Debt Cancellation will come whether we like it or not. So it’s in everyone’s interest to develop a sensible plan that liberates the (mostly) innocent and assigns responsibility where appropriate.
There are certain moments in history where each person—and eventually the larger community—must decide which path to follow, ultimately leading us in vastly different directions. With the U.S. student debt fiasco now approaching $1.6 trillion and 45 million borrowers, we seem to be rapidly advancing towards such a moment.
At present, one of the biggest problems regarding the student loan debacle is the dismal nature of the polarized “debate.” Not just on debt relief, but on the many dysfunctions of the college system and its financing mechanisms as well.
On one side, we have free-lunch Democrats that want to “give” everything away in order to buy votes and seize control of higher education; their Debt Forgiveness schemes merely dump liabilities onto taxpayers and give banks and colleges a free pass. Republicans and conservatives, meanwhile, prefer to lecture students on the morality of paying your bills, while forgetting that students didn’t create the corrupt system of mandatory college or its skyrocketing costs. That came from “responsible” adults. And both sides insist that federal involvement in all levels of learning is essential.
Since Debt Cancellation is one of those explosive topics that can lead to partisan bickering and empty sloganeering, I should start by saying that I disagree with nearly everything that BOTH official sides are saying. After much searching, I was able to find a few sensible voices in the wilderness as detailed and expanded upon later. But at this point, anything rational or productive on this issue remains strictly forbidden in the mainstream press, which strongly favors centralized banking and collective education, preferably sold in easily digestible sound-bites.
Taking a broader approach to this looming decision, the major themes of this essay are:
- Weak Arguments against Debt Cancellation from the ‘Right’
- Weak Arguments for Debt Cancellation and ‘Free’ College from the ‘Left’
- Winners and Losers of Honest Debt Forgiveness
I’ll try to fill in some related gaps along the way, mainly to address entrenched ideologies on overall education and financing.
My conclusions are: 1) people can learn quite well without federal involvement and the suffocating strings attached, 2) after over a century of massive (over 2,000%) inflationary stresses, Americans could benefit from an overdue Inflation Dividend, and 3) student Debt Cancellation will come whether we like it or not, so it’s in everyone’s interest to develop a sensible debt re-structuring plan that liberates the (mostly) innocent and assigns responsibility where appropriate. As for culpability, I’m talking about banks and colleges, not taxpayers.
For demographics, I don’t mind saying that I turned 50 this year and never had any debt from college when I graduated in 1991, back when state school in New York was pretty cheap. I work in the private sector and find time to research and write on the side, among other things.
Washington Orthodoxy: Education Must Be Centrally Controlled
With “education” becoming increasingly politicized over the last century, it’s hard to find valuable information through the haze of overt and subtle misinformation. As usual, if you follow the money it leads back to a common theme. Total government spending for combined federal, state and local levels (K through college) came to a staggering $1.1 trillion for FY2019. That enormous pot of “free” gold comes with heavy strings attached and influences nearly all modern decisions on the topic of learning.
First of all, both parties in Washington and at the State capitols almost unanimously view individual learning as a group decision. Proceeding from that bias, public schools in America have become burdened with licensing restrictions, teacher credentials and accreditation requirements to justify accessing their “fair” share of public funds.
Those self-focused legalities have led to an inward emphasis among academics over time. For generations, there has been widespread agreement amongst ruling elites of all political persuasions: kids learn better in awe-inspiring fortresses of grand architectural triumph.
All of these accessories add enormous costs to taxpayers and stifle any meaningful academic freedom. None of those gimmicks have been shown to add value to actual education, since literacy rates were generally higher (and delinquency rates were far lower) 200 years ago when almost no one in the U.S. went to college. Modern education at the college level has become so corrupted with authoritarian ideology that two separate organizations (The College Fix and Campus Reform) are kept busy documenting the daily abuses.
The university system in particular—since its State-fueled rise in the 12th century—has always been about politically and theologically correct lectures, assigning safe books (from the ruling class point of view) and testing on recited orthodoxy. Remarkably little has changed to that ultra-conservative structure, which made more sense before the invention of the Printing Press (c. 1450), when hand-written manuscripts were rare and knowledge was centralized among political and religious elites.
The main difference today is the widespread acceptance of university-style “indoctrination” methods (a term our ancestors openly accepted) across such a wide segment of society. College no longer exists as an exclusive retreat for the idle rich, aspiring politicians and the clergy. A solid core of the middle-class now views obtaining a college “degree”—at any cost—as an important milestone in life.
As a result of its new-found popularity, the university model’s inherent shortcomings have become magnified. Longstanding concepts of dialogue and creative problem solving have been pushed aside for mass-market approaches that rely heavily on the weakest forms of teaching (one-way books and lectures). These formats invite all sorts of political correctness and appeasement of special interest groups, as evidenced by the increasingly weaponized schooling for Capitol-style awareness.
A better alternative has always been available, if people were willing to work for it. This once commonly did (and may soon again) involve community schooling for basic math and English, self-study or private clubs (aided by independent scholars where appropriate) for the liberal arts and sciences, then more mentoring and apprenticeships for professional skills (as doctors still do). These efficient, social and personalized teaching methods were crowed out over the last century from the mad rush for outside funding and superficial credentials. Mentoring and apprenticeships seem poised to make a comeback now, due to the high cost and low quality of college and the online availability of educational courses on virtually every topic.
Community schooling for K-12 is now making a resurgence as well at the grass roots level, although it’s rarely recognized as such. This positive development comes from the millions of families involved in more personalized education—often referred to as “home schooling”—which increasingly occurs in group settings with paid teachers or via co-operative bartering. Locally funded Community Colleges now attract far more students than even a generation ago. These schools are not just less expensive than their four-year counterparts; Community Colleges usually skip the exhausting “Publish or Perish” mania for boosting academic pedigree and pass on federal research Grants that do nothing to improve student achievement.
The last frontier is the privileged and isolated confines of the state and federally funded four-year college and university system, which has been resisting change for pretty much all of its existence. With the help of technology, institutional barriers may finally yield to progress. Students can now access thousands of more independent scholars at online providers such as Khan Academy, Udemy, EdX, and Coursera to help fill the need for advanced training or merely satisfy the pleasure of learning.
For the first time in decades, teacher competency matters more than artificial titles—precisely because students finally have real input in the selection process and teachers face fewer obstacles in reaching interested students. At least it does for untethered experts found on the internet, which includes some of the better Old Guard college professors, and at multitudes of privately administered classes.
These are all good developments that get little or no credit in Legacy Media. My point in mentioning the condensed history above is to dispel the myth that people can’t be educated without “help” from the federal government. That’s a lie that has gone unchallenged for far too long.
For the rest of this piece, I’ll give it my best shot at combatting the bi-partisan misinformation on student Debt Cancellation and providing reasonable arguments for true Debt Forgiveness.
Weak Arguments against Debt Cancellation from the ‘Right’
Under normal circumstances, the advice to “pay your bills” and not go into debt in the first place makes great sense. So does the advice to work… most of the time.
What so many conservatives forget is that no sane person works 7 days a week. Human beings need rest every so often (and afternoon naps are highly beneficial according to my personal research). When a corrupt financial system has been foisted on Americans of all ages and economic levels for generations, people need a break and society needs a chance to reset and stabilize.
Right-wing partisans don’t see it that way, when it comes to young people saddled with liabilities from ridiculously high college costs. All they see are lazy kids trying to slack off again, which is of course sometimes true. Professional conservatives also relish the chance to pummel career Democrats for being soft on the “crime” of not paying your debts. British debtors’ prisons followed this logic throughout most of the 18th and 19th centuries, imprisoning thousands of people for the offense of not repaying an ill-considered loan from a wealthy lender.
Over the last year or so, I’ve collected some examples from the leading thinkers on the libertarian right on the topic of Debt Forgiveness. Mind you, the screaming rants of AM talk radio and FoxNews are infinitely worse. And neo-con puppets were ignored due to their track record of irrelevance. These “thought leaders” offer the best conservative arguments I can find.
Economist and author Doug Casey abandons his usual calm analysis and offers petty insults on the “whacky” and “evil” Democratic Party “freak show” pushing for pseudo Debt Forgiveness. Mr. Casey says “Forgiving student loans would be disastrous. First of all because it would encourage more kids to go to college.” He gives no support for these illogical statements, which I address in more detail below. His angry taunts of people with student loans is classic conservative compassion: kids in debt “want somebody else to pay the consequences. I say, Tough! It’s now time to pay the piper.” Like many, Mr. Casey confuses Debt Forgiveness (resulting in far fewer loans available for future students, meaning kids will finally have to PAY for themselves) with “free college.” Those are two completely different entities, although politicians often lump them together.
An even weaker analysis of Debt Forgiveness comes from another normally good economics expert (quoted favorably much later), Martin Armstrong of Armstrong Economics. Writing about debt options in general, he states:
We either default, which will result in civil war and revolution, or you inflate your way out like Venezuela so your Social Security check will not even buy a cup of coffee. A default will result in war.
As institutional investors, both gentlemen above may have some exposure to Debt Cancellation that they neglected to mention (or at minimum, should have clarified). Ditto for this hysterical analysis from a flack working for billionaire media mogul and financier Michael Bloomberg. And for full disclosure, I’ve done some volunteer work on setting up a non-degreed professional mentoring system. If all goes well, that endeavor may actually earn money someday. If not, no big deal; I’ve got a job outside of the educational field.
Popular conservative writer Matt Walsh (like many others) settles on the classic liberal argument: it’s not fair for indebted students to get a break since so many others did not. Mr. Walsh augments his position with the claim that “it costs almost five billion dollars to operate Harvard for one year” based on a questionable analysis (his link) from Harvard. Who knew all those dusty books and opinionated philosophers cost so much?
Rounding out the attacks from the right, a libertarian critic of Debt Forgiveness and former college finance professor, Michael Rozeff, at least gets it correct on who would pay the bills under the leading Democrat proposals:
Some of our home-grown socialists/communists (like Sanders and Warren) want taxpayers to assume the debts of students. … All their proposals are outrageous. All are undiluted communism. All are unfair in the extreme. All make a mockery of contracts.
The sacred “contract” than many pro-business conservatives and libertarians talk about is not always what they make it out to be. Any written contract becomes a dead piece of paper (kind of like our Constitution) when powerful special interests poison the system for so long that words (like “education”) no longer have meaning, our fiat currency (see Roosevelt and Nixon) is nearly worthless, and true cost discovery becomes almost impossible.
We also need to factor in the mandatory licensing and degree requirements of many professions and the corporate Human Resources policies requiring college just to get an interview. Then it becomes apparent that quite a bit of coercion comes into play for a high school grad “deciding” what to do next. The act of coercion generally negates the legitimacy of any contract. When students are essentially FORCED to obtain a “degree” to get a professional job and college costs have skyrocketed due to corrupting subsidies and entitlements for decades… the students are actually the LAST ones we should blame.
Yes, many college undergraduates have been brainwashed by radical (and subsidized) professors to believe that everything should be “free.” The free-stuff ideology promoted by some tenured fanatics promotes their belief that all aspects of life should be centrally managed by remote officials and financed by voiceless serfs. But again, students didn’t create that warped mindset. College administrators, bank executives, financial counselors—like the 28,000 loan advisors at the National Association of Student Financial Aid Administrators (NASFAA)—and two D.C. parties full of pliant politicians did.
In the end, who’s the bigger fool? The inexperienced student who took on a loan they now can’t pay off, or the adult lender who offered unsecured credit to a young “slacker” in the first place? For now, most conservatives seem to side with wealthy bankers and college administrators.
Weak Arguments for Debt Cancellation and ‘Free’ College from the ‘Left’
On the other side, we have liberals and progressives who ostensibly favor some type of student Debt Cancellation. The biggest problem here is that all of their leading proposals are just bait-and-switch cover for another bailout of Wall Street banks, while funneling more taxpayer money to feckless college administrators. The associated rush to keep student “aid” flowing also obscures the overt politicization of schools already underway, which would only get worse under a system of full government control—sold as “free” education.
The fraudulence of these Debt Forgiveness schemes should be laid bare by the internal contradictions and “free lunch” mentality surrounding the plans. Before touching on the broader picture of bi-partisan support for academic control, I’ll look at the main two Debt Forgiveness proposals of the 2020 Democrat presidential frontrunners, U.S. Senators Elizabeth Warren and Bernie Sanders (with links provided to their respective plans).
According to numerous favorable press accounts (like this one which was featured in Microsoft News) “Warren estimates her plan would cost $1.25 trillion over 10 years, and Sanders says his plan would cost $2.2 trillion.” “In addition, they demanded the government make public college free.”
Bank Bailouts Posing as Debt Forgiveness
For starters, it should be apparent to any thinking reader (or competent journalist) that true Debt Forgiveness should cost almost nothing. Maybe a few million for administrative costs and the obligatory public ceremonies. But nowhere near the staggering sums of cash—and new taxes—that Warren and Sanders are seeking.
These plans amount to nothing more than another taxpayer bailout of big banks, that Democrat supporters of student debt relief plans usually fail to acknowledge. Worse yet, the bailouts would come on the backs of people who responsibly payed off their own college loans or maybe never attended college at all.
Unfortunately, it’s this type of duplicity from the left that has so many conservatives and independents disgusted with the overall concept of student Debt Cancellation. Throwing in “free” college for everyone just sinks the plans entirely in many people’s minds.
Government Advertising for More Government Schooling
The structural flaws beneath the demands for political bailouts also warrant consideration. The college and university system in America has grown to become one of our biggest industries, bringing in nearly $650 billion in revenue for the latest school year available (Fall 2016 to Spring 2017). For comparison, the total U.S. automotive industry revenue stood at $752 billion for 2018.
As detailed below, over 80% of college and university revenue now comes from outside loans, grants and direct government spending. That makes the college books-buildings-and-lectures circuit probably the most subsidized industry in America, next to the federal military.
With so much money and prestige on the line, the college and university industry spends billions to attract students into their system each year and to entice politicians to keep funding it. The U.S. Department of Education (U.S. DoE) uses tax dollars to elicit more taxpayer support for what they frequently spin as “aid” or “assistance.” The College Board (2017 report on the right) is a tax-favored organization that has been steering kids towards the university system since 1900. The College Board uses similar jargon to market the “benefits” of debt-fueled classroom instruction to prospective customers.
The U.S. DoE office that produced the 2016 Federal Student Aid report on the left has an administrative budget of $1.6 billion with almost 1,400 employees. The agency boasts of delivering “nearly $125.7 billion in [federal] aid to more than 13 million students attending over 6,000 postsecondary educational institutions” for that year.
Other common advertising tactics among the thousands of money-making colleges include images of sprawling campuses with grand buildings, action photos of semi-professional (but unpaid) sports figures, and smiling youths adorned in flowing graduation robes clutching their “degree.” The multi-billion-dollar college and university advertising blitz mainly plays up superficial distractions that have nothing to do with the quality of education. And this has been going on for decades, as college costs and student debt keep rising.
Since college was essentially federalized in 1944 from the Army G.I. Bill and subsequent legislation, schools have gone on a non-stop spending binge for enormous sports stadiums, medieval- and renaissance-style architectural displays, and posh facilities and other luxuries for students and faculty. Of course, none of this adds any detectable improvement on learning. It does, however, boost the prestige of college administrators and wealthy alumni, who may get additional titles or a building named after them, respectively.
From a cursory overview, it would seem that the government and non-profit sectors have issued at least as much or possibly more false marketing to keep students trapped in debt than their much smaller for-profit college counterparts, who brought in only $16 billion of the $649 billion annual haul for U.S. colleges and universities. In other words, the too-pure-for-profit schools reap fully 97.5% of the total college and university income stream.
But in the political world, it’s only the smaller, more modest “for-profit” schools that feel the sting of judgment. These schools largely operate beyond the control of state and federal bureaucracies, which angers some politicians. During the Obama Administration’s crack down on private for-profit schools—the meager 2.5% of the college revenue pie—managers at Corinthian College (once with over 100 campuses) and ITT Technical Institute (formerly with about 130 campuses) were investigated, vilified and drummed out of business over vague charges of wrongdoing.
Based on my review of over a dozen contemporary press accounts, the only decent reporting I could find came from Taki’s magazine, who came to the defense of ITT Tech. On the other extreme, then-Attorney General of California, Kamala Harris’s scorched-earth campaign against Corinthian College that threw thousands of students to the curb included grandstanding that the school used “aggressive and persistent internet and telemarketing campaigns… on daytime shows like Jerry Springer and Maury Povich.” Other than that, no attempt was made to put allegations (even if correct) in context with known academic fraud and financial abuses committed routinely at governmental and non-profit schools.
Really Free Teaching vs. Paid ‘Free’ Teaching
One half-truth that liberals keep repeating stems from their desire for everything to be controlled by the State and “free” to passive participants. The smidge of truth lies in the practical case for free teaching as opposed to free schooling. There is a difference.
For basic math and English instruction as well as vocational skills, science and mentoring, I can certainly see the value in using paid instructors. But within the subjective genre of liberal arts, I can see a strong argument for relying primarily on bi-vocational teachers. That is, people who actually have some experience working in the marketplace, then teaching from a voluntary or minimally paid standpoint as governed by peers, students and non-coercive standards. Tens of thousands of free internet bloggers and writers and even greater numbers of religiously motivated volunteers do precisely that, teaching important lessons on history, philosophy, theology, economics, politics and other topics of personal enlightenment.
The alternative approach of promoting tenured liberal arts professionals gave us the anti-social PC rot we face today (and also Harvard alumni’s leading role in the Salem witch trials, which they’d rather deflect). Anti-profit extremists—common at government schools, non-profit institutions and many subsidized churches—often fail to realize the importance of “serving” in the marketplace, where consumers have the free choice to buy their products or services, due to high quality and a fair price. It’s axiomatic but rarely acknowledged that people who refuse to serve in the marketplace resign themselves to a life of asking for charity, with an implicit arrangement so as to never risk irritating their benefactors (ultimately, the ruling authorities; with considerable pandering to their supporters).
So I welcome any liberal arts professors who want to teach for free. Getting paid means it isn’t free. No one needs political permission to teach for free. A college professor should understand that.
More ‘Liberal’ Smoke and Mirrors
The willful misinformation doesn’t stop with bogus claims of “free” teaching, cheesy college advertising and occasional made-for-TV show trials, like we observed with Corinthian, ITT Tech, and most recently The People vs. Felicity Huffman. Organized special interests (probably banks and/or colleges) have even paid for a “study” that promises all sorts of positive outcomes if we “cancel” student debt, so to speak. The Levy Institute of Bard College and the Sanders Institute (headed by Bernie’s wife Jane Sanders) jointly released a report called “The Macroeconomic Effects of Student Debt Cancellation.”
There’s nothing in the Levy/Sanders report to indicate these would be bank bailouts or that financial institutions would benefit in any way. Only the brief use of cryptic language (“federally funded”) offers a hint that the enormous debt “cancellation” costs will be dumped on taxpayers. Welcome to Non-profit Ethics 101.
The Levy/Sanders pseudo-study claims a transfer of wealth from working Americans to Wall Street lenders will somehow boost the GDP by $86 to $108 billion and create 1.2 to 1.5 million new jobs per year. Who knew that bailing out super-rich bankers was so economically stimulating?
This type of academic artistry provides talking points for pro-college, pro-banking, pro-taxing politicians. And partisans in mass media gobbled it up. Still, it would be interesting to see if any independent economists could confirm or refute any of those figures, with more upfront declarations of input assumptions.
What does the ‘Liberal’ Media Say about Debt Forgiveness?
To see what the respectable left has to say, I searched on the topic of “Debt Forgiveness” plus various liberal/progressive news outlets such as Slate, HuffPost, Mother Jones, and The Nation (2011 and 2015). The results were mostly uninspiring.
Common themes included complaining that Debt Forgiveness favors “the rich,” bashing “shady” or “dodgy” for-profit schools and insisting even the most generous Debt Cancellation plan “does not go far enough.” Neo-liberals seem to agree that education should be tightly controlled by the federal government, forcibly financed by the masses and offered “free” to passive participants as a charade to justify political meddling.
One puzzling attribute of most “liberal” voices I could find was a conspicuous reluctance to criticize the corrupt and highly profitable banking cartel that helped create the debt fiasco in the first place. Perhaps this is a sign that neo-libs have come to appreciate fiat currency and all the wonderful programs it can finance. A rare exception to this trend was veteran journalist William Greider’s 2011 article in The Nation, which bracingly refers to “the barbaric and suffocating behavior of the nation’s largest banks” (and lots more like that) when talking about housing debt. He even cites the example of the ancient Hebrew society’s debt jubilee, among many other things. Although Mr. Greider managed to write over 20 pages on debt and banking without once mentioning the gold standard or fractional-reserve financing, it was nice to see that one liberal can still criticize the U.S. financial system in fairly straight language.
To that extent, it was also odd to see so many “libertarian” critics of centralized banking line up with Wall Street for wanting to keep soaking students with interest payments on loans that banks largely pulled from thin air. Apparently, libertarians dislike the theory of fractional-reserve loan sharking, but can accept $1.6 trillion of that stuff in practice.
Since the concept of Debt Forgiveness resonates loudly with the 45 million Americans straddled with college loans to pay off, Democrats seem to be winning this argument at the moment. Half of a plan (plus Wall Street appeasement) usually beats no plan at all. With the Republicans busy whining about “social justice warriors” and Millennial “cupcakes,” Democrats are making inroads with millions of voters who intensely want a better deal.
A Few Rational Voices in the Marketplace
Despite the dearth of quality analysis among most elements of our mass media, a few bright spots did stick out. Searching around, I could find a few sensible thoughts expressed on the general topic of student debt. A 2015 Forbes article suggested that “The dysfunctional federal student aid programs need radical downsizing and ultimate elimination. Universities need to have ‘skin in the game,’ sharing in taxpayer losses from excessive loan defaults.” Those are good points, but the piece otherwise avoids the overall topic of Debt Forgiveness.
Hedge fund manager James Rickards made more explicit arguments in favor of Debt Forgiveness in a 2012 article in U.S. New & World Report. Mr. Rickards says: “Even on moral grounds, it seems difficult to put the entire burden of adjustment on the debtor. For every imprudent debtor there is an overzealous and reckless lender.”
He adds the historical basis for Debt Forgiveness, which so many traditional conservatives (and God-hating liberals) seem to be overlooking:
The Bible’s book of Leviticus provides that every 50 years all mortgage debt is to be forgiven. This occurrence was called the Jubilee Year. This may seem like a shocking imposition on creditors and a free ride for debtors. Yet, consider the behavioral feedback loops. In the 10th year after the last Jubilee, lenders might lend freely for a 20-year term. By the 45th year it seems likely that long-term credit would have dried up because the lenders were as aware of the coming Jubilee as the debtors. This was a self-regulating system that deleveraged itself before credit bubbles grew out of control and threatened a widespread collapse. It was an orderly deleveraging that seems enlightened in comparison with the disorderly and draconian deleveraging our economy is experiencing today.
I couldn’t agree more. The self-regulating economy of orderly deleveraging should be greatly preferred by anyone wishing to avoid the chaos of hyper-inflation or uncontrolled debt implosion that would likely bring on a widespread collapse if left unchecked.
For those wishing to dive deeper into the history of Debt Cancellation, two scholarly books have been written on the topic in the past decade. The most recent is economist and historian Michael Hudson’s 2018 book …and forgive them their debts: Lending, Foreclosure and Redemption From Bronze Age Finance to the Jubilee Year. The other volume is anthropologist David Graeber’s 2011 book Debt: The First 5,000 Years.
I have only done some related digging on a recent interview with Mr. Hudson and skimmed Mr. Graeber’s book’s Wikipedia page. With the exception of James Rickards’ excellent but short article on Debt Cancellation, either book would almost certainly have to surpass the partisan drivel exhibited in the dozen or so articles cited above. With or without those authors’ insights, the topic of real Debt Forgiveness deserves a more candid explanation than what our politicians and news media have offered so far.
Winners and Losers of Honest Debt Forgiveness
When considering the challenges of the massive and rising $1,600 billion mountain of student debt, it’s important to keep straight what’s really going on. Democrat proposals to “wipe out” college debt only transfer the burden to other innocent parties. That is both “unfair” in any ethical evaluation and terrible economics as well, guaranteeing that college costs will continue to soar at other people’s expense. Republican willingness to appease wealthy bankers and rich colleges by keeping kids languishing in debt isn’t any better.
An inescapable consequence to any responsible Debt Forgiveness plan is that someone will have to pay. As Michael Hudson says: “You can’t bail out the banks, leave the debts in place, and rescue the economy. It’s a zero-sum game. Somebody has to lose.”
Many politicians want to penalize some version of “the rich,” which usually ends up meaning middle-class taxpayers. Another option would be to let the ones who created this mess (banks and colleges) bear the brunt of any solution. There is simply no “win-win” scenario where everyone goes home happy.
The anti-government fantasy that “doing nothing” will yield to marketplace magnificence is a farce to begin with, because nothing about subsidized college or centralized banking resembles natural market conditions. Any “do nothing” approach fails to realize that the kids trapped in debt aren’t going to stay quiet, keep paying their bills or even stick around forever. In other words, it’s in everyone’s interest to pursue a rational path of organized debt re-structuring. The sooner the better. The only alternative is a more random, spontaneous debt implosion and over-reaction (remember the New Deal?) that could be catastrophic.
For the remainder of this essay, I’ll focus on how Debt Cancellation would affect the banking industry and the college system, along with impacts to future and former students. Since centralized banking and subsidized colleges are two of the most influential, harmful and overrated institutions in America, I’ll include some general background for both sectors (that mainstream media tends to oversimplify).
Of course, we can feel sympathy for the millions of workers caught in the buzz saws of centralized finance and socialized education. In both cases, absentee “leaders” cause the real trouble while low-level support staff get paid to go through the motions.
Banks: America’s politically entrenched banking industry fears and loathes the idea of a true Debt Cancellation with an intensity that is hard to overstate. Their concern seems to be commensurate with the injuries they’ve caused to society. To this end, financial institutions are almost certainly behind the current funding of phony Debt Forgiveness (bank bailout) schemes to go along with their purchased loyalty of nearly every politician in Washington.
A good summation on the improprieties of centralized banking in general and the Federal Reserve in specific comes from former Congressmen and Regan-era OMB Director, David Stockman:
The Fed is the number one, the number two, and the number three enemy of prosperity, capitalism, free markets, individual liberty, and the wealth of people in the world today. Central banks have to be totally discredited and taken down.
Martin Armstrong’s economics website adds “the central banks are TRAPPED!!!!! People have NO IDEA what we face.” (bold, CAPS and punctuation in original)
So why do some folks (including me) have such a dim view of centralized finance? Since 1913, the Federal Reserve has successfully chiseled away over 95% of the value of the dollar, with all of the extracted worth going into the pockets of rich bankers who are always first in line at the Fed’s liquidity hydrant. To the average consumer, this means what would have cost a nickel in 1913 now costs over a dollar. And someone who saved a dollar back in 1913, if they were still alive today, would have under 5 cents of equivalent purchasing power. That’s our Fed!
And they’ve got some big customers to satisfy. The top four banks in the county (J.P. Morgan Chase, Bank of America, Wells Fargo, Citigroup) had combined revenues of $440 billion in 2018. Some of this money was earned by processing payments from retailers, making U.S. consumer spending all the more fluid. Some of the money comes from speculating on stocks and real estate, whose prices are inflated by the Fed’s easy-money policies. But most of it comes from the alchemy of turning a $10 deposit into a $100 loan (so-called fractional-reserve banking). The legal counterfeiting of the 90% empty “banks” in America involves corporate officers issuing their own virtual loans backed by a dime to the dollar, soaking in the long-term interest payments, then thrusting out their hands at the Fed Funds window for cheap credit to mop up the carnage when the system “corrects” itself every decade or so.
It’s like reeling in a giant tuna: pull back with all your might, then lunge forward and spin your wrist frantically to bring in the slack. Use leverage to your advantage. Crank and repeat until the mighty fish is worn out.
As a result of some hard work and lots of political spinning, the four largest banks have used their Federal Reserve privileges and fractional-reserve leverage to amass $8.6 trillion in assets. The next six biggest banks control assets of nearly $3.4 trillion. These are glorified coin-clippers that don’t add any value to education, business formation or even home construction; all of that can be accomplished without third-party financing and certainly without centralized banking. (An economics professor from George Mason University explains the safer option of open-market or “free” banking in this short video.)
Most D.C. “liberals” and “conservatives” suspiciously agree to keep the game going in order to skim off the fat with new taxes and/or new fiat currency. I’m only suggesting that Big Banks can fend for themselves—shedding a few assets if needed—when a day of reckoning finally appears and their $1.6 trillion boondoggle of unsecured student loans evaporate.
Contrary to so much hype (see Time magazine and Bloomberg below), regular human beings can actually work, save and invest without a slippery contract from a Debt Dealer. Actually, nearly everyone did just that when buying cars and homes with cash through the 1920s (and when paying for college for three full decades after that). Then politicians invented the 15-year mortgage and (now nearly empty) FDIC insurance in 1934 to allegedly “save” the housing market, a year after killing the gold-based standard of financial security. Two decades later, politicians sold Americans on the 30-year mortgage, to the delight of Wall Street tycoons.
College loans began slowly under the cloud of anti-Soviet intrigue in the National Defense Education Act of 1958. Student debt then went into orbit when the Higher Education Act of 1965 declared college as a human right, opening the door to more federal loans. Before then, people paid cash for college and tuition was cheap.
Bankers fully recognize the political and structural exposures they face from the Debt Bubbles they created, notwithstanding the breathless praise they received from Legacy Media during past financial turmoil. And they have to be aware that the ruling elites are losing their control of public information, thanks to the rise of independent news sites challenging the federal broadcasting monolith and the billionaire’s club of urban newspaper monopolies. Panicked rich people don’t play well with others. So no one should assume that the banking clans will yield one cent on Debt Forgiveness without an all-out brawl.
In recent generations, bankers were content to run their advertisements in corporate media hawking their debt products as part of the American Dream. After the unpopular bank bailouts of 2008 and now the college debt crisis, these hollow messages are wearing thin.
As a response (and a sign of desperation) some are taking it to the next level. A recent sham “study” on the virtues of endless debt in Bloomberg gives an indication how far the credit industry is willing to go to keep people dependent on their product.
Billionaire media mogul, financier and former NYC Mayor, Michael Bloomberg, paid for one of the more bizarre pieces of debt celebration I’ve ever seen. Last month, his staff produced an article titled “America’s Wealth Hinges on Its Ability to Borrow Big – or Else.” The piece offered what it called “dystopian” and “grim” warnings that “without its dependence on borrowed money… U.S. per capita income of $66,900 would be slashed to a negative $4,857 using this measure. That’s a total loss of almost $72,000 for every man, woman and child.”
Not only does that stupidity fail to receive criticism in mass media, a prominent libertarian news site featured this “study” with further hysterical ranting (in all seriousness) that “the only thing keeping us from complete and total economic collapse is the fact that debt is flowing like wine.”
Elsewhere in the think tank universe, the Brookings Institution insists that merely auditing the Federal Reserve will “threaten” everything they hold dear: absolute power of banking elites to operate in secrecy. That short Brookings article links to four separate Wall Street Journal pieces defending Fed secrecy and attacking the politicians who want it audited (what Brookings dismisses as “Washington’s latest craze”).
With big finance intertwined with broadcast media, expect the insanity and shrillness to get worse, particularly if true Debt Forgiveness ever catches on. But if the powerful banking interests aren’t confronted soon with real Debt Cancellation, Wall Street high rollers may end up owning everything. Or nothing, if they overplay their hand.
Colleges and Universities: For many generations, academic institutions have done everything in their power to extract more taxpayer funding, restrict competition and attract more kids onto their campuses. College tuition has steadily risen as a result, pushing more students into a desperate sense of “needing” a loan for the poor education they often receive.
If real Debt Cancellation ever occurs, higher ed would have no choice but to drop their prices to attract new students. With fewer loans available (since bankers would have gotten their hand slapped) some kids would probably seek instruction at trade schools or other non-college options, further decreasing demand and prices for college. Healthy colleges can certainly afford the correction.
Total U.S. college revenue was a staggering $649 billion for the Fall 2016 to Spring 2017 school year, up 14.5% from two years prior. Over four-fifths of that income stream comes from government, institutional and private student loans and grants ($253 billion per PDF page 9), plus direct subsidies for state-run colleges and local community colleges (about $300 billion in FY 2018, ignoring the $11 billion overlap from state grants). Schools have no reason to keep a lid on their outrageous costs, since very few students now pay for college with saved earnings.
It’s well known that college tuition and fees have been skyrocketing for decades—up over 1,100% (five times inflation) since 1978. A major reason for the rising costs comes from artificially stimulated demand. Even after the 1944 Army G.I. Bill attracted over 2 million returning vets into higher education, only 6.25% of Americans (male-female average) had completed four or more years of college as of 1950. By 2018, those figures jumped to 35%, according to statista. The argument of an “advanced economy” requiring college is only a partial explanation (at best) for rising attendance, since the most high-tech jobs (Google, Apple, IBM, etc.) are the LEAST likely to require a college degree now.
This increased demand comes largely from the trillions of tax dollars shoveled into the university system as well as market manipulations by State Boards of Education that work hand-in-glove with college administrators. The racket: force kids to buy our product. Their methods: make high-paying professions like doctors, lawyers, teachers, public accountants, some engineers and many others require a state license that mandates a college degree. This has little to do with quality and mostly to do with political control. State licensing consists of outlawing the competition, restricting consumer choices, gathering a steady stream of teenagers to sermonize, then raking in the cash. Some would call it “market capture.”
Compelling millions of people to buy a specific product is perhaps the greatest example of harmful racketeering allowed today. Since forcing aspiring professionals into an expensive college system demonstrably hurts the poor, it naturally has a “disparate impact” on minorities as we have long been told (and is true in this case). But the blinding arrogance of the PhD-only club doesn’t see anything wrong with this behavior.
On top of all that easy money and market coercion, Wikipedia now counts over 100 colleges with at least $1 billion of endowments to use as slush funds for naming dormitories after rich donors, building new 80,000-seat sports stadiums or pushing some politically correct agenda to attract more donations from wealthy alumni. Harvard alumnus Ron Unz put it well in describing his alma mater’s enrollment system as “paying tuition to a giant hedge fund.”
|Rank||School||Endowment ($ Billions)|
|3||Univ. of Texas||23.9|
|7||Univ. of Pennsylvania||10.7|
|8||Texas A & M||9.9|
|9||Univ. of Michigan||9.6|
The Wikipedia and U.S. DoE summaries cited above neglect to mention that all of the top 100 endowed colleges are organized as government-run or private non-profit schools. This sleight of hand (“public servants” yet filthy rich) has been achieved by successfully lobbying Congress for tax privileges that they eagerly utilize, while screaming about racial privileges to further confuse the situation.
The generous endowments at hundreds of tax-favored institutions could help them weather the storm of a downward financial adjustment that would predictably ensue from any real Debt Cancellation. But wealthy college endowments rarely come into the conversation when politicians are trolling for more tax-funded bank bailouts. And for the colleges that are wildly over-priced yet failed to save for a rainy day… whose fault is that? Not the students. Not the taxpayers.
However we approach it, organized or spontaneous Debt Cancellation will mean someone has to pay. It seems most appropriate that the ones who have partied so long at the public’s expense should be first in line for assisted sobriety.
Future Students: Here’s a category that’s often overlooked—other than scurrilous promises for “free” bureaucratic junk. Once our beloved banksters get trimmed for passing out bad loans, they will certainly be more cautious in peddling new risky credit. That should mean college costs becoming more reasonable, but also fewer loans available to usher students into that environment. No matter what, Debt Forgiveness would change the financing of college for years to come. Depending on a person’s sense of entitlement and perceived need for more classroom schooling, that could go a variety of ways.
Let’s remember that anyone who has completed Kindergarten through high school already has 13 years of standardized classroom education. There are now multiple providers of online college-level courses (Khan Academy, Udemy, EdX, Coursera, etc.) and at least a half-dozen non-degree options to help students land a professional job, plus scores of trade schools for technical training. One of the larger apprentice-based educational companies, Praxis, has been featured on FoxNews. Another one of the big boys—relatively speaking—MissionU, maintains a multi-media extravaganza at FastCompany magazine. TechStars boasts of having over 10,000 mentors and 300,000 alumni worldwide to help entrepreneurs with funding and guidance. So the message is getting out.
The next task will be connecting companies and students interested in trying something slightly new— professional mentoring and apprenticeships, now with the help of online technology, more independent teachers and some important Safeguards. The apprentice model worked for centuries, even without subsidies, so there’s no reason why it would not work again today.
Anyone who feels they need four more years (after high school) of conventional books, lectures and theoretical homework assignments from a college or university is welcome to continue down that path… and either pay for it themselves or be burdened with debt. You may want to be careful when it comes to landing a job with no experience. University loan officers sometimes forget to warn students about that. If you’re big on excuses, you can always blame the seductive college marketing campaigns: “Pay us and EARN your degree!” “Scholarships for everyone! No one pays full price!”
I know, pretty hard to resist. (I went for that too, when I was 18. But I didn’t have much choice then.) If that’s really what you want, you’ve got thousands of nearly identical flavors to indulge on. But now you have real options as well.
Former Students: It’s barely worth mentioning that college graduates with outstanding loans would be ecstatic to have their burdens lifted. That doesn’t make Debt Forgiveness a good or bad idea.
Hardcore policy wonks are probably wondering when I’m going to furnish the charts and graphs with aggregate demand curves and modeled simulations of Debt Cancellation to “prove” this or that. If I had a few million bucks to throw at my favorite think tank, I could a fund a “study” to predict any outcome I desired. But that is not my position. Since we’re at the early edge of the legitimate Debt Forgiveness debate, I’ll defer to any independent experts for more detailed economic forecasting.
For today, I’ll start with what I’ve got. The aforementioned Levy/Sanders “study” claims a tax bailout of wealthy bankers will boost GDP by about $100 billion and create over 1 million new jobs per year. Compared to that “trickle up” approach, true Debt Cancellation should only do better. That’s because we know that small businesses create jobs more efficiently than giant corporations who siphon off profits to build luxurious headquarters, fund C-suite golden parachutes and other vanity affairs.
We also know that debt-relieved college grads would now have about $1.6 trillion of cash to spend on homes, cars and patronizing large and small businesses instead of repaying principal and interest on outrageously inflated college loans. Some may even stow away savings and start their own businesses. In a $21 trillion economy, that spending could have some inflationary effect (Levy/Sanders say it would be “insignificant”). With Wall Street frightened over any hint of corrective deflation, a little countervailing inflationary pressure should make them happy. But I doubt it would.
I’ve come to view college loan forgiveness as an Inflation Dividend. Banks and colleges have exorbitantly inflated the money supply and tuition prices since 1913 and the 1960s, respectively. Americans have paid a huge price for that. So right about now would be a good time for an overdue rebate.
The alternative to Debt Forgiveness is so terrible that it could permanently cripple the nation. An implosion from multiple Debt Bubbles (college loans, housing, credit cards, pensions, national debt) bursting at once would be painful beyond reckoning. Damage would extend far beyond the collapse of the 1929 stock market crash, when there were almost no institutional investors and very few Americans owned stock.
As for the college grads who honorably paid off their school loans, how would granting Debt Forgiveness to other people harm you in any way? If the word “education” has any meaning at all, you’ve gained a great education from the discipline of working, saving and paying off your obligations. Now maybe use those skills to do something even more productive. Unlike the conservative writer Matt Walsh, who worked to pay off his wife’s student debt, there’s no reason to be bitter about “an awful lot of unnecessary sacrifices” made in the past. Look how far that great experience has got you (and him) already?
We can’t change the past. And reckless college graduates who are over their head in bills from a worthless degree won’t get a chance to learn from that particular mistake. But they may get a chance to start over. If debt-relieved graduates make the same foolish choices in the future, they will be the ones to suffer.
In both the banking industry and the college collective, wealthy adults have profited enormously from many decades of free or discounted money from the Fed that students had no direct access to. If any member of the poor or middle-class wanted a college degree, he or she usually had to take on heavy loans. That is the reality we are now faced with. Lecturing kids on (arguably) past mistakes won’t help a bit.
Debt Cancellation will come… whether we like it or not
What critics of Debt Cancellation often fail to realize is that… debt forgiveness will come, whether we want it to or not. For a few examples of what will happen without Debt Forgiveness see: “These Americans fled the country to escape their giant student debt” from CNBC.
Some people may not find the alternatives chosen by any of the three students profiled (teaching in the Ukraine or Japan, living in a remote Indian village) to be particularly appealing. But that’s beside the point. It’s a great big world and kids have options. Unless we’re willing to seal the borders and enact a police state with Fugitive Student Hunters, we can’t keep people from leaving. And even if we could keep them here, there’s no way to squeeze $300 per month (or more) of principal and interest out of a 23-year-old working as a pizza courier or Starbucks barista, even if he/she does have a college degree.
And this gets to the sensitive point of human confinement. Abusive systems may appear to “work” for those at the top, but oppressive conditions simply cannot stand for long when better alternatives exist for those at the bottom. Debt Servitude is just another form of human bondage, promoted by self-absorbed elites and ideological extremists who like keeping people trapped, desperate and easy to exploit. Students will not stay confined in the college books-buildings-lectures-and-debt system for much longer. They simply don’t have to.
There is a reason we work for 5 or 6 days, then take a day or two off on the weekends. It’s called REST. Someone immersed in a theoretical bubble and unfamiliar with reality (e.g., college professors, corporate leaders, entertainment, mass media) could argue that working for 20 or perhaps 200 days straight, without a day off, would lead to greater productivity. But human beings don’t function well in such relentless environments.
Americans need a brief rest from the corrupt system of debt dealers, certified classroom lecturers, corporate conformists and other abusive power structures that got us into the current mess of subsidized college and its associated mountain of debt. Once refreshed, we can hopefully see straight to avoid sliding backing into that pit.
Loan forgiveness doesn’t just help the younger generation, it should be noted. The 80 million Baby Boomers set to retire in the decade of the 2020s (David Stockman’s figure) have a vested interest in keeping college alumni happily working and paying into the seniors’ precarious Social Security and Medicare accounts. Old folks may want to think twice before they chase their worker bees out of the hive with harsh demands of college debt repayments that seniors themselves were never subjected to.
What can be done?
For starters, anyone wishing to engage in conversation (or interviewing politicians) could do a better job of focusing the debate. Are people talking about actual Debt Forgiveness or just transferring the bill to taxpayers? Do bankers and colleges join in paying for their reckless loans and inflated tuition, or do all cleanup costs get dumped on “the rich” (i.e., middle class)?
Along those lines, it would help to cut through the noise of heated political speeches like Bernie Sanders (and many like him) ranting that Wall Street is overrun with “greed, fraud, dishonesty and arrogance.” Good grief, so is Washington. So is Hollywood, Legacy Media, Silicon Valley and most big league colleges. A more valuable issue for public consideration would be to find where prospective candidates stand on the toxic “fracking” of fractional-reserve counterfeiting that destabilizes our entire financial system. Ditto for the ongoing secrecy of the Federal Reserve hierarchy, who refuse to be audited. If members of the Regulated Press are too frightened to ask tough questions of powerful special interests, then independent reporters could gain further credibility by stepping up to carry out this important task.
On the college front, the misguided decision of propping up this ancient institution has done nothing but increase hostilities, reduce quality and dramatically raise prices. As such, federal subsidies should be gradually (i.e., over 5 to 10 years) be brought down to zero to allow Americans to freely choose what type of personal education path to follow. The racketeering by State Boards of Education in conjunction with academia to use mandatory professional licensing to force people to buy their product is a cowardly act of desperation; it’s also a (probably illegal) restraint of inter-state commerce that should have been struck down long ago. Mandatory professional licensing is possibly the greatest example of institutional racism left in American, yet shameless college professors deflect attention to scapegoat individual students for far lesser misconduct. All mandatory/coercive licensing could be replaced with voluntary professional standards to improve quality and save consumers enormously. In the meantime, any honest professional is free to work for reform or just quit that racket and get a legitimate market job; I did that almost 10 years ago and have never regretted it.
In the end, the choice comes down to nothing more complicated than Debt Freedom or Debt Servitude. A fresh start or more financial decay.
Our leaders in Washington can forgive the innocent and punish the culprits, or they can misallocate blame and drive the economy into the ditch. Student Debt Cancellation can proceed in a rational, managed fashion or will spontaneously occur on its own, which could trigger more reactionary power grabbing that would be disastrous. In that sense, real Debt Forgiveness would benefit everyone.
And what’s in it for the bankers, some may ask? How about this trade: we’ll forgive your century of debasing, inflating and repossessions if you grant a rare (probably once in a lifetime) forgiveness of unsecured college debt. That might be the best deal you ever get, if banking executives are sober enough to realize it. I’m optimistic there are plenty of smart bank tellers, loan officers and compliance specialists who would accept that offer. The corporate suits, however, may need a bit more of a nudge.
I’m less optimistic that the proud members of entrenched super-ultra-deluxe-conservative academia will voluntarily go along with any positive reform. The medieval business model of subsidized lectures, safe manuscripts and regurgitated orthodoxy has proven to be too steeped in conformity, control and public spectacle to recognize its own dramatic failings. The best way out of that circus is to simply walk away before the mass exodus becomes a stampede.
Regardless of vocation, the older generation can lend a hand in developing a viable path out of the college debt trap. Or we can make excuses and blame the kids… as we watch them leave the country or simply refuse to pay back their unrealistic burdens.
Millions of college grads seem to agree that we’ve tried Debt Servitude long enough. If I were a former student loaded down with college debt, I’d rather try something more liberating.
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