Nice graph(s) putting Student Debt levels since 2005 in perspective

From the St Louis Federal Reserve ("The Share of Borrowers with High Student Loan Balances is Rising")

The top graph shows the ratio of outstanding student debt in a particular year to the debt level in 2005. For example, take the time period of between 2011 and 2012 (I inserted an RED vertical line).

Total Student Debt (top green line) was 2 times what it was in 2005.

The number of debtors is about 1.58 times more than in 2005.

The average balances held by debtors was about 1.3 times as much as those in 2005.

The bottom bar chart shows, in percent form, the change in debt levels from students in 2005 and 2012.

In 2005 about 56% of student loan balances were $10,000 or less (darker bar). In 2012--40% (lighter bar)---PROGRESS, right!! Not so fast.

The difference essentially moved to the higher average debt levels.  Notice the light bars get significantly higher than the dark bars as average debt levels increase, showing a larger (1) nominal change and more importantly (2) a significant percentage change from one time period to another.

For instance, the change in average balances in the $25K-$50K went from 11% to 18% (eye-balling).  That is a 7% percentage point increase, but NOT a 7% increase in average loan balance. The percentage increase would be (18% - 11% = 7% and 7%/11% X 100) +64%.

If you are already in college you are well aware of this.

If you are thinking of going to college you should be aware of this.

If you are a teacher of High School students you should be aware of this AND make your students aware of it also.

Hope this helps.

The use of credit gives us a sugar high. The following funk is the debt we pay for that high. How come we understand that with our physical health, but not our financial health?

My cyber friend over at The New Arthurian Economics has a blog posting that is deceptively short and may seem obvious, but I don't think people in general have a real appreciation for the distinction between "Credit" and "Debt" as it applies to their lives.

Debt is not good for growth. Credit use is good for growth. Debt is what remains after the benefit of credit use has passed.

Debt is bad for growth. Credit use is good for growth, and debt is bad. Yin and yang, shadow and light.

You go to the bank, borrow some money, and buy yourself something nice. That's credit use. It's good for you, and it's good for the economy.

A few weeks later, your first payment comes due. That's debt. It's bad for you, and bad for the economy.

I want to discuss this in class.  Read it again.  Then read the second sentence again and think hard about it, especially the significance of the words "benefit of credit use" in context of the sentence and the paragraph.

Let me give one example of what this means to me.  I would like you to come up with an example or two of your own and share.

I have $5.00 cash in my pocket and I am hungry.  I  can buy a hamburger, fries and a drink at McDonalds for that $5.00.  I pay cash, I eat, I am done.  Or, I could go to Chillis and buy a hamburger, fries and a drink but it will cost me $10.00 (gotta leave a tip).

Assume I pay $5.00 cash that I have in my pocket and put the remaining $5.00 on my credit card. My belly is full either way but in one case I have derived the short term benefit of eating at Chillis ("Nice Atmosphere AND the waiter was SOOOO funny!!")

Four weeks later I get the bill from my credit card company for the $5.00.  I have $5.00 (maybe) to pay the bill, but that means I can't spend $5.00 on something else at this time.  And I am hungry again to boot!!

If I had paid cash in the first instance (foregone the Chillis experience) I would be fed and have no credit card payment in 4 weeks.  I would likely have another $5.00 at that time and I could buy another meal.

In which case am I better off? The economy as a whole?

I think this is what Art is referring to.

If I ever meet Art I will buy him lunch---probably at McDonalds.  I don't like debt.   :)

Federal Budget spending in stacks of $10,000 bills sitting on pallets. See the three towers of political gridlock right here. Here's your sign...

The 3 pillars of the Federal Budget illustrated here--Social Security, Health Care (primarily Medicare and Medicaid) and National Defense. The rest is commentary, in my opinion.

The stacks are composed of individual pallets with packets of $10,000 bills. Each pallet holds $100,000,000 (100 Million dollars).

The fastest growing of these is Health care.  This is the reason this should be THE topic of discussion in the Presidential election, for better or worse.

More great visulazations like the HERE.

Source: DemocracyInfo

New and improved US Debt charts with China---always stunning to see how it has changed in just 10 years...

Don't know why I like debt graphs/charts as they relate to China.  I suppose it is because of the shocking rise of it such a short period of time. 

The first one (smaller one with yellow bars) shows the dollar amount of US Treasury's owned by China ( I assume by the Govt and/or its citizens). The second part of the graph shows the total US PUBLIC debt of $10 Trillion. This excludes the portion of the total National Debt (approx $5 Trillion) that is called PRIVATE debt. This is the debt incurred by the Federal Govt as it borrows from various Trust Funds, such as Social Security, that the Federal Govt administers. In other words, money the Federal Govt borrows from itself (that is another story for another day).

Source: Christian Science Monitor

The next chart shows in the same time period, China's change in direct investment outside of its borders (the US and elsewhere). This could include other financial investments stocks, commodities, bonds (how much of YOUR house or student loans or car is owed to them??) or investments in physical properties (businesses, land, natural resources, etc).

Source: Christian Science Monitor

You might be asking yourself: "Where do they get all this money since 2001 to loan us or to invest?"

This chart shows the difference between what we EXPORT (BLUE line) and what we IMPORT (RED line) from China.  You can easily see US Net Exports ($$$ Exports minus $$$ Imports) is negative. We import much more from China than we export to them.

The net flow of dollars on merchandise and services between our two countries is we send many more dollars to China than they return back to the US to buy our merchandise and services.  What do they do with all those surplus dollars? Go back to the beginning of this posting and start again---it is a continous loop. Those dollars we send them don't just disappear. A good number of them come back to the US to buy our debt instead of our merchandise. Crazy system, ain't it??? :)

Nice graphic showing the situation with Social Security...A concern for the young and old...

Go HERE for the source of this graphic in the Washington Post (Via: Jared Bernstein blog).

A concern should be the cross-over point between surplus and shortfall.  There are lots of divergent viewpoints as to whether this constitutes a crisis or not.

Revenues will still come into the fund from current workers payroll taxes (6.20% from workers and 6.20% from employers).  Until now that has been sufficient to pay current benefits.

However, as we pass into shortfall, workers will still pay into the fund from payroll taxes, BUT the Social Security Trust fund will have to redeem bonds (according to the graphic) to pay for the difference.  Where does the money come from to do that?

I am just trying to follow the money trail.  Is it from taxes? Borrowing ("private and/or public)?  Printing? A continued shell game with the Treasury?

A vigorous economic recovery, seemingly remote at this point, would lesson the problem in the short run as a surge in tax revenue from the payroll tax would continue to fund current and future obligations.  While that would be terrific, it would give politicians breathing room to postpone necessary reforms that must take place in order to make the program solvent for the next generation of recipients. 

If we taxed the "Super Rich" at 100% of their income, would that close our budget deficit? An interesting look at those numbers here...

There has been a lot of talk about putting an additional tax on millionaires to increase revenues to the Federal Government.  Let me be more radical. Let's take ALL their taxable income for one year!

Below are data from the IRS (year 2009). Look at the incomes for "$1,000 under $1,500" on down to "$10,000,000 or more". The data are in "thousands", so add 3 zeroes to the end of the numbers to get millions.  The third column shows "Income Tax Paid" and the fourth column shows "After Tax Income (What is left)" for each of the benchmark levels of income. 

In addition to to what they have already paid in the third column, let's go ahead and take the amount in the fourth column too (the amount the rich have left over after paying taxes).

That total is $549,411,208,000 (billions).


Look at the data below, specifically the "Deficit (-) or Surplus (+)" line of numbers. If, in 2009, we took what rich taxpayers already pay in taxes PLUS what they have left over (in others words tax them at 100%), it would still not come close to closing the budget deficit for the fiscal year 2010 (or 2011 or 2012). Add the $549 billion number to the negative number--it becomes LESS negative.

The budget deficit would be very small in 2013, and indeed, it be gone by 2014... BUT that assumes there would be ANY millionaires around anymore to tax.

Far be it from me to defend the rich. Not one and never will be.  My goal here is to show the scale and scope of our budget issues at the Federal level. If taking all money from the rich does not come close to solving the problem, then what IS the problem? (Art--I DO already know the answer :) )

Do the Super Rich need to be subjected to higher taxes? That is a political question. It might make people feel better, but it is not the solution to our long term budget problems.  Can't we have a better class of politicians (Dem/Reps) working on our behalf? Rhetorical question, needs no answer....

A nice graphic showing the perils of making only the minimun payment on your credit card. DO NOT fall into this trap. It will be the most expensive mistake of your life...

If you purchase something on a credit card, here is, literally, a graphic reminder of the importance of paying MORE than the minimum required. Paying the minimum is a fools game. I don't have to tell you who the fool is...

Source: Visualizing Economics

Nice chart showing why a downgrade in our credit rating would be met with a yawn by ACTUAL purchasers of our debt...

The US Treasury issues a lot of debt (US Treasuries) --59% of the worlds supply of it (total debt issued by all nations).  When speaking about "default" and the credit rating/risk of the US, the question has to be asked "relative to what?" Even if our rating was downgraded, would it matter much, other than to hurt our pride?  While other countries might have a higher bond rating than the US, there are few places for people/governments to park their currency reserves for safe keeping.  It is a form of financial co-dependency. Do they need us just as much as we need them?...Not a relationship built on love...

Source: Matthew Yglesias

""America’s AAA-rating on our sovereign debt is useful to the American people. But it also plays a crucial role in the global economy as a whole. People and firms want access to safe sovereign debt for a variety of purposes. If we lose that rating, can people just start using German debt instead?

Basically, no. There’s not nearly enough German or French or British AAA-rated debt out there to play the kind of global role that U.S. Treasuries currently play. The world’s second largest economy, China, doesn’t have liquid capital markets, and the third largest economy, Japan, has already lost its AAA-rating.

[UPDATE] Incidentally, the “other” AAA-rated countries are the Netherlands, Australia, Austria, Norway, Singapore, Switzerland, Sweden, Denmark, Finland, Luxembourg, and Hong Kong. So the issue, as you can see, isn’t so much a shortage of non-U.S. AAA-rated sovereigns, it’s that these are all small countries who are highly rated in part because they don’t have very much debt outstanding.""---Matthew Yglesias

Just for persepective---here are previous National Debt limits and the dollar amount increases authorized by Congress...

Here is the dollar amount of the various national debt limits set in the past 10 years and the dollar amount change authorized by Congress from one level to the next.

Date                          New Limit        Change from previous limit

June 28, 2002       $6,400  (T)        $450 (Billion)

May 27, 2003       $7,384                $ 984 (B)

Nov. 19, 2004      $8,184                 $800 (B)

Mar. 20, 2006       $8,965                $781 (B)

Sept. 29, 2007      $9,815                $850 (B)

July 30, 2008     $10,615                $800 (B)

Oct. 3, 2008       $11,315                $700 (B)

Feb. 17, 2009     $12,104               $789 (B)

Dec. 28, 2009     $12,394              $290 (B)

Feb. 12, 21010   $14.294               $1.9  Trillion

Aug 2, 2011       $16.694             $2.4 (Trillion)

This cannot be emphasized enough---New charts showing the weight of Entitlement programs have on the Federal Budget..

Two helpful charts that show the rise of direct public transfer payments over time. The first shows, in percentage terms, cash transfers to individuals last year.  The two biggies, Social Security and Medicare, consume 76% of those payments. The rest are crumbs comparably. The second chart shows the rise of payments to individuals relative to defense spending and interest paid on national debt. The scarry part of this graph is it is projected that paying interest on the debt will surpass spending on Defense.  Yikes!! HT: Carpe Diem

An easy 10 step guide as to where your Social Security Payroll Taxes end up. You are not going to like this journey...

1. You and 9 of your friends work this month.

2. Each of you are subject to a mandatory payroll tax of 6.2% of your paycheck for Social Security.

3. Your employer ALSO pays on your behalf 6.2% of y'alls paychecks in Social Security Taxes.

3. Each of you earns $3,000 per month in gross pay (before any deductions). Total income for all of you is $30,000.

4. Collectively you pay $1,860 in Social Security taxes ($30,000 X 6.2%) and your employer pays the same amount. So $3,720 ($1,860 X 2) is submitted to__??___. This is where the story gets murky for most.

5. The payment of Social Security checks to retirees (and others) comes from the Federal Govts "General Fund/Budget" (that monstrosity that the President proposes and the Congress approves)--not from the Social Security Trust Fund, which I believe most people think. This SS tax money you and your employer pay goes directly to the General Fund.

6. Assume this month there are 2 retirees eligible for S.S. checks and each one is entitled to $1,500---for a total of $3,000 in current S.S. obligations. That is a 5 to 1 ratio (10 workers for every 2 retirees)--about right, I believe.

7. The $3,720 arrives in Washington. The US Treasury takes control of it. ALL of it goes into the General Fund BUT only $3,000 goes to retirees. The rest goes into a cash account with the Social Sec.Trust Fund, right??? Not so fast...In an accounting move, the US Treasury issues special Social Security Trust Funds Bonds in the amount of $720 (the amount collected, $3,720) OVER current obligations ($3,000) to the Social Security Trust Fund.  Congress then uses this $720 for, well, whatever they want to spend it on.  Effectively, the Federal Government has borrowed this $720 from itself.  Specifically, they have borrowed from taxpayers. More specifically, they have borrowed from FUTURE taxpayers, but that is for another day...

8. When people say there is no money (to speak of) in the Social Security Trust Fund, they are technically right. Current workers earning money and paying payroll taxes is enough to pay the current obligations for payouts to retirees AND there is some surplus left-over, which Congress borrows every month to pay for other things.

9. Rinse and Repeat

10. As a result of decades of doing this, there is roughly $2.6 Trillion in Bonds (IOU'S) held in the Social Security Trust Fund.  This is a part of the $14.3 Trillion National Debt number that is well known to us all by now.

Have a nice day!!

Nice pie chart showing federal spending...Congress is focusing its appetite on the wrong side of the pie..

The lableling key to this chart starts with the darkest green slice at the top and goes clockwise. While not technically mandatory spending, all the green pieces of the pie would be considered politically mandatory items to fund in terms of prioritizing in the unlikely event the debt ceiling is not raised.  Excluding military payroll and VA benfits from the pie you can see our budget problem---interest on the national debt, Social Security and Medicare absorb 50% of the federal budget and it is rising.


Source: Business Insider



Our Debt owed to (and dependency upon) Foreign lenders summed up in one paragraph

We buy $4 worth of stuff from China and they buy $2 worth of stuff from the US (does not matter what the "stuff" is and I just made up this 2 to 1 ratio).  After the transaction there is $2 left over and it is in Chinese hands. What to do with these $2? The Chinese are notorious savers. They save about 50% of their money and they like safe investments. They buy $1 worth of US Treasuries---sure, the interest rate is low but is a very safe place to put money relative to just about ANY other investment on earth.  Congress uses this money to fund programs, fight wars, etc. The program is fully funded (Some Taxpayer money PLUS lots of borrowed money) at the cost of paying only the interest. What a deal! We gets lots of benefits at the cost of a combination of some taxes and some interest...Rinse and repeat until we get 43% of our public debt owed to "Foreign Governments and/or Individuals"--

In a nutshell---The US has been asking others to fund programs our political leaders do not/did not have the courage to ask us to pay for ourselves. They do not even have to consider very closely the merits of those programs, finding funding sources has been relatively easy.  Whose fault is this? I think you already know the answer...   

Another National Debt Interactive---I never tire of these..We MUST be informed on this issue...

Go HERE for a more clear image and interactivity...



Source: Congressional Quarterly



Treasury securities are the most sought-after in the world because the assumption that United States would always be able to repay its debts has generally gone unquestioned. That is why officials are negotiating to increase the government’s borrowing limit and avoid a default.
More than $9 trillion of the total debt is held by “the public” — a broad category that includes individual investors in the United States and overseas, the Federal Reserve system, and foreign governments and central banks. The remaining debt is held by government accounts, mostly trust funds established to collect dedicated revenue to pay for such programs as Social Security, Medicare and highway construction.
Almost all of the debt held by the public is “marketable,” meaning that those securities are bought and sold in financial markets. The debt held by the Fed is part of those marketable holdings. So is the debt held by China, the largest foreign creditor at $1.1 trillion. Japan is a close second at $900 billion. Domestic investors — from mutual funds to institutions, such as pensions, to individuals — hold $3.2 trillion in marketable debt and a small share of the non-marketable debt, particularly savings bonds.

Notes

Countries listed under "foreign investors" indicate where Treasury securities are held. That does not mean that citizens, governments or central banks of that country own the securities. They may actually be owned by citizens or institutions from third countries that used the listed country for the purchase transaction.

Very short lesson on what might happen in a few hours in the US Treasury market if a debt deal is not made (or even if one IS made)...

The Federal government borrows money by issuing US Treasury notes/bills---basically IOU's. I am going to use a very simple example to show how the market for US Treasuries may be affected by the failure to raise the debt limit. Keep in mind these numbers are NOT reflective of true market prices. The math is easier for me that way...

If the govt wants to borrow money they issue one of these Treasury Notes/Bills.  Assume the face value of this Treasury is $1,000 and the current market price for this Treasury is $900 (remember, this does NOT reflect the REAL market AT ALL!).  You buy this bond for $900, so the government in essence has borrowed $900 to spend on whatever they want to spend it on. When you redeem it at maturity you earn $100 over what you paid for it.  Your effective interest rate then was 11.11% ($100/$900 x 100). 

Now, assume the debt limit is not raised and there is perception/eat that the US govt will default on its debt obligations. What is going to happen to the price of US Treasurys now and in the future? We should expect the price to DECREASE as the Demand for them DECREASES. 

Now, for the govt to attract borrowers they will have to LOWER the price of the Treasury to entice people to buy one.  Assume the price is now $800 for a $1,000 Treasury.  So, now the effective interest rate is 25% ($200/$800 X 100)!!

This is what it means when you hear that the borrowing costs for the US government might increase if a deal is not reached.  They will have to accept LESS for each bond issued and pay MORE when they are redeemed.

I hope this helps when the stuff hits the fan in a few hours. The first thing that will be affected will be the price of US Treasuries in the market. 

Note: The demand may fall as I described for US Treasuries BUT the Supply of Treasuries already in circulation could (will ) increase as investors dump them. If the supply increases it has the same effect as demand decreasing, hence the same downward pressure on the price and effect on borrowing costs...

Well, if they are just going to snipe at each other, I guess it is up to me to actually explain one of the most important parts of Social Security and Medicare reform...

One of the proposals to slow down the rate of spending, and technically not "cut" benefits, on the two major entitlement programs (Social Security and Medicare) is to go to an alternative measure of prices that reflects substitutes and presumably closer reflects the rise in the cost of living. Exciting, isn't it? Maybe not, but it is a major component to entitlement reform AND almost no one talks about it or explains it.  Here is my superfluous effort...

When the time rolls around for Congress to adjust the amounts (also known as "Indexing")senior citizens receive for Social Security and Medicare benefits, they use the Consumer Price Index(CPI)---a measure of a fixed basket of typical goods and services that the average person might purchase on a daily, weekly, monthly or yearly basis.  If in a time period the market basket costs, say, $100 and in a subsequent time period the SAME basket costs $110, then is can be said prices overall have increased 10%. Congress then can increase the benefits received by senior citizens 10%.

The problem in this measure of prices is the word "fixed".  In the real world, if the price of a good increases consumers seek, and often find, less expensive alternatives. The CPI does not reflect this. In effect the CPI may overstate inflation. Hence, in our example above, if a consumer chooses a less expensive alternative not in the fixed basket then inflation may have increased only to, say, 8%.

Under this new measure, the senior citizen receives an 8% increase in benefits as opposed to 10%.  Voila, proposed spending is reduced by 2 percentage points (or 20%!)...

Hope this helps in seeing the "policy forest" for the "political trees"...

Here are some noted Conservative (right of center) Economists supporting an increase in the Debt Limit. Who am I to disagree?

Some noted Conservative (just right of center, mostly) chime in on whether to raise the debt limit or not. Who am I to argue? A one minute video below illustrates the problem in a concise way. (HT: Modeled Behavior)

Gary Becker: “That Congress will have to raise the debt limit this summer is a no-brainer since revenues are not anywhere near large enough to cover government spending. Without a boost in the ceiling, the federal government will be unable to pay its bills, including pay to federal employees.”

Keith Hennessey: “Congress must raise the debt limit. Not doing so would eventually lead to defaulting on Treasury bonds, a potentially catastrophic event.”

Douglas Holtz-Eakin  – “Yes, Congress should raise the debt limit. Being a good steward of the U.S. credit rating means that it has to pay Obama’s credit-card bill. And it should do so as quickly as possible — on the day it returns from recess.”

Glenn Hubbard: “The debt ceiling must be raised – not doing so is irresponsible”

Richard Posner: “No doubt before the political and economic damage becomes too severe, the Republican radicals in the House of Representatives will relent and the ceiling on borrowing will be raised. Before that happens interest rates may rise, and stay higher, because of doubts about the basic competence of American government. Those doubts, plus the higher interest rates they engender, may deepen the current economic downturn, which in turn will reduce tax collections, increase transfer payments, and in both respects increase the federal deficit… Why Republicans prefer flirting with failing to raise the debt ceiling by the August 2 deadline to accepting the deal tentatively worked out between President Obama and Speaker Bohner…is a deep mystery.”

Nice chart showing the foreign holders of our National Debt. "We're gonna need a bigger boat"---load of money to land this debt shark...

There are two parts to the National Debt. (1) Debt held by the "public"--me, you, businesses, investment firms, foreigners (foreign individuals, businesses, investment firms and governments). The chart below shows the major foreign holdings of US Treasurys (interest bearing IOU's, if you will). The sum total of debt held by the public is $9.644 Trillion, of which $4,489.1 Trillion is held by people/banks/governments outside the US. The remaining amount, $5,154.9 Trillion is held by US citizens/banks/corporations/investment firms.  The total National Debt is $14.2 Trillion. The additional $4,556 (or so) is considered "private" debt or "intergovernmental transfers".  This is the money shuffling game played by Congress---it represents money borrowed from a variety of Federal Trust Funds, i.e. Social Security, Medicare, and other Federal pension funds. Our portfolio of creditors is not very balanced--45.9% of our national debt is held by China and Japan and 47% of our total Public Debt is held by foreingers ($4,489/9,644 x 100).



Source: Economix



Nice graphic summing up the National Debt---It was a group effort to get us into the mess. Seems like they could make a group effort to get us out of it...Just sayin'...

Nice graphic that  shows the growth of the National Debt over time AND whether a Republican or Democrat was President AND the majority party in the House and Senate at the time. This was a group effort to get us into this situation. Seems like they could make a group effort to get us out of it. Just sayin'...



Source: Ezra Klein (I corrected the "House Bar" colors. They were incorrect in the original Klein post. I could not match the pink exactly, but I think you can get the idea...)

The current legal Federal debt ceiling has been reached today...The credit card is maxed out. Will the further credit be extended?

Yes, it will. Congress sets its own credit limit and they will eventually increase the borrowing capacity. As noted in the graphic below, accounting measures are available to officially fund the government at least through August/Sept. 

Source: Wall Street Journal