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Saturday, September 29, 2012

I Don't Know What To Make Out Of This?????

First of all, I am an enormous fan of Reinhart & Rogoff's "This Time Is Different"!!  They have done a huge research project over 800 years of developed economies history, and proved without a doubt that Business Cycles exist and drive every economy.  This was the point I made with 100 pages in lay man's language in "The Great Recession Conspiracy".

David Leonhardt, of the New York Times, says all of Obama's economic advisers were aware of "This Time Is Different", but that they didn't do anything about it.  But he doesn't seem to understand the point of the research and that is the Business Cycle is driven by psychology, not finance or economics.  See the post here on September 24, 2012 for a further explanation.

The facts of the matter are that neither Leonhart or the advisors really understood "This Time Is Different", or "The Great Recession Conspiracy" (although it is highly unlikely they would have read the latter even though Phil Angelides' committee had a copy).

So read on and see if you can figure it out.  My best guess is that Summers, Geither, et al, refused to acknowledge the existence of Business Cycles because main stream macro economics believers hate the idea.

Obamanomics: A Counterhistory

WORKING out of cramped, bare offices in a downtown building here in Washington, President-elect Obama’s economic team spent the final weeks of 2008 trying to assess how bad the economy was. It was during those weeks, according to several members of the team, when they first discussed academic research by the economists Carmen M. Reinhart and Kenneth S. Rogoff that would soon become well known.
Ms. Reinhart and Mr. Rogoff were about to publish a book based on earlier academic papers, arguing that financial crises led to slumps that were longer and deeper than other recessions. Almost inevitably, the economists wrote, policy makers battling a crisis made the mistake of thinking that their crisis would not be as bad as previous ones. The wry title of the book is “This Time Is Different.” 

In my interviews with Obama advisers during that time, they emphasized that they knew the history and were determined to avoid repeating it. Yet of course they did repeat it. After successfully preventing another depression, in 2009, they have spent much of the last three years underestimating the economy’s weakness. That weakness, in turn, has become Mr. Obama’s biggest vulnerability, helping cost Democrats control of the House in 2010 and endangering his accomplishments elsewhere

Entire books and countless articles have taken Mr. Obama to task on the economy, and administration officials have a rebuttal that makes a couple of important points. The Federal Reserve and many private-sector economists were also too optimistic, Obama aides note. And they argue that the Senate would not have passed a much larger stimulus in 2009, given Republican opposition, regardless of the White House’s wishes. 

But from these reasonable points, the Obama team then jumps to a larger and more dubious conclusion: that their failure to grasp the severity of the slump has had no real consequences. Even if they had seen the slow recovery coming, they say, they couldn’t have done much about it. When Mr. Obama has been asked about his biggest mistake, he talks about messaging, not policy. 

“The mistake of my first term — couple of years — was thinking that this job was just about getting the policy right,” he has said. “The nature of this office is also to tell a story to the American people that gives them a sense of unity and purpose and optimism, especially during tough times.” 

We can never know for sure what the past four years would have been like if the administration and the Fed had been more worried about the economy. But my reading of the evidence — and some former Obama aides agree — points strongly to the idea that the misjudging of the downturn did affect policy and ultimately the economy. 

Mr. Obama’s biggest mistake as president has not been the story he told the country about the economy. It’s the story he and his advisers told themselves.

The notion of insurance is useful here. Suggesting that Mr. Obama and his aides should have bucked the consensus forecast and decided that a long slump was the most likely outcome smacks of 20/20 hindsight. Yet that wasn’t their only option. They also could have decided that there was a substantial risk of a weak recovery and looked for ways to take out insurance. 

By late 2008, the full depth of the crisis was not clear, but enough of it was. A few prominent liberal economists were publicly predicting a long slump, as was Mr. Rogoff, a Republican. The Obama team openly compared its transition to Franklin D. Roosevelt’s and, in private, discussed the Reinhart-Rogoff work.

So why didn’t that work do more to affect the team’s decisions? 

There are two main answers. First, the situation was unlike anything any living policy maker had previously experienced, and it was deteriorating quickly. Although officials talked about the Depression, they struggled to treat the downturn as fundamentally different from a big, relatively brief recession.
“The numbers got ramped up,” one former White House official told me, referring to the planned size of the stimulus in late 2008. “But the basic frame did not get altered.” In particular, the administration did not imagine that the economy would still need major help well beyond 2009 and that Congress would not comply. 

The second problem was that Mr. Obama and his advisers believed — correctly — that they and the Fed were already responding more aggressively than governments had in past crises. Even before the election, President George W. Bush signed the financial bailout, a decidedly un-Hooveresque policy. The Fed began flooding the economy with money. The Obama administration pushed for the stimulus and, with the Fed, conducted successful stress tests on banks.

Whatever the political debate over these measures, the economic evidence suggests they made a large difference. Analyses by the Congressional Budget Office and other nonpartisan economists have come to this conclusion. Europe, which was less aggressive, has fared worse. And the chronology of the crisis tells the same story. 

In 2008 and early 2009, the global economy was deteriorating even more rapidly than in 1929, according to research by Barry Eichengreen and Kevin H. O’Rourke. Global stock prices and trade dropped more sharply. But the policy response this time was vastly different, and by the spring of 2009 — just as the measures were taking effect — the economy stabilized. 

In this success came the seeds of future failures. Knowing in late 2008 how much policy help was on the way, Mr. Obama and his economic advisers decided that the disturbing pattern of financial crises was not directly relevant. “In a way, they fell into a ‘This Time Is Different’ trap,” another former White House official said. 

A banner headline in The Financial Times in June 2009 pronounced the White House “Upbeat on Economy.” Nine months later, after the recovery had run into new problems, the administration said the economy was on the verge of “escape velocity.” 

Even now, the Obama team sometimes suggests that the weak recovery isn’t related to the financial crisis. Some problems, like the rise in oil prices, are not in fact related. Many others, like Europe’s troubles and this country’s still-depressed consumer spending, are. 

Imagine if the transition team had instead placed, say, 25 percent odds on a protracted slump. Political advisers like David Axelrod would have immediately understood the consequences. Mr. Obama’s policies would look like a failure during the midterm campaign, and the prospects of winning additional stimulus would dwindle. Which is exactly what happened. 

Contemplating this outcome, the new administration would have had urgent reasons to take out insurance policies. For starters, Mr. Obama would indeed have told a different story about the economy. Rather than promising a “recovery summer” in 2010, he and his aides would have cautioned patience. Bill Clinton’s recent Democratic convention speech was a model. 

More concretely, the administration would have looked for every possible lever to lift the economy. Despite Republican opposition, such levers existed. 

Upon taking office, Mr. Obama could have immediately nominated people to fill the Fed’s seven-member Board of Governors, rather than leaving two openings. Ben S. Bernanke, the chairman, works hard to achieve consensus on the Fed’s policy committee, and in 2010 and 2011 the committee was skewed toward officials predicting — wrongly, we now know — that inflation was a bigger threat than unemployment.
TWO more appointees may well have shifted the debate and caused the Fed to have been less cautious. After the vacancies were finally filled this year, the Fed took further action. 

The administration also could have added provisions to the stimulus bill that depended on the economy’s condition. So long as job growth remained below a certain benchmark, federal aid to states and unemployment benefits could have continued flowing. Crucially, these provisions would not have added much to the bill’s price tag. Because the Congressional Budget Office’s forecast was also too optimistic, the official budget scoring would have assumed that the provisions would have been unlikely to take effect. They would have been insurance.

Perhaps most important, the administration might have taken a different path on housing. With the auto industry and Wall Street, Mr. Obama accepted the political costs that come with bailouts. He rescued arguably undeserving people in exchange for helping the larger economy. With housing, he went the other way, even leaving some available rescue money unspent — at least until last year, when the policy became more aggressive and began to have a bigger effect.

No one of these steps, or several other plausible ones, would have fixed the economy. But just as the rescue programs of early 2009 made a big difference, a more aggressive program stretching beyond 2009 almost certainly would have made a bigger difference. It would have had the potential to smooth out the stop-and-start nature of the recovery, which has sapped consumer and business confidence and become a problem in its own right. 

By any measure, Mr. Obama and his team faced a tremendously difficult task. They inherited the worst economy in 70 years, as well as an opposition party that was dedicated to limiting the administration to one term and that fought attempts at additional action in 2010 and 2011. And the administration can rightly claim to have performed better than many other governments around the world. 

But their claim on having done as well as could reasonably have been expected — to have avoided major mistakes — is hard to accept. They considered the possibility of a long, slow recovery and rejected it.
In the early months of the crisis, Mr. Obama and his aides made clear that they would try to learn from the errors of the Great Depression and do better. They achieved that goal. They also left a whole lot of lessons for the people who will have to battle the next financial crisis. 

I suppose the best explanation was provided by the 19th Century German philosopher who said..............

"The only thing we learn from history is that we never learn anything from history." 

About right Max!!!!!!

Monday, September 24, 2012

This Is Really Interesting!  In "The Great Recession Conspiracy" I Explained That The Business Cycle Is Driven By Psychology, Not Finance Or Mathematical Models.  Now Robert Schiller, A Real Economist, Finally Seems To Agree.  You Should Find This Fascinating!! Especially, The First Paragraph!!

The Narrative Structure of Global Weakening

CommentsNEW HAVEN – Recent indications of a weakening global economy have led many people to wonder how pervasive poor economic performance will be in the coming years. Are we facing a long global slump, or possibly even a depression?
This illustration is by Paul Lachine and comes from <a href=""></a>, and is the property of the NewsArt organization and of its artist. Reproducing this image is a violation of copyright law.
Illustration by Paul Lachine
CommentsA fundamental problem in forecasting nowadays is that the ultimate causes of the slowdown are really psychological and sociological, and relate to fluctuating confidence and changing “animal spirits,” about which George Akerlof and I have written. We argue that such shifts reflect changing stories, epidemics of new narratives, and associated views of the world, which are difficult to quantify.

CommentsIn fact, most professional economists do not seem overly glum about the global economy’s prospects. For example, on September 6, the OECD issued an interim assessment on the near-term global outlook, written by Pier Carlo Padoan, that blandly reports “significant risks” on the horizon – the language of uncertainty itself.

CommentsThe problem is that the statistical models that comprise economists’ toolkit are best applied in normal times, so economists naturally like to describe the situation as normal. If the current slowdown is typical of other slowdowns in recent decades, then we can predict the same kind of recovery.

CommentsFor example, in a paper presented last spring at the Brookings Institution in Washington, DC, James Stock of Harvard University and Mark Watson of Princeton University unveiled a new “dynamic factor model,” estimated using data from 1959 to 2011. Having thus excluded the Great Depression, they claimed that the recent slowdown in the United States is basically no different from other recent slowdowns, except larger.

CommentsTheir model reduces the sources of all recessions to just six shocks – “oil, monetary policy, productivity, uncertainty, liquidity/financial risk, and fiscal policy” – and explains most of the post-2007 downturn in terms of just two of these factors: “uncertainty” and “liquidity/financial risk.” But, even if we accept that conclusion, we are left to wonder what caused large shocks to “uncertainty” and to “liquidity/financial risk” in recent years, and how reliably such shocks can be predicted.

CommentsWhen one considers the evidence about external economic shocks over the past year or two, what emerges are stories whose precise significance is unknowable. We only know that most of us have heard them many times.

CommentsForemost among those stories is the European financial crisis, which is talked about everywhere around the globe. The OECD’s interim assessment called it “the most important risk for the global economy.” That may seem unlikely: Why should the European crisis be so important elsewhere?

CommentsPart of the reason, of course, is the rise of global trade and financial markets. But connections between countries do not occur solely through the direct impact of market prices. Interacting public psychology is likely to play a role as well.

CommentsThis brings us to the importance of stories – and very far from the kind of statistical analysis exemplified by Stock and Watson. Psychologists have stressed that there is a narrative basis to human thinking: people remember – and are motivated by – stories, particularly human-interest stories about real people. Popular stories tend to take on moral dimensions, leading people to imagine that bad outcomes reflect some kind of loss of moral resolve
CommentsThe European crisis began with a Greek meltdown story, and it appears that the entire global economy is threatened by events in a country of only 11 million people. But the economic importance of stories bears no close relation to their monetary value (which can be measured only after the fact, if at all). It depends, instead, on their story value.

CommentsThe Greek crisis story began in 2008 with reports of widespread protests and strikes when the government proposed raising the retirement age to address a pension funding shortfall. Reports began to appear in global news media portraying an excessive sense of entitlement, with Greeks taking to the streets in protest, even though the increase was modest (for example, women with children or in hazardous jobs would be able to retire with full benefits at just 55, up from 50).

CommentsThat story might have invited some gossip outside of Greece, but it gained little purchase on international attention until the end of 2009, when the market for Greek debt started to become increasingly unsettled, with rising interest rates causing further problems for the government. This augmented news reports about Greek profligacy, and thus closed a negative feedback loop by attracting intensifying public interest, which eventually fueled crises in other European countries. Like a YouTube video, the Greek story went viral.

CommentsOne might object that most people outside of Europe surely were not following the European crisis closely, and the least informed have not even heard of it. But opinion leaders, and friends and relatives of the least informed in each country, were following it, and their influence can create an atmosphere that makes everyone less willing to spend.

CommentsThe Greek story seems connected in many people’s minds with the stories of the real-estate and stock-market bubbles that preceded the current crisis in 2007. These asset bubbles were inflated by lax lending standards and an excessive willingness to borrow, which seemed similar to the Greek government’s willingness to take on debt to pay lavish pensions. Thus, people saw the Greek crisis not just as a metaphor, but also as a morality tale. The natural consequence was to support government austerity programs, which can only make the situation worse.

CommentsThe European story is with us now, all over the world, so vivid that, even if the euro crisis appears to be resolved satisfactorily, it will not be forgotten until some new story diverts public attention. Then as now, we will not be able to understand the world economic outlook fully without considering the story on people’s minds.

Now here is the neat part.  He says that mathematical models only apply in "normal times"!  What a lot of crap!  There are no "normal" times.  The economy is either expanding or contracting.  See "The Great Recession Conspiracy" for an explanation in simple terms.  "Normal Times" are that mythical time in macroeconomic theory when the economy is neither expanding or contracting.  That only happens in the lalala land of economists!!  Fools, even well meaning ones, are destroying our economy!!!!!!!!!!!!!!!!!!!

Sunday, September 23, 2012

The Amount Of Crap About Tax Rates Is Staggering!!  The Republicans Continue Babbling About Cutting The Income Tax Rates, But That Is Meaningless!!  If You Don't Actually Pay Income Taxes, It Doesn't Matter What The Rate Is Because 0% Of Any Number Is Still Zero!!

General Electric and Wells Fargo Bank, just to mention two big ones, pay NO income taxes and haven't for years.  Here is the rest of the story.

When the taxman cometh, most corporations wave him on by, according to a government study released on Tuesday.

About two-thirds of U.S. companies and foreign firms doing business in this country paid no federal income taxes from 1998 to 2005, according to a study by the Government Accountability Office. Sen. Byron Dorgan, D-N.D., called the report "a shocking indictment of the current tax system."

To be sure, many of the nonpayers were small or new companies that probably made no money. But the report said that about a quarter of large corporations - ones that had more than $250 million in assets or $50 million in gross receipts - paid no taxes. In 2005, for instance, 3,565 large U.S. companies and 998 large foreign-owned companies operating here did not pay any income taxes.

The report neither identified any companies nor specified how they avoided tax liability.
There are numerous legal ways a corporation can duck taxes. The most obvious one: If you don't make money, you don't have to pay taxes. Companies also can write off previous years' losses, get tax exemptions for a plethora of expenses, use R&D credits, even wipe out tax liability when their employees exercise stock options.

But corporations can do a lot of creative accounting to "lose" money - and sometimes that can cross the line.
One such practice identified by the report is "transfer pricing abuse." Essentially, that means shuffling money among corporate subsidiaries by charging pumped-up fees for goods and services instead of market-rate "arms-length" prices.

Adam Hughes, director of federal fiscal policy at OMB Watch, a nonpartisan government accountability watchdog, explained how transfer pricing works.

"A company will incorporate offshore where there are no taxes," he said. "That (parent) company charges the U.S. company lots of money for things like the trademark for the company logo. The U.S. company says, 'I made $50 million, but my stupid parent company charged me $50 million for the logo.' The U.S. company gets to deduct the royalty fees as an expense and move profits to the parent company offshore in a tax-free haven."

In the years covered by the GAO report, a greater percentage of foreign-controlled domestic corporations than U.S. ones paid no taxes. Although the report did not draw conclusions about the prevalence of transfer pricing abuse, it discussed the issue at length.

The Tax Foundation, a Washington, D.C., nonprofit that believes the tax system should be simplified and rates reduced, said nothing in the report showed that corporations are scofflaws.

"Even in a good year, a lot of firms are failing," said spokesman William Ahern. "General Motors lost $10 billion in 2005, so how much corporate profit tax would you expect them to pay? American Airlines lost almost a billion dollars. What would you want them to pay when they're already cutting people? They pay when they're profitable."

But don't corporations employ armies of accountants and lawyers to figure out every possible loophole?
There's nothing wrong with that, Ahern said.

"In that respect, they are just like individuals," he said. "Don't we all fill out our tax returns as aggressively as we know how and take every deduction and credit we're entitled to, even if they're unprincipled, even if they're in the tax code only because Congress thinks we will appreciate them for subsidizing us?"
Chris Edwards, director of tax policy at the libertarian Cato Institute in Washington, D.C., agreed that the report didn't prove that corporations are abusive or deceptive in their tax practices.

"It's common sense: Corporations don't earn profits in many years," he said.
But, Edwards added: "All that said, I think there probably is large tax avoidance by U.S. multinational corporations, but in my view that's driven by the very high U.S. corporate tax rate. A corporate tax rate cut is long overdue."

On paper, the United States has the second-highest corporate tax rate in the world. It comes to about 40 percent (the federal rate is 35 percent; the average of state and local taxes adds on another 5 percentage points), putting it a notch behind Japan. But the effective tax rate - what artful-dodger companies really pay - is much lower than the nominal rate, critics charge.

"We have a pretty high nominal corporate tax rate, but effectively it's not high at all," said Lenny Goldberg, executive director of the California Tax Reform Association in Sacramento. "There are many tax-avoidance strategies. We'd be far better off with a simpler (structure) that made sure taxes were actually paid by corporations."

In fact, despite its high nominal rate, U.S. corporate taxes as a percentage of gross domestic product are lower than in most other industrialized nations. From 2000 to 2005, revenue from federal and state corporate income tax averaged 2.2 percent of the U.S. GDP, compared to an average of 3.4 percent in 30 of its trading-partner countries, according to the Treasury Department.

Peter R. Merrill, a principal at PricewaterhouseCoopers, wrote an article in the publication Tax Analysts, underscoring this paradox.

Data on corporate tax as a percentage of GDP "present a conundrum," he wrote. "The United States has the second highest combined statutory corporate tax rate among (the Organization for Economic Cooperation and Development) countries, yet is tied with Hungary in raising the fourth lowest amount of combined corporate income tax revenue relative to GDP in 2004."

Here Is A Woman Mitt Should Meet!!  Let's Hope Someone Reads The New York Times For Him!!

September 21, 2012

I Was a Welfare Mother

Bethel, Conn.
I WAS a welfare mother, “dependent upon government,” as Mitt Romney so bluntly put it in a video that has gone viral. “My job is not to worry about those people,” he said. “I’ll never convince them that they should take personal responsibility and care for their lives.” But for me, applying for government benefits was exactly that — a way of taking responsibility for myself and my son during a difficult time in our lives. Those resources kept us going for four years. Anyone waiting for me to apologize shouldn’t hold his breath.
Almost 40 years ago, working two jobs, with an ex-husband who was doing little to help, I came home late one night to my parents’ house, where I was living at the time. My mother was sitting at the card table, furiously filling out forms. It was my application for readmission to college, and she’d done nearly everything. She said she’d write the essay, too, if I wouldn’t. You have to get back on track, she told me. I sat down with her and began writing. 

And so, eight years after I’d flunked out, gotten pregnant, eloped, had a child, divorced and then fumbled my first few do-overs of jobs and relationships, I was readmitted to the University of New Hampshire as a full-time undergraduate. I received a Basic Educational Opportunity Grant, a work-study grant and the first in a series of college loans. I found an apartment — subsidized, Section 8 — about two miles from campus. Within days, I met other single-mom students. We’d each arrived there by a different route, some falling out of the middle class, others fighting to get up into it, but we shared the same goal: to make a better future.
By the end of the first semester, I knew that my savings and work-study earnings wouldn’t be enough. My parents could help a little, but at that point they had big life problems of their own. If I dropped to a part-time schedule, I’d lose my work-study job and grants; if I dropped out, I’d be back to zero, with student-loan debt. That’s when a friend suggested food stamps and A.F.D.C. — Aid to Families With Dependent Children.

Me, a welfare mother? I’d been earning paychecks since the seventh grade. My parents were Great Depression children, both ex-Marines. They’d always taught self-reliance. And I had grown up hearing that anyone “on the dole” was scum. But my friend pointed out I was below the poverty line and sliding. I had a small child. Tuition was due.

So I went to my dad. He listened, did the calculations with me, and finally said: “I never used the G.I. Bill. I wish I had. Go ahead, do this.” My mother had already voted. “Do not quit. Do. Not.” 

My initial allotment (which edged up slightly over the next three years) was a little more than $250 a month. Rent was around $150. We qualified for $75 in food stamps, which couldn’t be used for toilet paper, bathroom cleanser, Band-Aids, tampons, soap, shampoo, aspirin, toothpaste or, of course, the phone bill, or gas, insurance or snow tires for the car. 

At the end of the day, my son and I came home to my homework, his homework, leftover spaghetti, generic food in dusty white boxes. The mac-and-cheese in particular looked like nuclear waste and tasted like feet. “Let’s have scrambled eggs again!” chirped my game kid. We always ran out of food and supplies before we ran out of month. There were nights I was so blind from books and deadlines and worry that I put my head on my desk and wept while my boy slept his boy dreams. I hoped he didn’t hear me, but of course he did.
The college-loan folks knew about the work-study grants, the welfare office knew about the college loans, and each application form was a sworn form, my signature attesting to the truth of the numbers. Still, I constantly worried that I’d lose our benefits. More than once, the state sent “inspectors” — a knock at the door, someone insisting he had a right to inspect the premises. One inspector, fixating on my closet, fingered a navy blue Brooks Brothers blazer that I wore to work. “I’d be interested to know how you can afford this,” she said.

It was from a yard sale. “Take your hands off my clothing,” I said. My benefits were promptly suspended pending status clarification. I had to borrow from friends for food and rent, not to mention toilet paper.
That’s not to say we didn’t have angels: work-study supervisors, academic advisers and a social worker assigned to “nontraditional” students, which, in addition to women like me, increasingly included military veterans and older people coming in to retrofit their careers. Faculty members were used to panicked students whose kids had the flu during finals. Every semester, I had at least one incomplete course, with petitions for extensions. One literature professor, seeing my desperation, gave me a copy of “The Awakening” by Kate Chopin to read and critique for extra credit. “But it’s not a primer,” he cautioned. (Spoiler: she walks into the ocean and dies.) 

With help, I graduated. That day, over the heads of the crowd, my 11-year-old’s voice rang out like an All Clear: “Yay, Mom!” Two weeks later, I was off welfare and in an administrative job in the English department. Part of my work included advising other nontraditional students, guiding them through the same maze I’d just completed, one course, one semester, at a time. 

In the years since, the programs that helped me have changed. In the ’80s, the Basic Educational Opportunity Grant became the Pell Grant (which Paul D. Ryan’s budget would cut). In the ’90s, A.F.D.C. was replaced by block grants to the states, a program called Temporary Assistance for Needy Families. States can and do divert that money for other programs, and to plug holes in the state budget. And a single mother applying for aid today would face time limits and eligibility requirements that I did not. Thanks to budget cuts, she would also have a smaller base of the invaluable human resources — social workers, faculty members, university facilities — that were so important to me. 

Since then, I’ve remarried, co-written books, worked as a magazine editor and finally paid off my college loans. My husband and I have paid big taxes and raised a hard-working son who pays a chunk of change as well. We pay for sidewalks, streetlights, sanitation trucks, the military (we have three nephews in uniform, two deployed), police and fire departments, open emergency rooms, teachers, bus drivers, museums, libraries and campuses where people’s lives are saved, enriched and raised up every day. My country gave me the chance to rebuild my life — paying my tax tab is the only thing it’s asked of me in return.
I was not an exception in that little Section 8 neighborhood. Among those welfare moms were future teachers, nurses, scientists, business owners, health and safety advocates. We never believed we were “victims” or felt “entitled”; if anything, we felt determined. Wouldn’t any decent person throw a rope to a drowning person? Wouldn’t any drowning person take it?

Judge-and-punish-the-poor is not a demonstration of American values. It is, simply, mean. My parents saved me and then — on the dole, in the classroom or crying deep in the night, in love with a little boy who needed everything I could give him — I learned to save myself. I do not apologize. I was not ashamed then; I am not ashamed now. I was, and will always be, profoundly grateful. 

A writer who was the co-author of Carissa Phelps’s “Runaway Girl: Escaping Life on the Streets, One Helping Hand at a Time,” and is at work on her own memoir.

In Light of Full Disclosure Here:  After three years on active duty in the U.S. Navy during the Korean War, I attended, and graduated from, the University of Minnesota.  For nine months a year for four years, I received a check for $110 every month.  Like the woman in the above story, it wasn't enough to make it for a whole month so I also worked at least 20 hours a week.  

It is increasingly clear that Mitt cannot comprehend people like this woman and me.

Also, we have both paid income taxes, state taxes, sales taxes, et al, for decades and decades. 

Saturday, September 22, 2012

One More Time......The Problem With The Economy Is Lack Of Sales Among Small Businesses!!



One Leaked Comment From Mitt Romney Tells You Everything About How He Sees The Economy

The big story in politics this past week was the leak of the Mitt Romney fundraising videotape, in which he seen telling donors that 47% of the population would automatically support Obama because they viewed themselves as victims who deserved free food and healthcare from the government.

What made the comment worse was that he went on to say that they didn't care about their own lives, and that he couldn't convince them to see things otherwise.

But while that was a nasty, embarrassing bit for a candidate who's main flaw is that he's seen as an out-of-touch rich guy, it wasn't the most revealing moment of the evening.

When the full video was released, something we immediately flagged is the moment where he told supporters that if he were to be elected, the economy would right away start to improve right away, because there would be a groundswell of confidence, and businesses would start to invest.

As we said then, Mitt Romney is clearly of the belief that a major problem with the economy is just the man who is in the White House right now, and that merely switching that person to a CEO President would improve things.

Matt O'Brien at The Atlantic delved further into this point, slamming Romney's "faith based economic strategy" and the insinuation that the main problem with the economy is that businesses lack of confidence.
O'Brien writes:
But let's play Devil's advocate. Maybe uncertainty is driving demand down. The economy is in the doldrums because investment is in the doldrums -- it's possible fear over potential tax increases and Obamacare regulations is keeping businesses from investing. How would we explain that real private fixed nonresidential investment has actually come back a bit, but real private fixed residential investment has not? The simplest explanation isn't the president, it's the housing market.

To demonstrate O'Brien's point, here's a chart comparing non-residential fixed investment (red line) with residential fixed investment (blue line) going back to 2007. You can see that non-housing investment (which is what businesses engage in) has rebounded quite nicely since Obama took office.
And though it's true that a lot of businesses grouse about the administration, the fact of the matter is that if you ask them what their biggest problem is, they don't say "uncertainty." They say the problem is lack of demand.

This chart comes from the NFIB Small Business Outlook Survey, and it shows that the % of businesses saying that lack of sales is their biggest problem is what really spiked during this crisis. Taxes are cited as a major problem, but they always are in every environment, so that's nothing new.
It is a fact that complaints about regulation are creeping up (per another chart from the same survey) but for the vast majority of this President's term, it's an issue that's been far below sales.
Other measures confirm that private investment spending is not the problem.
Private spending on equipment and software is near all-time highs.
Mark Perry, an economist affiliated with the conservative American Enterprise Institute recently noted that private GDP was in fact doing "fine" and growing along with historical averages. It's the public sector drag that makes this recovery uniquely poor.
Private GDP
Mitt Romney's comment about how the economy would improve merely based on his election reveal a few big insights about him and his campaign.

It explains the lack of detail in his policies. If even in private conversations he feels comfortable saying that his mere election would improve the economy, then of course he's not going to give hard details in his public statements.

It also reveals that Romney's 2012 campaign is the same as Obama's 2008 campaign. Obama thought his mere election would improve our relationship with the Muslim world and help stem global warming. Romney thinks the same thing about the economy. No details necessary.

And finally it reveals that Romney doesn't have any coherent explanation of the economic morass that's lead to 8.1% unemployment.

Economists will say that it's the result of deleveraging, housing, the state and local bust etc. Both this comment and the 47% comment imply that Romney thinks it's about attitude, and that he's the man to change minds and get it all going again.

Tuesday, September 18, 2012

Albert Einstein said "Insanity:  Doing The Same Thing Over And Over Again And Expecting Different Results".

I am firmly convinced that Ben Bernake, Paul Krugman and every other macro economist I have ever heard of is both Insane and Utterly Stupid.

Here is the deal.  Official unemployment today stands at just over 8%, but if you include the people who have quit looking, the number is well over 10%

Bernake is trying to bring down this rate by printing more and more brand new $100 bills.  He calls it Quantitative Easing.  Each time, he prints $1 Trillion in new one hundred dollar bills (that we know of since the Fed is notoriously secretive).

He has now done that twice with absolutely no measurable results.  Last week, he announced he was going to do it for a third time.  He said he is going to print $40 Billion new $100 bills every MONTH!! until the jobless rate comes down to some unspecified number.

The rationale he, and every other macro economist, uses to support this action is that it will make it easier for borrowers to get loans.  O.K., lets look at the facts about borrowing in the U.S. economy.

1) The Wall Street Journal says U.S. corporations have almost $2 Trillion in cash on hand in banks right now (an all time record), and have absolutely no need to borrow anything.  (In addition, in the past couple of years, productivity has increased so much in large corporations that they can now do the job of three people with just two employees.)  They are firing (see HP, Northup, et al).

2) Small businesses are starved for cash income, i.e, customers, and they are going out of business at a record rate.  Business Week says the share of the GDP generated by private companies, i. e., small businesses, has shrunk from 48% in 2002 to 44% in 2010 (latest numbers available).  I have worked in a couple of small businesses, and, trust me, you don't need a loan to go out of business.  So, ask yourself, why would a shrinking business need more employees?

3) Private citizens are paying off their huge personal debt exactly as they should be doing, and they certainly don't need to go to the bank to borrow more money.  They have paid down their personal debt from $1 Trillion in 2008 to $850.7 Billion in 2012 according to Forbes.

4) And then there is using new loans to refinance homes.  The Los Angeles Times has some interesting facts about this possibility.  They point out that with home loan rates at all time low levels, e.g., well below 5%, here are the important facts;

All Home Mortages;
Loans with rates above 5%.......................69%
Loans with rates below 5%.......................31%

So either most home owners with loans are incredibly stupid, or the banks won't refinance their mortgages.  You decide.

So if you and I know these simple facts, why don't those a...holes in Washington know them?  But if they do know them, why don't they act on them?

O.K., so why do you care about any of this?

Well, here is why boys and girls.  That $3 Trillion is now parked in a bunch of Wall Street Banks.  (If you would like to know what just one trillion dollars in $100 bills looks like, try the last page of Section One, "The Great Recession Conspiracy".)  And, unless, Bernake actually lights a huge bonfire and burns every damn  one of those bills, he will have to release it into the economy.

Now you know the definition of "Inflation", e.g. too many dollars chasing a fixed amount of goods and services, so what do you expect will happen when Bernake starts releasing all those $100 bills.

Exactly right!!  Prices will go up, and up, and up.

So what should you being doing?  First of all, do not be a land lord because your tenants will be paying you off with cheaper and cheaper dollars, and you won't be able to raise rents fast enough to keep even.  And there is not much point on stocking up on canned goods and supplies because this inflation will out last the storage capacity of your garage.

Stocks are probably a good idea since companies can, and will, raise their prices, but not every company will be in a position to pass on cost increases so your job will be to figure which ones they are.   And good luck with that!!

Inflation protected bonds are probably the best place to park your long term savings, but I am not an investment adviser so feel free to ignore this advice.

I lived through the last big inflationary period (the one Paul Volker ended with stunningly high interest rates), and I am telling you, it ain't fun!!  There is only so much Spam you can eat and even the toughest jeans wear out sooner or later.  

I wish there was something I could suggest we do about this to head it off, but, sorry, I have no ideas.  Bernake will have his job for a couple more years and there is nothing anybody can do about that.  All those talking head economists have tenure so they have jobs, and talking platforms, forlife.  And both Obama and Romney have gathered the dumbest of the lot for advice. 

It just ain't looking good now!!!!!

Saturday, September 15, 2012

Your Math Problem For Today!

Last year, the U.S. spent $96 BILLION on smoking related diseases and deaths.

In the U.S., the average price for a pack of cigarettes is $5.29, and 21% of all adults smoke.

In New York City, the average price for a pack of cigarettes is $14.50, and 14% of all adults smoke.

O.K. here is the answer we need.  We raise the price to $15.00 everywhere and we save $32 BILLION in healthcare costs, and increase the amount paid into the U.S. Treasury by (your problem) _____________? 

It is a win/win/win for everybody except John Boehner who loses political contributions from Atria and the other cigarette sellers.  And if that gets John to get smoking, it is a win/win all around.

Aw Jeeezzzzz..........They Are At It Again!!  The Laffer Curve With A Different Name, But With Excuses For Why It Doesn't Work.  Shame On Paul Ryan, Glenn Hubbard And All The Rest Of The Fools Who Are Intent On Selling Us This Load Of Crap One More Time.

David Leonhart, in today's New York Times, spells it out.

Do Tax Cuts Lead to Economic Growth?

FOR one of my occasional conversations with Representative Paul D. Ryan over the last few years, I brought a chart. The chart showed economic growth in the United States in the last several decades, and I handed Mr. Ryan a copy as we sat down in his Capitol Hill office. A self-professed economics wonk, he immediately laughed, in what seemed an appropriate mix of appreciation and teasing. 

One of the first things you notice in the chart is that the American economy was not especially healthy even before the financial crisis began in late 2007. By 2007, remarkably, the economy was already on pace for its slowest decade of growth since World War II. The mediocre economic growth, in turn, brought mediocre job and income growth — and the crisis more than erased those gains. 

The defining economic policy of the last decade, of course, was the Bush tax cuts. President George W. Bush and Congress, including Mr. Ryan, passed a large tax cut in 2001, sped up its implementation in 2003 and predicted that prosperity would follow. 

The economic growth that actually followed — indeed, the whole history of the last 20 years — offers one of the most serious challenges to modern conservatism. Bill Clinton and the elder George Bush both raised taxes in the early 1990s, and conservatives predicted disaster. Instead, the economy boomed, and incomes grew at their fastest pace since the 1960s. Then came the younger Mr. Bush, the tax cuts, the disappointing expansion and the worst downturn since the Depression.

Today, Mitt Romney and Mr. Ryan are promising another cut in tax rates and again predicting that good times will follow. But it’s not the easiest case to make. Much as President Obama should be asked to grapple with the economy’s disappointing recent performance (a subject for a planned column), Mr. Romney and Mr. Ryan would do voters a service by explaining why a cut in tax rates would work better this time than last time. 

That was precisely the question I was asking Mr. Ryan when I brought him the chart last year. He wasn’t the vice presidential nominee then, but his budget plan has a lot in common with Mr. Romney’s.
“I wouldn’t say that correlation is causation,” Mr. Ryan replied. “I would say Clinton had the tech-productivity boom, which was enormous. Trade barriers were going down in the Clinton years. He had the peace dividend he was enjoying.”

The economy in the Bush years, by contrast, had to cope with the popping of the technology bubble, 9/11, a couple of wars and the financial meltdown, Mr. Ryan continued. “Some of this is just the timing, not the person,” he said. 

He then made an analogy. “Just as the Keynesians say the economy would have been worse without the stimulus” that Mr. Obama signed, Mr. Ryan said, “the flip side is true from our perspective.” Without the Bush tax cuts, that is, the worst economic decade since World War II would have been even worse.
Since that conversation, I have asked the same question of conservative economists and received similar answers. “To me, the Bush tax cuts get too much attention,” said R. Glenn Hubbard, who helped design them as the chairman of Mr. Bush’s Council of Economic Advisers and is now a Romney adviser. “The pro-growth elements of the tax cuts were fairly modest in size,” he added, because they also included politically minded cuts like the child tax credit. Phillip L. Swagel, another former Bush aide, said that even a tax cut as large as Mr. Bush’s “doesn’t translate quickly into higher growth.” 

Why not? The main economic argument for tax cuts is simple enough. In the short term, they put money in people’s pockets. Longer term, people will presumably work harder if they keep more of the next dollar they earn. They will work more hours or expand their small business. This argument dominates the political debate. 

But tax cuts have other effects that receive less attention — and that can slow economic growth. Somebody who cares about hitting a specific income target, like $1 million, might work less hard after receiving a tax cut. And all else equal, tax cuts increase the deficit, as Mr. Bush’s did, which creates other economic problems. 

When the top marginal rate was 70 percent or higher, as it was from 1940 to 1980, tax cuts really could make a big difference, notes Donald Marron, director of the highly regarded Tax Policy Center and another former Bush administration official. When the top rate is 35 percent, as it is today, a tax cut packs much less economic punch. 

“At the level of taxes we’ve been at the last couple decades and the magnitude of the changes we’ve had, it’s hard to make the argument that tax rates have a big effect on economic growth,” Mr. Marron said. Similarly, a new report from the nonpartisan Congressional Research Service found that, over the past 65 years, changes in the top tax rate “do not appear correlated with economic growth.” 

Mr. Romney and Mr. Ryan, to be sure, are not calling for a simple repeat of the Bush tax cuts. They say they favor a complete overhaul of the tax code, reducing tax rates by one-fifth (taking the top rate down to 28 percent) and shrinking various tax breaks. Many economists think such an overhaul could do more good than the Bush tax cuts, by simplifying the tax code. 

The problem for anyone trying to evaluate the Romney plan, however, is that there isn’t a full plan yet. He will not say which tax breaks he would reduce, and the large ones, like the mortgage-interest deduction, are all popular. In a painstaking analysis, the Tax Policy Center showed that achieving all of Mr. Romney’s top-line goals — a revenue-neutral overhaul that does not increase the tax burden of the middle class — is not arithmetically possible. History is littered with vague calls for tax reform that went nowhere.
Beyond taxes, Mr. Romney has declined to detail what spending cuts he would make, although he has promised to make big ones. And some of the programs that would be at risk — medical research, education, technology, roads, mass transportation — probably have a better historical claim on lifting economic growth than tax cuts do.

The policies that new presidents pass tend to be ones on which they laid out specifics, be they the Bush and Reagan tax cuts or the Obama health overhaul. Based on the specifics, Mr. Romney puts a higher priority on tax cuts than anything else. Yet the reality of the last two decades has caused conservative economists, and Mr. Ryan himself, to acknowledge the limits of tax cuts.

In one of our conversations, Mr. Ryan told me that the single most important objective of any economic plan had to be raising growth. “We have to figure out how best to grow the pie so it helps everyone,” he said.
It is certainly true that strong economic growth helps solve almost every challenge the country faces: the deficit, unemployment, the income slump, even the rise of China. It is also true that some liberals put too much emphasis on the distribution of the pie and not enough on the size. 

But when you dig into Mr. Romney’s and Mr. Ryan’s proposals and you consider recent history, the fairest thing to say is that, so far at least, they have laid out a plan to cut taxes. They have not yet explained why and how it is also an economic-growth plan. 

David Leonhardt is the Washington bureau chief of The New York Times.

Wednesday, September 12, 2012

Two Numbers That Should Get Your Attention!!

If you have been following this rant, you should be well aware of two major problems facing the future of this country.  One is the huge debt that young people are carrying from their attempts at education.  The other is the lack of jobs once the student has graduated.

This week's Business Week (Sept. 10, 2012) has a whole section devoted to student debt.  In that material, there are two numbers that may help you focus on the problem.  They are...............

100,000 young people with bachelor's degrees are working as janitors.

16,000 young people with bachelor's degrees are parking cars.

If we don't get these people to work using the skills and education they have acquired, we will lose an entire generation.  We cannot survive that kind of loss and remain a first rate nation!!

Go back to the episode where I explain how to end the recession in six months or less.  Make copies.  Send them to every one of your Congress persons and demand action.

Monday, September 10, 2012

This Is So Easy And So Obvious, You Would Think That Even The Fools In Congress Would Know It!!  And So Where Are Obama And Romney?

How To End The Great Recession In Six Months, Or Less!!

1)     At least 75% of the 45,000 miles of our crown jewel, the Interstate Highway System is desperately in need of repair.
2)     The Society of Engineers says we have 10,000 bridges in need of major repair or replacement.
3)     We have hundreds of thousands of miles of oil (and petroleum products) pipelines in need of replacement or repair.
4)     We have hundreds of thousands miles of water pipelines that are up to 150 years old that need replacement or repair.

5) The deterioration of our infrastructure is costing hundreds of millions of dollars in delayed shipping, excess inventories, wear and tear of equipment, etc., and people are dying (California, Colorado, Maryland, Minnesota, etc.)

6) We will HAVE to make these repairs sooner or later.  No Escape!!


Issue Infrastructure Repair Bonds.  Interest costs are 1% or less.  The costs will NEVER be lower.

Make the money available to individual cities and state highway departments directly on a first come, first serve basis.  No Federal Government filters, allocations, etc.

The only conditions are that the money must be spent on the above projects and must begin in six months or less.  In addition, each proposal must include an estimate of how many jobs are directly produced, and a progress report at six, twelve and twenty-four months to qualify for progress payments.  Absolutely no new projects are allowed, i.e., No Mob Museums,
Bridges To Nowhere, High Speed Trains To Nowhere, etc.

Reasons Why?

1)     Reduce unemployment payments
2)     Increase tax revenues
3)     Increase revenues for small businesses that create 70% + new jobs
4)     Each dollar spent has a 1.5% multiplier
5)     Restore infrastructure and improve safety of citizens
6)     Reduce distribution costs and improve GDP
7)  Restore international competitiveness

Reasons Why Not?

     1) Elephant clowns

Now go back to Sept. 8, 2012 and take a good look at that graph!!

Sunday, September 9, 2012

This Story In Today's New York Times Will Break Your Heart!!  And Maybe The Entire Economy Of The Country!!

There are two things to understand here.

1) 70%+ of new jobs are created by small businesses.  Today, small businesses are starved for customers.  A huge portion of this generation of young people are saddled with student loans and are prevented from starting families and buying all the things that are required to do that.  Not only that, the debt overhang will go on and on, holding back the growth of the economy for an unknown number of future years.

2) We have all given a huge amount of our income tax dollars directly to the University of Phoenix, and another bunch of sleazy for-profit-schools.  (See an earlier entry about my personal experiences with a sample of such places.)  To see all the details, you have to read the original hard copy of the New York Times, but here is a summary of the single most important numbers.

Number of students in default at top five for-profit-schools.  
University of Phoenix          35,049
ITT Technical Institute         7,271
Kaplan University                 5,927
DeVry University                   3,875
American InterContinental  3,221

Number of students in default at top five public schools
Columbus State C.C.                766
Troy State University               699
Penn State University              640
Texas Southern University      561
Owens State C.C.                     557

Point taken???  You have just transferred a significant amount of your income taxes directly to the University of Phoenix!!

And now you are using more of your tax dollars to collect these debts!!

And here is the rest of the story.

September 8, 2012

Debt Collectors Cashing In on Student Loan Roundup

At a protest last year at New York University, students called attention to their mounting debt by wearing T-shirts with the amount they owed scribbled across the front — $90,000, $75,000, $20,000.
On the sidelines was a business consultant for the debt collection industry with a different take. 

“I couldn’t believe the accumulated wealth they represent — for our industry,” the consultant, Jerry Ashton, wrote in a column for a trade publication, “It was lip-smacking.” 

Though Mr. Ashton says his column was meant to be ironic, it nonetheless highlighted undeniable truths: many borrowers are struggling to pay off their student loans, and the debt collection industry is cashing in.
As the number of people taking out government-backed student loans has exploded, so has the number who have fallen at least 12 months behind in making payments — about 5.9 million people nationwide, up about a third in the last five years. 

In all, nearly one in every six borrowers with a loan balance is in default. The amount of defaulted loans — $76 billion — is greater than the yearly tuition bill for all students at public two- and four-year colleges and universities, according to a survey of state education officials.

To get the money back, the Department of Education last fiscal year paid more than $1.4 billion to collection agencies and other groups to hunt down defaulters. 

Hiding from the government is not easy. 

“I keep changing my phone number,” said Amanda Cordeiro, 29, from Clermont, Fla., who dropped out of college in 2010 and has fielded as many as seven calls a day from debt collectors trying to recover her $55,000 in overdue loans. “In a year, this is probably my fourth phone number.” 

Unlike private lenders, the federal government has extraordinary tools for collection that it has extended to the collection firms. Ms. Cordeiro has already had two tax refunds seized, and other debtors have had their paychecks or Social Security payments garnisheed. Over all, the government recoups about 80 cents for every dollar that goes into default — an astounding rate, considering most lenders are lucky to recover 20 cents on the dollar on defaulted credit cards.

While the recovery rate is impressive, critics say it has left the government with little incentive to try to prevent defaults in the first place. 

Though there are programs in place to help struggling borrowers, the companies hired to administer federal student loans are not paid enough for lengthy conversations to walk borrowers through the payment options, critics say. One consequence is that a government program called income-based repayment has fallen short of expectations. Under the program, borrowers pay 15 percent of their discretionary income for up to 25 years, after which the rest of their loan is forgiven. But participation has lagged because borrowers are either not aware of the program or are turned off by its complexity. 

“If people were well informed, how many defaults could be averted?” asked Paul C. Combe, president of American Student Assistance, a loan guarantee agency based in Boston. “We are hurting people here.”
For borrowers, the decision to default can be disastrous, ruining their credit and increasing the amount they owe, with penalties up to 25 percent of the balance. 

Ms. Cordeiro, a single mother, dropped out of Everest College, a profit-making school, 16 credits shy of a bachelor’s degree. She said she could not get any more loans to finish. “I get these letters about defaulting, and I get them and throw them in the bin,” she said. 

Jake Brock, who graduated in 2008 from Keuka College, a private liberal arts school in upstate New York, defaulted in May on a federally guaranteed loan of $8,000. With penalties and accumulated interest, the loan balance is now $13,000, he said. “I just fell behind and couldn’t dig myself out,” said Mr. Brock, who is 29 and owes a total of $100,000 in student loans.

There is no statute of limitations on collecting federally guaranteed student loans, unlike credit cards and mortgages, and Congress has made it difficult for borrowers to wipe out the debt through bankruptcy. Only a small fraction of defaulters even tries. 

“You are going to pay it, or you are going to die with it,” said John Ulzheimer, president of consumer education at, a credit monitoring service. 

The New Oil Well?
Business is booming at ConServe, a debt collection agency in suburban Rochester. The company recently expanded into a neighboring building. The payroll of 420 is expected to double in three years.

“There is great opportunity,” said Mark E. Davitt, the company’s president and founder.
Where some debt collection firms have made their fortunes collecting on delinquent credit cards or hospital bills, ConServe is thriving because of overdue student loans, a large majority of its business.

With an outstanding balance of more than $1 trillion, student loans have become a silver lining for the debt collection industry at a time when its once-thriving business of credit card collection has diminished and the unemployment rate has made collection a challenge. To recoup unpaid loans, the federal government, private lenders and others have turned to collection agencies like ConServe. 

Mark Russell, a mergers and acquisition specialist, writing in the same trade publication as Mr. Ashton, the consultant at the N.Y.U. protest, suggested student loans might be a “new oil well” for the accounts receivable management industry, or ARM, as the industry is known. 

“While the Department of Education debt collection contract has been one of the most highly sought-after contracts within the ARM industry for years, I believe it is now THE most sought-after contract within this industry, centered within the most sought-after market — student loans,” Mr. Russell wrote last October.
In 2010, Congress revamped the student loan program so that federal loans were made directly by the government. Before that, most loans were made by private lenders and guaranteed by the government through so-called guarantee agencies. 

Of the $1.4 billion paid out last year by the federal government to collect on defaulted student loans, about $355 million went to 23 private debt collectors. The remaining $1.06 billion was paid to the guarantee agencies to collect on defaulted loans made under the old loan system. That job is often outsourced to private collectors as well. 

The average default amount was $17,005 in the 2011 fiscal year. Borrowers who attended profit-making colleges — about 11 percent of all students — account for nearly half of defaults, while dropouts were four times as likely as graduates to default. A loan is declared in default by the Department of Education when it is delinquent for 360 days.

Borrowers are most often declared in default when they cannot be found. That is when the collection agencies take over. While some in the industry, like Mr. Ashton, worry about public revolt over aggressive collection tactics, there is no holding back at this point. 

At ConServe, in a room of cubicles with college pennants lining the walls, collectors comb through databases and public records hunting for contact information for borrowers. If ConServe reaches a borrower who refuses to cooperate, the company considers garnisheeing wages or withholding a government check, which requires approval from the Department of Education. 

Dwight Vigna, director of the department’s default division, said the government did not give up easily. If a vendor like ConServe has not found a borrower in six months, the department turns the case over to another collection agency. 

In fiscal 2011, the department wrote off less than 1 percent of its loan balance, for such things as death or disability of a borrower. 

“We never throw anything away,” Mr. Vigna said.

Lying in Wait 
Arthur Chaskin, a disabled carpenter, can attest to the government’s long memory.
Since he left college in the late 1970s, Mr. Chaskin has largely ignored his student loans — until June, when a federal judge ordered him to turn over $8,200. 

Mr. Chaskin had borrowed $3,500 in federally guaranteed student loans to attend Northwestern Michigan College, a community college. He did not graduate. The federal government sued him in 1997, but over the next 15 years he made only five payments. 

Last January, a lawyer in Michigan working on contract for the government was alerted to a credit check for Mr. Chaskin. The lawyer filed a garnishment order and discovered a brokerage account with nearly $20,000 that Mr. Chaskin said he had opened with disability checks.

By the time the government caught up with him, Mr. Chaskin owed more than $19,000 in accumulated interest and penalties, but the judge reduced the amount to $8,200 after Mr. Chaskin pleaded for a break.
“If you wait long enough, you catch people when their guard’s down,” said the lawyer, Charles J. Holzman, who was rewarded with more than 25 percent of Mr. Chaskin’s payment. 

Government officials estimate they will collect 76 to 82 cents on every dollar of loans made in fiscal 2013 that end up in default. That does not include collection costs that are billed to the borrowers and paid to the collection agencies. 

While the government’s estimates take into account the uncertainty of collecting money over long periods, some critics say they don’t go far enough.

A 2007 academic study, for instance, estimated that the recovery rate was closer to 50 cents on the dollar.
“The reporting standards that the government imposes on themselves are far weaker than what they require of private institutions,” said Deborah J. Lucas, a finance professor at the Massachusetts Institute of Technology and an author of the study.

Over all, collections on federally backed student loans were $12 billion in the last fiscal year, 18 percent higher than the previous year. Of that, $1.65 billion came from seizures of government checks like tax returns and $1.01 billion was collected by garnisheeing borrowers’ wages. More than $8 billion of defaulted loans, however, were consolidated or rehabilitated. 

Some borrowers say they do not see a path out of default, because they are sick, unemployed or facing so much debt they cannot imagine any way to pay it off. Some have defaulted on private student loans, too.
Patrick Writer of Redding, Calif., received a certificate in computer programming in 2008 from Shasta College, a community college. But he graduated in the midst of the financial crisis and has not been able to find a job as a programmer. He defaulted on $12,000 in federally backed loans in 2009. 

“If you can’t make your utilities and your rent, your student loan payments are almost goofy, inconsequential,” said Mr. Writer, who is 57. 

But Mr. Writer said he had come to realize what it meant to have a student loan that was guaranteed by the federal government. “It’s the closest thing to debtor prison that there is on this earth,” he said.

A Bias Toward Default 
Jill Shockley, 36, of Rockford, Ill., owes more than $50,000 in federally guaranteed and private student loans, some of which are in default. A nursing school dropout, she said her loan servicer, Sallie Mae, asked her to come up with $600 a month to keep three of her federal loans from going into default. But she said she did not have enough money. 

“I barely clear $30,000 a year,” she said. “I have rent, a car payment, insurance. They say maybe I should borrow from relatives.” 

On paper, there are few good reasons struggling borrowers should go into default, or stay there, since there are many programs to help them keep up with payments. In addition to income-based repayment, there is forbearance for temporary financial woes and different types of deferment for issues like unemployment, military service and economic hardship. But the challenge of creating the right incentives — and getting collectors and debtors to embrace them — has bedeviled Congress and the Department of Education.
Critics say the result has often been contradictory incentives that provide little help to struggling borrowers. For instance, loan servicers are paid $2.11 a month for each borrower in good standing, but only 50 cents a month for borrowers who are seriously delinquent, too little to devote much time to them. 

Guarantee agencies are paid a default aversion fee, equal to 1 percent of the loan balance, if they prevent a borrower from going into default. But the same agencies get paid much higher fees for collecting or rehabilitating a defaulted loan.

And debt collectors are rewarded primarily for collecting as much as possible, not for making sure a borrower can afford the payments, critics say.

Introduced in 2009, income-based repayment was supposed to help change that by allowing borrowers with high levels of debt but modest incomes to make relatively small payments over a long term. But many borrowers were never told about the income-based option, and many others have been frustrated by the onerous requirements. So far, 1.6 million borrowers have applied for income-based repayment; 920,000 are active participants and another 412,000 applications are pending.

In a June memo, President Obama wrote that “too few borrowers are aware of the options available to them to help manage their student loan debt.”

Education officials say there are changes in the works that could help struggling borrowers and perhaps reduce the default rate, which they attribute to the sluggish economy and dismal results among profit-making colleges. 

Under proposed regulations, debt collectors would be required to offer borrowers an affordable payment plan. And, the department vows to do a better job of publicizing income-based repayment, including telling borrowers about the plan before they leave college. 

In addition, borrowers will be able to apply for income-based repayment online rather than going through their loan servicer. Monthly payments will be reduced to 10 percent of discretionary income, down from 15 percent. 

But efforts to change the incentive structure for guarantee agencies have stalled. And the Obama administration’s efforts to impose new regulations on profit-making colleges were initially watered down and then significantly weakened by a federal court judge. 

“We’re trying to balance two priorities, working with students who have fallen on hard times while trying to be good stewards of the taxpayers’ dollar,” said Justin Hamilton, a Department of Education spokesman. “We’re always going to be in a process of continuous improvement.” 

Lindsay Franke, of Naugatuck, Conn., is among the borrowers taking advantage of income-based repayment. While her monthly payment is now lower, Ms. Franke, who is 28 and has a master’s degree in business administration from Albertus Magnus College, said the program had not changed a crushing reality: she still owes too much money and makes too little to pay it off. A marketing coordinator for a law firm, she filed for bankruptcy last year because she could not afford her mortgage, car payment and student loans. She lost the house, but still owes $115,000 in student loans, both private and federal. Under income-based repayment, she pays $325 a month on her federal loans; she also pays $250 a month on her private loans. 

“I will never have my head above water,” Ms. Franke said.