Student loans: The upper 1% goes nuts

Mitchell’s laws:
●The more federal budgets are cut and taxes increased, the weaker an economy becomes.
●Austerity is the government’s method for widening the gap between rich and poor, which leads to civil disorder.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
●The penalty for ignorance is slavery.
●Everything in economics devolves to motive.
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In “Five reasons why we should eliminate school loans” (May 16, 2013), we quoted Senator Elizabeth Warren, who wants to set student loan rates at the same level the big banks borrow from the Fed: a measly .75% (versus a gigantic 6.8% on student loans.)

This caused immediate outrage among the rich, who want the poor and middle classes punished as much as possible. (Rich kids don’t need student loans; it’s the poor and middle who pay)

Here are some quotes from Jason Delisle, Director of the Federal Education Budget Project at the New America Foundation:

With that mix of populist rhetoric and subterfuge, Senator Warren stands to whip up a mob of angry students (and pundits) who will demand that the government drop the interest rate on student loans to 0.75 percent. Good luck reasoning with a mob.

See the panic and outrage? Mr. Delisle practically foams at the mouth: “Populist rhetoric.” “Subterfuge.” “Whip up a mob.” OMG! Suggesting that students pay the same rate as banks?! How absolutely outrageous it is for the government to lower interest rates on student loans to the poor and middle income groups. Well, of all the nerve!

Remember now, the the federal government, being Monetarily Sovereign, doesn’t need to charge any interest on any lending. It has the unlimited ability to create dollars at will, so needs no income, and in fact, destroys the money upon receipt (i.e. all dollars paid to the federal government no longer are part of the money supply.)

Why then, does the federal government charge our college students any interest, much less a heartless 6.8%?

The 0.75 percent rate is actually a penalty rate, about three times higher than what banks charge each other in the market. Banks rarely use it, and lose money when they do.

Yes, if 0.75 is a penalty rate, how would one describe 6.7%?

. . . when the budget office “accounts more fully… for the cost of the risk the government takes on when issuing loans,” it reports that Subsidized Stafford loans – those made to low-income students – cost taxpayers $12 for every $100 lent out, or $3.5 billion per year. If the loans cost $3.5 billion a year when the government charges a 6.8 percent interest rate, cutting the rate to 0.75 percent would more than triple that cost.

Wrong on at least two counts:
1. In a Monetarily Sovereign nation, taxpayers do not pay for federal spending or for federal losses or for federal anything.
2. Anyway, how does the government lose 12% on every 6.8% loan? Simple. Default. The kids can’t afford to pay. Cutting the rate actually might cut the loss — but of course, that isn’t the point.

. . . the Department of Education estimates that 23 percent of the Subsidized Stafford loans it makes this year will default.

So the solution is to maintain high interest rates?? These kids, with no income, no jobs and little hope, are being squeezed by usurious rates, when in fact, they should not have to pay for college at all. Elementary school is free. High school is free. Why isn’t college free?

By their nature, students generally do not have collateral, earnings or credit histories. But when nearly a quarter of the loans are expected to default, charging a 6.8 percent interest rate is hardly the usury Senator Warren suggests. A non-profit credit union would charge at least double that rate.

Mr. Delisle is clueless about the purpose of student loans. It is to encourage and enable college education in America. Allowing more students the opportunity to attend college, benefits the nation.

This is not supposed to be a money-making scheme for the U.S. government. It is supposed to be a brainpower-building scheme for the United States.

But wait! Mr. Delisle does offer a solution, which I term, “Ruin Your Life”:

Let’s say Senator Warren is right that students are being crushed by debt.

“Let’s say”?? This is even a question?

Even so, lawmakers need not cut interest rates to alleviate that burden.

No, keep that rate high for the 99%.

A program available now, called Pay As You Earn, allows the same borrowers who would be eligible for Senator Warren’s proposal to have their annual loan payments set at between 0% and 10% of their incomes, depending on their earnings and family size.

That is, a borrower’s income – not the interest rate – dictates the payment, and it is always an affordable share of his income, never exceeding 10 percent annually. The program also guarantees that no one has to pay beyond 20 years. No matter how much a student borrows, or the interest rate, the loans are forgiven at that point.

Get it?. Pay for 20 years. Forget about buying a home. Forget about buying a car. Forget about investing in a business. Forget about paying for a family. Forget about your future. Your finances will be tied up for the next 20 years. What a plan! Guaranteed to widen the gap between the rich and the rest.

Senator Warren will not go away. But the mouthpieces for the 1%, will not go away, either. So expect the 1% to keep pounding at her. Heaven forbid the young people of the 99% are allowed a college education without the debilitation of massive debt.

The goal for the 1% is, as always, to widen the gap between the rich and the rest.

Thank you, Mr. Delisle, for the reminder.

Rodger Malcolm Mitchell
Monetary Sovereignty

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Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Medicare — parts A, B & D — for everyone
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here)
4. Long-term nursing care for everyone
5. Free education (including post-grad) for everyone. Click here
6. Salary for attending school (Click here)
7. Eliminate corporate taxes
8. Increase the standard income tax deduction annually
9. Increase federal spending on the myriad initiatives that benefit America’s 99%

10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt

No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia.
Two key equations in economics:
1. Federal Deficits – Net Imports = Net Private Savings
2. Gross Domestic Product = Federal Spending + Private Investment and Consumption – Net Imports

#MONETARY SOVEREIGNTY

–Monster scandal; massive confusion; when will taxes end?

The U.S. federal government originally passed the laws that created the U.S. dollar. Ever since, the government has passed laws that alternatively made the government Monetarily Sovereign and monetarily non-sovereign.

A Monetarily Sovereign government has the unlimited ability to create its sovereign currency. A monetarily non-sovereign government does not have this ability, either because it doesn’t have a sovereign currency (example: the euro nations), or its currency is pegged to the dollar:

As of 2008, there were at least 17 national currencies pegged to the U.S. currency, not counting other organizations that maintain a similar link. These include the Netherlands Antillean guilder, Aruban florin, Jordanian dinar, Bahrain’s dinar, Lebanon’s pound, Oman’s rial, Qatar’s rial, the Saudi riyal, Emirati dirham, Maldivian rufiyaa, Venezuelan bolivar, the Belize dollar, the Bahamian dollar, the Hong Kong dollar, the Barbados dollar, the Trinidad and Tobago dollar, and the Eastern Caribbean dollar, which is used by Antigua, Dominica, St. Kitts, St. Lucia, St. Vincent, the Grenadines and Grenada.

Occasionally, a Monetarily Sovereign government may pass laws that restrict its ability to create its sovereign currency. Examples in the U.S.: The debt-limit laws and the current austerity laws, all of which have no economic purpose, but solely are in place to give the illusion of economic prudence.

Because the U.S. government controls its own laws, it has the unlimited ability to revise those laws at any moment, meaning it has the unlimited ability to create as many sovereign dollars as it wishes, at any time.

Given this ability, the U.S. does not need to ask anyone for dollars, not you, not me, not China. Thus, federal borrowing and federal taxing do not support federal spending. Whenever the U.S. government wishes to pay a bill denominated in dollars, it simply creates those dollars at the press of a computer key.

In summary, federal tax collection is a useless, time wasting, manpower wasting, ineffecient and unfair exercise, which is why the following article should be of interest:

New York Times
Confusion and Staff Troubles Rife at I.R.S. Office in Ohio
By NICHOLAS CONFESSORE, DAVID KOCIENIEWSKI and MICHAEL LUO
Published: May 18, 2013

During the summer of 2010, the dozen or so accountants and tax agents of the Internal Revenue Service office in Cincinnati got a directive from their manager. A growing number of organizations identifying themselves as part of the Tea Party had begun applying for tax exemptions, the manager said, advising the workers to be on the lookout for them and other groups planning to get involved in elections.

Low-level employees in what many in the I.R.S. consider a backwater, they processed thousands of applications a year, mostly from charities like private schools or hospitals.

For months, the Tea Party cases sat on the desk of a lone specialist, who used “political sounding” criteria — words like “patriots,” “we the people” — as a way to search efficiently through the flood of applications for groups that might not qualify for exemptions.

Visualize it. Congress and the Supreme Court tweaked the law and some lone schnook had to interpret them and apply them to thousands of applications.

But it gets worse:

Overseen by a revolving cast of midlevel managers, stalled by miscommunication with I.R.S. lawyers and executives in Washington and confused about the rules they were enforcing, the Cincinnati specialists flagged virtually every application with Tea Party in its name.

But their review went beyond conservative groups: more than 400 organizations came under scrutiny, including at least two dozen liberal-leaning ones and some that were seemingly apolitical.

Do you remember the “I Love Lucy” show, the episode titled, “Lucy Goes to Work”? Lucy and Ethel find a job in a chocolate factory, where they stand at a production line, trying to wrap chocolates.

The chocolates come down the line faster and faster, overwhelming Lucy. You should stop now and look at it. It’s a scream — and is the perfect description of what was happening at the IRS.

Now, think of that production line and imagine that the chocolates had no value at all, and the whole process was unnecessary. That’s the IRS.

Over three years, as the office struggled with a growing caseload of advocacy groups seeking tax exemptions, responsibility for the cases moved from one group of specialists to another, and the Determinations Unit, which handles all nonprofit applications, was reorganized. One batch of cases sat ignored for months. Few if any of the employees were experts on tax law.

“The I.R.S. is pretty dysfunctional to begin with, and this case brought all those dysfunctions to their worst,” said Paul Streckfus, a former I.R.S. employee who runs a newsletter devoted to tax-exempt organizations. “People were coming and going, asking for advice and not getting it, and sometimes forgetting the cases existed.”

Administering the nearly four-million-word federal tax code involves so many arcane legalities, and is so fraught with potential to ignite Washington’s partisan skirmishes or infuriate taxpayers, that much of the I.R.S. is run by lawyers.

But the Exempt Organizations Division — concentrated in Cincinnati with fewer than 200 workers, according to I.R.S. officials — is staffed mostly with accountants, clerks and civil servants.

The article gets worse and worse; I don’t need to continue. You can read the entire article if you wish, but you get the picture. It’s “I Love Lucie” meets the Keystone Kops.

The point: Here is a giant organization, employing thousands of people, spending billions of dollars, causing millions of Americans to spend billions of hours (many of whom will be prosecuted for not spending those hours) — and all for naught.

The federal government has no use for the dollars collected, and in fact, the dollars sent to the government disappear and no longer are part of the money supply. It’s the classic having one team dig holes and a second team filling them up.

I have no objection to the federal government hiring people for useless work. This pumps dollars into the economy. It supports thousands of IRS employees’ families, plus thousand more businesses and their employees.

But I do object to having millions of Americans waste billions of person-hours, doing unpaid, useless work, and wasting more billions of dollars to prosecute those who do the work wrong. Those wasted hours never can be recovered.

And did I mention the waste of time by an “irate” (fake irate) Congress, investigating the scandal of their own making?

I wonder when America will come to its senses and simply do away with the federal tax, its collection and the related prosecutions. The whole process is nuts.

Rodger Malcolm Mitchell
Monetary Sovereignty

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#MONETARY SOVEREIGNTY

–How the Republicans may save the economy and save Obama from himself

Readers of this blog know the upper .1% income group has bribed President Obama (via campaign contributions and promises of lucrative employment later) to widen the gap between the rich and the rest. Just a few of many examples:

–Failure to prosecute criminal bankers, and repeated aid to criminal banks
–Appointment of Tim Geithner, the notorious banker sycophant
–Appointment of Jack Lew, the even more notorious banker sycophant
–Increase in FICA, the worst tax in American history
–Commerce Secretary nomination of billionaire Penny Pritzker, who helped fund Obama’s rise to office, and later who will help finance the Obama Library and find big jobs for the Obama family

But perhaps the best (worst?) example is Obama’s “Grand Bargain,” which Professor Bill Black has labelled the “Grand Betrayal.” It is an amazingly harmful plan that would severely punish the middle- and lower-income classes, while not laying a glove on the upper class — exactly what the rich want.

Here’s the irony. Though the Republicans, too, despise the 99%, they despise Obama even more, so are determined to thwart even his anti-99% efforts:

Huffington Post
John Boehner Rejects Obama’s Grand Bargain On Debt Ceiling

WASHINGTON — House Speaker John Boehner is rejecting President Obama’s offer to make historic cuts to the federal government and the social safety net, saying in a statement Saturday evening that he can not agree to the tax increases Democrats insisted on as part of the bargain.

Obama offered to put Social Security, Medicare and Medicaid cuts on the table in exchange for a tax hike of roughly $100 billion per year over 10 years.

Here is President Obama, desperately trying to pay off the 1% and screw the 99%, by massively cutting the social safety net and raising a few meaningless taxes, and here is Republican Speaker Boehner, who won’t let Obama do it!

For the past eight years, the Republican political plan has been to oppose anything that would stimulate the economy, reduce unemployment or close the gap between the rich and the rest, and then blame the resultant misery on Obama.

Now, the Republicans inadvertently are saving the President’s legacy, which left to Obama’s own devices, surely would have included a serious recession, if not a depression, with an increase in poverty, joblessness and the income gap.

Yes, the Republicans are trying to prevent “Obamausterity.”

Washington Post
Why Washington scandal-mania may save Medicare and Social Security
By Greg Sargent, Published: May 14, 2013

Scandal fever currently gripping Washington — IRS, Benghazi, Associated Press phone records — may save Social Security and Medicare two decades later.

Liberals who are dreading the scandal-mania that is taking hold should note that it contains a potential upside: It could make a Grand Bargain that includes cuts to Medicare and Social Security benefits even less likely than it already is.

That’s because when scandal grips Washington, a president actually needs his core supporters more than ever to ward it off, making it harder to do anything that will alienate them.

And Obama’s core supporters, the people he hoodwinked into believing he was “for the little guy,” will not follow him to the economic suicide of cutting social programs.

New York Times
G.O.P., Energized, Weighs How Far to Take Inquiries
By Jonathon Weisman, Published: May 16, 2013

The most pressing question for Congressional Republicans is no longer how to finesse changes to immigration law or gun control, but how far they can push their cases against President Obama without inciting a backlash of the sort that has left them staggering in the past.

House leaders have shown “great reluctance” to allow House committees to issue subpoenas, even as rank-and-file members and the conservative political base have been demanding them, Representative Jason Chaffetz, Republican of Utah, said.

This is just too delicious. The Republicans, the party of “law and order,” also are the party of the rich, so they never pressured Obama to prosecute the banksters.

Now, they fear to prosecute anyone for lying to Congress. They all but have forgotten their anti-gun control, anti-gay, anti-abortion agenda, while possibly taking Obama off the hook for sinking the economy.

(Obama can tell his rich backers, “Gee, I tried to destroy the middle class, but those nasty Republicans wouldn’t let me do it. Can I still have my library?”)

The Republicans, whose sole program was anti-everything — anti-poor, anti-middle-class, anti-unions, anti-government workers, anti-unemployed, anti-Social Security, anti-immigrants, anti-Medicare, anti-Medicaid, anti-economic growth and especially, anti-Obama — are caught among their “antis.”

Inadvertently, the Republicans may save our economy, and save Obama from himself. (Visualize our being chased by a pack of hyenas, when a male lion shows up. If these mutually antagonistic animals fight, we may have a chance to survive.)

They don’t know whom they hate, most.

Rodger Malcolm Mitchell
Monetary Sovereignty

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10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt

#MONETARY SOVEREIGNTY

–Five reasons why we should eliminate school loans

Elizabeth Warren may be the best senator in Congress — or at least the most honest. Expect to see her attacked from both sides of the aisle.

She continues to castigate the Obama adminsitration (and she’s a Democrat!) for not punishing the crooked banks (all the big banks are crooked) for criminally defrauding millions of Americans out of trillions of dollars, while continuing to stuff their own pockets.

Naturally, Obama avoids this subject (as do the Republicans) like it were poop in the punch bowl. For politicians, the banks are too big (i.e. too big as contributors) to jail.

Recently Senator Warren and the New York Times have talked about student loans. The Times said:

Student Debt Slows Growth as Young Spend Less
By ANNIE LOWREY, Published: May 10, 2013

The anemic economy has left millions of younger working Americans struggling to get ahead. The added millstone of student loan debt, which recently exceeded $1 trillion in total, is making it even harder for many of them, delaying purchases of things like homes, cars and other big-ticket items and acting as a drag on growth, economists said.

Senator Warren said:

“Right now, a big bank can get a loan through the Federal Reserve discount window at a rate of about 0.75%,”

“But this summer, a student who is trying to get a loan to go to college will pay almost 7%. In other words, the federal government is going to charge students interest rates that are nine times higher than the rates for the biggest banks — the same banks that destroyed millions of jobs and nearly broke this economy.”

“Some may say that we can’t afford this proposal. I would remind them that the federal government currently makes 36 cents in profit on every dollar it lends to students. Add up all of those profits and you’ll find that student loans will bring in $34 billion next year.”

She’s beating the drum, but with the wrong stick.

The big debate in Congress is how much interest to charge students. And there are several complex, convoluted plans afoot. But, the federal government, being sovereign over the dollar, neither needs nor uses profits. It never can run short of dollars. It never needs to ask anyone for dollars — not you, not me, not China, not our students.

It is the U.S. states that are monetarily non-sovereign, so can and do run short of dollars. Nevertheless, they spend billions to support schools, grades K through 12.

For reasons buried in history, no American government supports grades 13+ — at least not full support.

So college attendance — which benefits all of America — has become a widespread hardship. According to the National Memo:

Massachusetts’ senior senator points out that the American public saved the big banks, which Attorney General Eric Holder admitted are “too big to jail.” A Bloomberg report suggests taxpayers offer an implied $83 billion subsidy to the biggest banks, with an implied guarantee in case of another financial crisis.

America’s total student loan debt now totals well over $1 trillion, leading to record defaults. Students stricken by the worst of the financial crisis are now badly in need of a bailout. And Senator Warren is one politician who has a plan to do that responsibly: Just treat students with the same generosity we offer the big banks.

What a concept: Treat America’s future as generously as we treat America’s criminals! (If only those kids were bigger political contributors.)

Anyway, I have a better idea, and it’s much simpler than anything Congress has talked about, — and better for America. For exactly the same reasons public elementary and high schools are free, public college should be free. If the monetarily non-sovereign states can support grades K-12, surely our Monetarily Sovereign government can and should support grades 13+.

And here is how we could do it: SIMPLY STOP LENDING ALL THAT MONEY FOR EDUCATION.

Just as private K-12 schools exist alongside of public schools, private 13+ universities can exist alongside of public 13+ universities.

For example, Massachusetts schools like Harvard, Boston University et al could remain private and continue to charge their high-and-getting-higher tuitions, while the five UMass campuses all would be free to every student at every grade level — 100% supported by the federal government.

Just as with grades k-12, those who prefer a private university education could continue to pay for it. Those who prefer a free university education, would have that option.

This would be bad news / good news for the private universities. The bad news is they would have to compete against “free.” The good news is they could feel less obligation to provide scholarships; de facto scholarships for all would be offered at thousands of public universities.

The news for America would be all good:

1. Less financial burden on the U.S. states, which currently provide partial support to state schools.
2. In a world where there is less need for physical labor and more need for educated labor, college education makes America more competitive.
3. Federal dollars, pumped into the economy, will stimulate economic growth.
4. Less financial stress on middle- and lower-income families, to pay for college.
5. Less financial stress on college students to pay for loans.

In the three posts titled, Salary for attending school, Salary for attending school: 2nd paper and Salary for attending school, III, we discussed the reasons for treating school attendance as a job that benefits America.

I suggest salaries would be the 2nd step, with the first step being federal financial support for public universities.

Given that monetarily non-sovereign city and county governments struggle to provide free K-12 education, I cannot imagine any good reason why our Monetarily Sovereign government, with no struggle at all, does not provide a free advanced education.

There is no magic line at grade 12, making it valuable to America while, grade 13 is not. Following food, shelter and health, the two most beneficial gifts we can give our children and our nation, are love and education.

It’s time to stop rationing either.

Rodger Malcolm Mitchell
Monetary Sovereignty

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Ten Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Federally funded Medicare — parts A, B & D plus long term nursing care — for everyone (Click here)
3. Provide an Economic Bonus to every man, woman and child in America, and/or every state a per capita Economic Bonus. (Click here) Or institute a reverse income tax.
4. Free education (including post-grad) for everyone. Click here
5. Salary for attending school (Click here)
6. Eliminate corporate taxes (Click here)
7. Increase the standard income tax deduction annually
8. Tax the very rich (.1%) more, with higher, progressive tax rates on all forms of income. (Click here)
9. Federal ownership of all banks (Click here and here)
10. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)

The Ten Steps will add dollars to the economy, stimulate the economy, and narrow the income/wealth/power Gap between the rich and the rest.

#MONETARY SOVEREIGNTY

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