Student Debt and the Coming Currency Crisis
Written by Winter Trabex
“Go to school, get an education, get a well-paying job.” Conventional wisdom declares this to be one path to success. Yet, in the second decade of the 21st century, this path leads to rising debt, unemployment, and a number of years wasted on a non-productive venture. Making money comes easiest not when a person makes themselves attractive to employers, but when they leverage their skills into profitability. These can be, and often are, two entirely different things.
Despite using the newest textbooks, today’s college courses are often lagging behind the information available on the internet. It is something of an irony to discover that self-education allows a person to learn more than the longest period of study at a university. This is especially apparent when doctors who studied medicine for half their lives know next to nothing about nutrition. Somehow, inexplicably, businesses continue to look for people who have college degrees rather than seeking out the self-starter, the self-educated, the person motivated to meet the world on their own terms.
The backwards preference (or even perceived preference) of employers gives rise, together with excessive regulation, to an unsustainable system of debt that flies in the face of reason. It is a system based on the values of fifty years ago, when people could expect employers to train them at their jobs. Today, employees must pay for the training themselves in consequence of minimum wage laws which prevent them from working for next to nothing for the purpose of gaining the experience for which employers are looking so desperately.
Imagine then an 18-year-old student who has never taken a good (ie, realistic) economics course in high school who is suddenly thrust into the college scene trying to set themselves up for success in life. The four years of college seem a grand time. There’s partying, late nights, no curfew, meeting all kinds of new people, learning all kinds of new things. In order to pay for college, students must do one of two things: either get themselves on a student loan program or work their way through college.
In today’s job market, an 18-year-old kid working their way through college is very unlikely. Living in a college town full of other students who are themselves looking for work, the vast majority will spend their time unemployed, scraping by semester to semester, trying to figure out how to pay for their books, wrangling with the student loan office, meeting with the Vice President of Student Affairs (or a similar authority figure) who is himself incapable of doing anything to solve the problem.
Were minimum wage laws abolished, more positions would open up. These would be exploitative positions, perhaps, yet they would amount to a trade: the employee agrees to trade his labor for a certain amount of time in order to have his employer teach him how to do the job. After the time period passes, the employee can stay with his job for more money or move to another position that pays higher wages and is looking for experienced personnel. Though it might be feared that no employer would pay any employee decently, this concern is offset by the will of the individual to move from company to company, looking for the best person to work for. In such a system, those who wish to succeed, will. Those who wish for the comfort of a yearly routine shall have it- perhaps at the expense of their economic growth.
In today’s system, there is neither economic growth nor even a comfortable routine for many young people. Once they graduate college, their situation has not changed very much. Their four-year-institution has not provided them with a number of certifications to prove that they can do things. Such an institution may have offered a degree in history or art, two degrees which, by and large, do not have practical applications in the real world of business. The majority of institutions do not teach students how to start their own businesses- and even if they did, anti-competition laws often prevent such businesses from coming into being.
So what happens when a nation full of students is stuck with debt they would like to pay back but cannot? First, the agencies and banks servicing such debt go out of their way to collect it. There are phone calls after phone calls, letters and emails. Attempt after attempt is made to collect the debt. The graduated student, still in the same boat as he was when he first started working, now has an additional burden: how to pay back a loan when the only jobs he can get are entry-level positions offering part-time work? How is it even possible to survive this way?
Every phone call or email or letter produced in collection of debt that cannot be repaid represents a sunk cost. In order to make up these costs, the student loans must have greater interest rates than before. If they do not have greater interest rates by means of government legislation, then the agency itself may become insolvent due to the vast amount of toxic assets it carries. A toxic asset, in this case, simply means one that causes a drain on the company, rather than adding to its profit margin.
These students, as they grow into adulthood, find the economy growing worse with time. For all the bluster about “created jobs” government officials make, the reality of government interference in the economy results with more people on food stamps than ever before, more people using unemployment insurance for longer periods- both of which require greater taxation upon the people who are fortunate enough to work in today’s economy. As the socialistic expenditures of the state increase, so too will its bureaucratic mechanisms. These are inefficient, costly operations whose primary purpose seems to be providing a small amount of people with a very good paycheck.
It is, in other words, not very far removed from any other system of socialism in which the people running the machine get all the benefits while the people receiving hand-outs from the machine were nonetheless still poor, still unable to make their way in life. As the debt grows, as the number of debtors grow, it shall soon become apparent that the vast amount of money owed poses an incredible risk to economy over all.
For example, a student who pays his way through school- by whatever means- is left at the usual age of 21 to work for himself and pay for whatever he likes. A student who is left with debt must pay for the debt. The money allocated toward payment of the debt is money that businesses, apartment owners, car dealerships, and other such people do not see. The money is not put to productive use insofar as the student is concerned. Millions of debtors with student loans provide only a handful of agencies with any possible profit, whereas millions of businesses would gain from the student having new discretionary income.
The businesses who lose in income this way are forced to raise prices on their products in order to make the same amount of profit as before. If they cannot do so, they will have to lay off employees, which throws even more people into the already super-competitive employer’s marketplace. This situation can only last so long. When people are told to go to college to make something of themselves, when they believe it, when employers look for degrees instead of knowledge, in a heavy socialist system such as America, the result is massive poverty, a lack of social mobility and a general feeling that income inequality is caused by rich people being greedy. (In fact, this is least important problem the economy faces).
Observe then the 2008 currency crisis in which it appeared that the entire stock market might go belly-up. This crisis was caused in part by predatory lending on the part of banks giving out home loans to those who could not afford it. The idea was that the banks would purposefully create an agreement which would lead to a foreclosure and then gain an asset in real estate that they could later sell off to someone else. Though this idea seems profitable on paper, in practice it did not work. People could not buy houses because they could not make enough money at their jobs. No one was paying out of pocket for a 100,000 dollar home. When the banks began to fail, the rest of the economy suffered. Businesses which rely on the lending power of banks were suddenly left in a quandry trying to find their income. Car companies who used banks to help people buy their vehicles saw their intermediaries crumble. It turns out that no one was paying out of pocket for a new 20,000 dollar car, either.
The crisis was- and continues to be- averted in large part due to the government bailing out the companies who had been in massive trouble. The government itself is in debt to such an enormous extent- the real number estimated to be over 200 trillion- that government insolvency is not that far away. When the government becomes insolvent, student loans will suffer as well. People won’t be able to go to college anymore. People won’t be getting food stamps- or they won’t receive as much as they had before. Socialist leaders will cry out that they have to “do something” about it, which will result in the same kind of interference in the market that caused the present problems in the first place. With more poor, more homeless, more people unable to make their own way in life, well-meaning socialist individuals shall turn to government to provide answers to their solutions.
This is, in fact, how totalitarian states are born. Such a state would be one in which the only jobs to be had are government jobs. These are jobs in which obedience is valued higher than innovation; political leaders are the only ones with the power to advance the processes of these jobs. This is why government agencies are clunky, non-responsive ways of dealing with social problems. Entry-level input is ignored. Leaders presume they have a monopoly of good ideas. A totalitarian state in which no one can make any money at all is one in which there are only a few choices to make: obey, move out, starve or rebel. Nothing else will be possible if the government is left to continue its course, especially with the emotionally-charged rhetoric that is likely to come when the next crisis of currency comes upon us.
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