Tag Archives: debt

Whining

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Here’s Senate Minority Leader Mitch McConnell (R, KY) on leadership in the context of the coming debt ceiling fiasco.

Now, the question is, will the president lead?  Why should we have to be bringing him to the table?  Why isn’t he leading us in the direction of beginning to solve our long-term debt and deficit problem?  It’s perplexing to me that the president of the United States, elected to lead the country, is so reluctant to engage on the most important issue confronting our future.

In McConnell’s defense, this is a typical Republican whine.

When are you guys going to stop whining about the President being mean and supply your own leadership?  When are you guys going to stop surrendering the field to the Progressives, put up your own plans, push for them, talk to us Americans in your constituencies and your neighboring Democratic constituencies, and be leaders yourselves?

Quit worrying about bringing the guy who sits in the President’s chair to the table—move on without him.  Pass the relevant bills in the House, and call out the Progressives in the Senate and the White House over their intransigence in refusing to be part of the solution.  Show some responsibility—and take the initiative from the Progressives.

Or are you really so used to your status that none of you can conceive of actual Republican leadership?

Apocalypse Now

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…or is it?

Here are some interesting graphs published by Spiegel Online International that show some estimated effects of a departure from the eurozone by Greece, Greece plus Portugal, those two plus Spain, and those three plus Italy.  Frankly I think the latter two departing is unlikely; they’re not is as poor shape, yet, as they’re made out to be.

This is chump change for the seven year period, even including Portugal: it compares to Germany’s 2012 GDP of €2.5 trillion ($3.2 trillion).  Even losing all four would “only” hurt badly, not inflict debilitating damage—and only relatively briefly, at that.  See a graph below for expansion on this point.  Notice, also, that the red bars are losses in growth, not loss of growth.

Here’s that “graph below:”

Look at  that.  A burble in 2014 until we look at all four nations departing.  Then Germany gets a sharp recession.  However, notice that in the most likely scenarios—Greece only and Greece plus Portugal leave—growth goes back positive by 2015, and by 2017 if we throw Spain into the mix.

What do things look like for the rest of the EU, not just Germany, and for the US?

The UK and the US—not members of the eurozone, interestingly—hardly notice the losses.  Germany feels the sting, but as can be seen from the earlier graphs, not so much compared to its overall economy.

In short, a departure of these nations from the eurozone will hurt the remaining, and other nations, a little.  But against this must be balanced both the pain for those nations of continuing the present charade of bailouts and the benefits to Greece (and Portugal, Spain, and Italy) of stopping the bailouts, letting them go bankrupt, and letting them depart the eurozone.  And the affected nations can, with this much warning, mitigate the effects by reducing their holdings of Greek (and Portuguese, Spanish, and Italian) sovereign debt.

Unfunded Liabilities

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We’ve already seen counties and cities brought low and into bankruptcy by their blithe accumulation of future liabilities that they have no hope of honoring.  Jefferson County, AL, comes to mind, from a bond sale they had every reason to believe, a priori, that they could not honor in the future.

So does Stockton, CA’s bankruptcy, flowing from a public union pension and insurance program that they, also, must have known in advance that they could not support in future.

These are well understood, and the data that would have predicted these failures easily available to any who cared enough to look—and to face the impending problem squarely.

What of our nation’s debts, though?  Chris Cox and Bill Archer describe in a recent Wall Street Journal the hidden—and unfunded—liabilities at the Federal level that make our public national debt of $16 trillion look minor.

These hidden, but too real liabilities—debts—include

the unfunded liability of Medicare, $42.8 trillion

the unfunded liability of Social Security, $20.5 trillion

the unfunded liability of federal employees’ future retirement benefits, $23.5 trillion

But these data are carefully hidden from public scrutiny.  Federal Treasury “balance sheets” don’t include things like the debt represented by those Medicare, Social Security, and retirement unfunded liabilities.  No, the data are carefully squirreled away in the individual social welfare accounts.  You have to know where to look and what to look for—knowledge that heavily trained and experienced folks like Cox and Archer have, but which our politicians know the average American constituent lacks.

This is a time bomb that demands out entitlement programs be brought to heel, our entitlement mentality as a nation to be curbed.  Else we’ll go the way of Stockton.  And for a nation, that won’t be pretty.  Think of Greece today.  Think of Weimar Germany of the last century.

Debt Forgiveness and Bankruptcy

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Christine Lagarde, Managing Director of the IMF, insists as Spiegel Online International reports, that

For Greece to recover…creditor countries would have to forgive the government in Athens a large share of its debt.  “Nothing else will work[.]”

After all,

given that Greece will be unable to reach the target [of debt to GDP, originally 120% by 2020] on its own, European creditors have little choice but to forgive a portion of the debt they hold, Lagarde insists.

Additionally,

Senior troika representatives, including ECB Executive Board member Jörg Asmussen, Thomas Wieser, the president of the Euro Working Group, and IMF representative Paul Thompson, are campaigning for a debt haircut, especially among smaller member states.  Their goal is to reduce Greece’s 2020 debt level from the 144 percent of GDP that it would likely be without any kind of debt forgiveness, to just 70 percent.  To achieve the latter number, creditor countries would have to waive half of their claims.

The proposed haircut (of which the just concluded deal is a down payment) is a default, as was the prior haircut forced onto Greece’s many private creditors.  And here we are again.

These worthies are conflating default and forgiveness with bankruptcy, and that’s why we’re here again.

Default must come through a Greek bankruptcy, not through the EU, or the IMF, condoning irresponsibility by saying, “Forget it; consider our erstwhile loans to be grants.”  Forgiveness, which approaches a bankruptcy outcome, doesn’t achieve the new beginning that a bankruptcy would; it merely condones past irresponsibility without an actual write-off and fresh start—albeit with a poorer credit rating.  But what’s the Greek credit rating, functionally, now?  “The situation in Greece is scaring away private investors.”

And all of this shows the original folly of bailing out Greece.  And the similarly original folly of the tactic in the US.

A Modern Concept of “Morality”

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Leaving aside what led these folks to take on such debt in the first place, what a difference in the concepts of honor and morality is displayed below, both across generations and within the newer generation.  Think about what values were being taught….

On the one hand, we have these two examples [emphasis added].

Ms Cyndee Marcoux, a Massachusetts librarian, says she feels trapped.  She co-signed student loans for two of her three children—and both of them are struggling.  One, Jocelyn Marcoux, 30, says she has given up on paying back the loans that allowed her to graduate from the University of North Carolina at Charlotte in 2005.  An import-export agent for a freight company, she says she struggled to pay for child care and medical expenses for an autoimmune disease she developed.  “If I had known the amount of money I would have to pay a month, I wouldn’t have gone,” she says.

…

The younger Ms Marcoux feels she is taking a calculated risk, because her husband owns their home and she has little savings. “If they sue us, they can’t get anything,” she says.  But her mother sees things differently; she even moved in with her 83-year-old mother to pare expenses and make payments on Jocelyn’s loans.  “I have to,” she says. “I co-signed them.“

So, the child quit and dumped the whole obligation onto her mother.  Having little of present value other than her income stream that can be taken by creditors, Marcoux the Younger feels no obligation to do the right thing, solely because it’s the right thing to do.  Yet her mother hasn’t quit, isn’t “taking a calculated risk,” and isn’t reneging on the joint obligation.  The mother understands the nature of commitment: “I have to.”  Even when there are no material consequences for not honoring it.

I also have to wonder two things: what was the mother teaching the daughter early on, and what prompted the daughter (and mother) to sign loans that they did not understand?

and

[G]randparents are getting pulled into the debt morass too; some of them co-signed when a student’s own parents didn’t qualify to help out.  Pam Gerke, a 49-year-old divorced fourth-grade teacher in Davison, MI, owes $98,000 on her own student loans—too much, she says, for her to co-sign her daughter’s loans for beauty school.  So Ms. Gerke’s mother, Darlene Kuhn, did so instead.

After the daughter dropped out and quit making the $200-a-month payments on her debt in 2010, the 72-year-old Ms. Kuhn took over. She says she fears her credit rating will fall, so she draws from the $1,400 a month she collects in Social Security—her only income since retiring.  “I tried to do a good deed,” she says.  Indeed, both Ms. Kuhn and Ms. Gerke say they are bitter about the whole experience. (The daughter declined to return phone messages.)  “My mother would rather not eat than not pay her bills,” Ms. Gerke says.  “I’m mortified as a mother and a daughter.”

Once again, the child feels no obligation to honor her commitments.  It’s too hard, apparently.  But morality and integrity aren’t too hard for her grandmother.

I have to wonder here, too, what values were being taught.  Also, how did the loan of the mother-between-the-grandmother-and-granddaughter get so large?

On the other hand, we have these [emphasis added].

Bob Stinson, 65, retired from his job as a FedEx Corp plane-maintenance scheduler in 2003.  Two years later, he co-signed for the first chunk of about $50,000 in student loans for his daughter Tiffany, a dental assistant with an associate degree.  Although Mr Stinson had stopped working due to degenerative arthritis, he and his wife were enjoying a comfortable retirement at their home outside Michigan City, MS, he says.

But after getting her bachelor’s degree, Tiffany Stinson had to sidetrack her plans to go to dental school to help her mom recover from serious surgery.  She says she stopped making her $1,200 monthly student loan payments when “I couldn’t pay for stuff right then.”  She has since resumed making partial payments….

A family emergency—not a personal convenience emergency—caused an interruption, but now the child, the primary borrower, is trying to catch up, instead of walking away and dumping it all on the co-signer.

And

[S]ome borrowers are simply working on paying off their debt faster—in part, to help get co-signers off the hook.  Valentina Fleer, a 29-year-old opera singer in New York, faithfully has made $864 monthly payments on about $90,000 in private student loans that helped her graduate from Barnard College and Manhattan School of Music in New York.  She says her father co-signed for some of the loans because “it was only way I could get the money.”

But her parents are Russian immigrants, and Ms Fleer says she didn’t feel that she or her parents fully understood their commitment when they applied for the loans.

“Today, she says, the debt “just hangs over me.  I make those payments because I don’t want any backlash hanging over them.“

As before, I have to wonder why they made the loan commitments if they didn’t understand what they were doing.  But, more importantly, Ms Fleer is honoring her commitment and actively declining to dump it onto her co-signer.