Posts Tagged ‘debt’

Chart of the day

Posted: 23 November 2015 in Uncategorized
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An increasing number of student loan borrowers are struggling to repay their education debt as outstanding student loan balances nationwide increased by $13 billion in the third quarter of 2015, according to the New York Federal Reserve.

The percentage of student loan borrowers who are at least 90-day delinquent in payments rose to 11.6 percent during the third quarter of 2015, up from 11.5 percent the previous quarter. The Fed said the 11.6 percent number likely understates delinquency rates “because about half of these loans are currently in deferment, in grace periods or in forbearance and therefore temporarily not in the repayment cycle. This implies that among loans in the repayment cycle delinquency rates are roughly twice as high.”

total debt

Outstanding student loan balances increased to $1.20 trillion as of 30 September 2015. That’s higher than all other forms of individual debt (such as home equity, autos, and credit cards), except home mortgages.


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René Magritte,

René Magritte, “Song of the Storm” (1937)

Are we seeing the signs of a global economic meltdown?

Marxist and other radical economists often remind people of the inherent instability of capitalism—unlike their mainstream counterparts, who tend to focus on equilibrium and the invisible hand of free markets.

But, right now, the warnings about new sources of instability are coming from quarters that are anything but radical. And they’re all saying pretty much the same thing: National monetary policy is increasingly ineffective. Central banks are largely impotent. The IMF points to increased global economic risk because of impossible amounts of debt that will never be repaid. Creditors are way too overextended. Finance capital is out of control. Growth everywhere is threatened. China and emerging-market nations are mostly to “blame.” And so on and so forth.

Here’s a recent sample of three recent articles [ht: ja]: from the BBC, Reuters, and the Guardian.

Andrew Walker (for the BBC) cites the latest IMF World Economic Outlook, according to which emerging and developing economies will register slowing growth in 2015 for the fifth consecutive year, to argue that (a) economic growth in China is slowing down (and helping to pull down the rest of the world, both directly and indirectly) and (b) lackluster growth in rich countries is failing to pull the rest of the world along. In addition, according to the latest IMF’s Global Financial Stability Report, the explosion of dollar-denominated credit in recent years, along with the rise in the value of the dollar, is going to make it difficult to repay those debts, a growing problem which is in turn exacerbated by the reverse “flight to safety” of financial capital. And then, of course, there are the negative effects—in Russia, Brazil, Venezuela, and elsewhere—of falling oil prices.

David Chance (for Reuters) cites the recent report by the Group of Thirty according to which low interest-rate rates and money creation not only were not sufficient to revive economic growth, but risked becoming problems in their own right.

The flow of easy money has inflated asset prices like stocks and housing in many countries even as they failed to stimulate economic growth. With growth estimates trending lower and easy money increasing company leverage, the specter of a debt trap is now haunting advanced economies.

At the same time, we’re listening to a growing chorus, at least in the United States (first from Federal Reserve Governor Lael Brainard and then Fed governor Daniel Tarullo) against the prospect of changing central bank policy and raising interest-rates anytime soon.

Finally, Will Hutton (for the Guardian) warns that capital flight and bank fragility threaten to create new asset bubbles and the eventual bursting of such bubbles—and there’s no prospect of global coordination to prevent the resulting economic dislocations.*

The emergence of a global banking system means central banks are much less able to monitor and control what is going on. And because few countries now limit capital flows, in part because they want access to potential credit, cash generated out of nothing can be lent in countries where the economic prospects look superficially good. This provokes floods of credit, rather like the movements of refugees.

The upshot? My view is these three commentators are on to something, backed up by the research taking place within the IMF and other international entities. Clearly, they are concerned that the anarchy of production—the anarchy of both “real” production and of finance, within and across countries—and the absence of any new ways for central bankers to regulate that anarchy are creating new fissures and cracks within the global economy.

The problem of course is, the same search for profits mainstream economists and policymakers hoped would lead the recovery from the crash of 2007-08, along with the initially hesitant and then increasingly desperate measures central bankers have adopted to enhance the prospect of that search, now seems to be undermining that fragile recovery.

That’s the gathering storm they—and we—should be worried about.

*I do have one bone to pick with Hutton, who argues that excessive credit is created by banks lending out money based on existing deposits, which in turn is based on “the truth that not all depositors will want their money back simultaneously.” The latter may be the case but Hutton gets the order wrong: it’s bank credit that creates deposits (like fairy dust), not the collection of deposits that serves as the basis for the expansion of credit.


Back in 1974, Stephen Marglin published an important essay, “What Do Bosses Do? The Origins and Functions of Hierarchy in Capitalist Production” (pdf).

Marglin was responding to the tradition within mainstream economic theory, from Adam Smith to neoclassical economics, that hierarchy and specialization were indispensable for increasing productivity and achieving efficiency. He countered that “capitalist hierarchy has little to do with efficiency” but, instead, was designed to guarantee “to the entrepreneur an essential role in the production process” and “to provide for the accumulation of capital.”

Smith’s ideas are receiving renewed attention, in relation to the other side of the capitalist relationship: workers.

According to Barry Schwartz, most workers are unhappy with the work they’re doing—and that’s at least partly due to Smith.

the ideas of Adam Smith have become a kind of self-fulfilling prophecy: They gave rise to a world of work in which his gloomy assumptions about human beings became true. When you take all opportunities for meaning and engagement out of the work that people do, why would they work, except for the wage? What Smith and his descendants failed to realize is that rather than exploiting a fact about human nature, they were creating a fact about human nature.

The transformation I have in mind goes something like this: You enter an occupation with a variety of aspirations aside from receiving your pay. But then you discover that your work is structured so that most of those aspirations will be unmet. Maybe you’re a call center employee who wants to help customers solve their problems — but you find out that all that matters is how quickly you terminate each call. Or you’re a teacher who wants to educate kids — but you discover that only their test scores matter. Or you’re a corporate lawyer who wants to serve his client with care and professionalism — but you learn that racking up billable hours is all that really counts.

Pretty soon, you lose your lofty aspirations. And over time, later generations don’t even develop the lofty aspirations in the first place. Compensation becomes the measure of all that is possible from work. When employees negotiate, they negotiate for improved compensation, since nothing else is on the table. And when this goes on long enough, we become just the kind of creatures that Adam Smith thought we always were. (Even Smith, in one passage, seemed to acknowledge this possibility, noting that mindless, routinized work typically made people “stupid and ignorant.”)

Schwartz makes it out to be a tension between our lofty aspirations and the drudgery of the jobs we actually do. (And he uses the example of the “dancing janitors”—who help out with patient care without additional compensation—to illustrate the idea that we’re looking for something more than wages.)

I’ll admit, I do think there’s a tremendous amount of dissatisfaction on the job. And I like the idea that economic theory is “performative” (that is, it both captures something going on in the real world and creates that world).

But he buries the real issue elsewhere in his piece:

This, again, is what Adam Smith thought. In his famous example of the pin factory, he extolled the virtues of the division of labor: “One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head.” Our work experience might be poorer, but we — or at least our bosses — would be richer.

So, we’re back to where we started, with the bosses. Whether or not hierarchy and the division of labor are efficient, it’s the bosses who are becoming richer as a result of the work employees do. And employees are forced to have the freedom to work for the bosses in order to purchase the commodities and pay off the debts they need to reproduce themselves and their families. Workers get wages and salaries, bosses get profits.

That’s what workers do—unless and until we create another kind of enterprise, in which workers make the important decisions about the work they do and what will be done with the value they create.


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Chart of the day

Posted: 20 August 2015 in Uncategorized
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According to the Wall Street Journal, graduate students in the United States now account for roughly 40 percent of all student debt but represent just 14 percent of students in higher education.

The typical college student who borrowed owed about $27,000 upon graduation in 2012, according to an analysis of federal data from the New America Foundation, a centrist think tank. Those earning a master’s typically owed between $50,000 and $60,000; law degrees, $141,000; and medical degrees, $162,000.