shirts get dirty. Underwear gets dirty. Pants? Pants never get
dirty, and you can wear them forever.

21. Even under ideal conditions people have trouble locating their car
keys in a pocket, finding their cell phone, and Pinning the Tail on
the Donkey – but I’d bet everyone can find and push the snooze button
from 3 feet away, in about 1.7 seconds, eyes closed, first time, every
time. Uh Huh!

22. Life just gets better as you get older doesn’t it? I was in a
Starbucks recently when my stomach started rumbling and I realized
that I desperately needed to fart. The place was packed but the music
was really loud so to get relief and reduce embarrassment I timed my
farts to the beat of the music. After a couple of songs I started to
feel much better. I finished my coffee and noticed that everyone was
staring at me…. I suddenly remembered that I was listening to my
IPod.

This is what happens when old people start using technology! So how was your day?