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Zero Hedge

Student Loans Are Starting To Bite The Economy

Authored by Danielle DiMartino Booth via Bloomberg.com,

It’s that time of year, when students prepare to head back to the classroom. For many taking the next step in higher education, the question is increasingly, “Is it worth it?” Millions of millennials have already put off settling down because of the rising costs of servicing college debts to the detriment of economic growth.

Student loans are now the second-largest category of household debt in America, topping $1.4 trillion and trailing only mortgages at $9 trillion. And while Korn Ferry puts the average starting salary for a 2018 college graduate at $50,390, up 2.8 percent from 2017, the just-released July Consumer Price Index report shows the inflation rate rose 2.9 percent over the last 12 months. Does the phrase “treading water” come to mind?

A recent report by Bloom Economic Research breaks out the demographic challenges that have resulted from the 176 percent increase in student loan debt in the decade through 2017. In the years leading up to the housing crisis and the dramatic loosening of mortgage credit standards, many families tapped readily available home equity to finance pricier higher educations for their children than they would have otherwise been able to afford. After the bust, this avenue was blocked, leaving only the higher education inflation it had fueled.

From 2007 through 2017, the CPI rose by 21 percent. Over that same period, college tuition costs jumped 63 percent, school housing surged 51 percent and the price of textbooks by 88 percent. These troubling growth rates wipe away any mystery behind today’s staggering levels of student loan debt, which have almost tripled from the 2007 starting point of $545 billion. As of the fourth quarter, student loans represented 10.5 percent of a record $13.1 trillion in U.S. household debt, up from 3.3 percent at the start of 2003.

Regardless of income bracket, housing is the biggest line item in family budgets. On that count, the best news for fresh grads is that rent growth appears to be slowing as a flood of apartment supply hits the market. According to RentCafe, the average rent in the U.S. was a record $1,409 in July, a 2.8 percent from a year earlier. While rent growth has stopped outpacing gains in salaries, the level is nevertheless prohibitively high for many, especially those weighed down by student loans the minute they cross the stage. The average student loan payment is $351. Tack that on to average rents and you’re pushing $1,800 before you hit the online grocery app icon on your smart phone, the bill for which runs at least $100 a month for most of us. Using college grad starting salaries, that takes up a large chunk of monthly take-home pay of about $3,400 if you live in Texas or $3,100 if you’re in New York.

The latest demographic breakdown available has an end point of 2016. What we know through that period is that 22.4 percent of all U.S. households carried student debt, with the percentage rising to 44.8 percent for those aged 18-34, or $33,000 on average, up from 18.6 percent in 2001. The average household has to save for almost six and a half years to cover a 20 percent down payment on a home at current prices, according to a recent study by Zillow’s HotPads. That’s based on the steep assumption that workers can sock away 20 percent of their monthly take-home pay.

The outer birth-year band for millennials is 1981, making 2018 the year millennials are closer to 40 than they are to 30. While homeownership has picked up, it’s been held back for a decade due to the stagnant wage growth coupled with onerous debt burdens.

The macroeconomic ramifications are well-documented. Baby boomers house a record level of their millennial offspring who can’t afford to leave home. Birth rates have fallen to a 30-year low as marriage is put off. Emanating from this trend is the money not plunked into nesting as families grow, a consequence not lost on Federal Reserve Chairman Jerome Powell.

“You do stand to see longer-term negative effects on people who can’t pay off their student loans. It hurts their credit rating, it impacts the entire half of their economic life,” Powell said in March.

“As this goes on and as student loans continue to grow and become larger and larger, then it absolutely could hold back growth.”

Clearly, reform of some kind must address the issue of student debt, which is not to say debt relief or outright forgiveness. Institutions of higher learning in this country must take some of the responsibility for the current state of affairs in the nation’s most populous demographic group. And while the misguided cultural stigmatization of vocational education appears to finally be abating, further inroads to reintroduce balance to the workforce must be made.

The return on investment in a four-year degree isn’t as straightforward as it was for high school grads circa 1988. The reality of cost burdens must be weighed against the quality of life millions have forsaken thanks to the ease with which they’ve been able to finance the higher educations that have rendered their lives to lower rungs.

Venezuela Slashes 5 Zeros From Currency In "One Of Greatest Devaluations Ever"

As previewed yesterday, on Monday Venezuela officially slashed five zeros from prices and its currency as part of what has been dubbed one of the greatest currency devaluations in history which slashed the value of the official bolivar by 95%, an overhaul that President Nicolas Maduro said would tame hyperinflation, and which everyone else called the latest desperate failed socialist policy that will push the chaotic country deeper into crisis and unleash even higher hyperinflation (impossible as that may sound: as a reminder the collapse of Venezuela's currency recently surpassed the Weimar republic).

As part of the devaluation, the official rate for the currency will go from about 285,000 per dollar to 6 million and together with salaries and prices, will be pegged to the Petro cryptocurrency which is reportedly backed by crude oil and is valued by the government at $60, or 3,600 sovereign bolivars. The Petro will fluctuate and be used to set prices for goods.

Government officials tried to partly mask the shock by raising the minimum wage 3,500% so instead of the new minimum wage being 1.8 million strong bolivars, it will be 1,800 sovereign bolivars: the equivalent of $30 a month. Banks were closed and busy trying to adopt ATMs and online platforms to the new currency rules; they will likely fail.

A 2.4 kg chicken is pictured next to 14,600,000 bolivars, its price and the equivalent of 2.22 USD, at a mini-market in Caracas. It was the going price at an informal market in the low-income neighborhood of Catia. Photo: REUTERS

Less discussed was the concurrent increase in the value added tax by 4%, while officials also ended some gasoline subsidies, saving the government $10 billion a year, as many ordinary citizens are forced to switch from subsidized to western fuel prices.

Even though Maduro boasted in Friday night’s announcement that the IMF wasn’t involved in the policies, aspects of the moves bore a resemblance to a classic orthodox economic adjustment, even if those usually involve removal of the corrupt regime whereas Maduro is only becoming more entrenched. Meanwhile, most economists said the plan announced on Friday will escalate the crisis facing the once-prosperous country that is now suffering from Soviet-style product shortages and a mass exodus of citizens fleeing for nearby South American countries.

As Bloomberg notes, the symbolism of announcing the drastic measures on a Friday night wasn’t lost on many Venezuelans. In 1983, President Luis Herrera Campins devalued the bolivar for the first time in 22 years after oil prices crashed. The day became to be known locally as “Black Friday.”

When in 1989 Venezuela raised gasoline costs, lifted foreign-exchange controls and let the currency plunge, prices soared 21 percent in one month alone, leading to riots known as the “Caracazo” that killed hundreds and eventually paved the way for Chavez’s rise to power.

There were no riots - or celebrations - on Monday, however: streets were deserted and shops were closed due to a national holiday that Maduro decreed for the first day of the new pricing plan for the stricken economy, which the International Monetary Fund has estimated will have 1 million percent inflation by year end. Venezuela is already well on its way:according to the Bloomberg Cafe Con Leche index - which tracks the price of a cup of coffee - inflation in Venezuela has hit an annual inflation rate of 108,596%.

In many ways the devaluation is a mere formality. For years now, most people and companies have been unable to access dollars at government-set rates and have been purchasing them in the black market. As a result, the prices on many goods across the country are already based on that exchange rate.

"They had to do this because they ran out of money," Moises Naim, a fellow at the Carnegie Endowment and a former minister in Venezuela, said from Washington. He pointed out that oil production -- pretty much the country’s sole industry at this point -- has plummeted in recent years amid a shortage of equipment and technical expertise, foreign reserves have plummeted and allies such as China and Russia are providing less support.

As for ordinary Venezuelans they were mostly baffled by the monetary overhaul and skeptical it will achieve anything.  "This is out of control, prices are sky high," said Betzabeth Linares, 47, in a supermarket in the central city of Valencia. "What worries me is how we’ll eat, the truth is that the way things are going, I really don’t know.

Most local businesses were shocked by the announcement: the new measures spooked shopkeepers already struggling to stay afloat due to hyperinflation, government-set prices for goods ranging from flour to diapers, and strict currency controls that crimp imports.

Private companies, already dealing with hyperinflation, years of brain drain, price controls and threats of seizure, now must deal with even faster inflation and mandatory wage hikes. It’s also possible that the exodus of Venezuelans to other countries will increase, even as Ecuador and Peru announced entry restrictions and tensions flared along the border with Brazil.

"People are leaving because of a feeling of despair, and the desperation will now increase," Naim said.

But the biggest question is how the military, without whose support Maduro will be swept from office overnight, would react. It was not immediately clear how the shock measures will sit with the local military which already runs much of the nation. Top ranking generals have been handed the keys to ministries, the state-run oil company and the lucrative business of food imports. Myriad exchange rates created juicy arbitrage opportunities that enriched many close associates of the state.

"Clearly this will hit Maduro’s popularity, but power is being sustained with bullets and not with votes," Naim said. "As long as the military continues to have access to lucrative businesses it will continue to grant support to the government."

For now there is little hope that the official opposition, a fragmented group of parties whose leaders are either in hiding or in jail, can stir a popular uprising: Together with several labor unions, the opposition called for protests against the measures Tuesday as well as a 24-hour national strike. It was not immediately clear if anyone turned up.

Maduro, who was re-elected to a second term in May in a vote many said was rigged, has said his government is the victim of an “economic war” led by political adversaries with the help Washington, and accuses the United States of seeking to overthrow him. While the US has denied the accusations, it has described the former bus driver and union leader as a dictator and levied several rounds of financial sanctions against his government and top officials.

Growing Reluctance To Move: Job Relocations Slump

Authored by Mike Shedlock via MishTalk,

Despite a tight labor market with numerous openings, there's a growing reluctance to move.

The Wall Street Journal reports Fewer Americans Uproot Themselves for New Jobs.

Fewer Americans are moving around the country to pursue new work opportunities, as a tighter labor market and changing family ties make people less willing to uproot their lives for a job.

About 3.5 million Americans relocated for a new job last year, according to census data, a 10% drop from 3.8 million in 2015. The numbers have fluctuated between 2.8 million and 4.5 million since the government started tracking job-related relocations in 1999—but have been trending lower overall, even as the U.S. population grew by nearly 20% over that stretch.

The share of job seekers relocating for new employment has fallen dramatically since the late 1980s, when more than a third moved to take new opportunities elsewhere, according to surveys from outplacement firm Challenger, Gray & Christmas Inc. In the 1990s, job-related moves ebbed and flowed between 20% and 35%, then fell below 20% after 2000. Roughly 10% of job seekers relocated for new opportunities in the first half of this year, Challenger said.

Not on the Move

“The one-fifth to one-quarter of workers who were moving to find positions in the late 1990s is nothing compared to what we saw in the mid-to-late 1980s, when nearly one-third of workers were moving for new positions. Much of that movement could be attributed to economic recovery policies after the 1982 recession,” said Challenger.

“We saw something similar in 2009, when housing prices began to rise after the Great Recession and the annual relocation rate hit 13 percent,” said Challenger.

Why?

  • Cost of housing or rent in relocated areas

  • Local work is available

  • Need for kids to stay close to their aging parents

  • Kids living at home have no-cost lodging

  • Skimpy relocation packages

  • Concerns about how long the next gig will last

Add it all up and it simply is not worth the disruption.

 

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Improving Housing Markets Tally Jumps by Nearly a Quarter

Posted on November 7, 2012 at 12:32am 0 Comments

The National Association of Home Builders (NAHB)/First American list of improving markets jumped by a net of 22 metropolitan areas (MSAs) this month, the third consecutive monthly increase in the Improving Markets Index (IMI) which now stands at a total of 125.  The index now includes at least one MSA in each of 38 states and the District of Columbia.  Last month the index represented 33 states plus the District.

The IMI identifies markets in which there has been improvement…

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