Three Signs The Economy Is Still In the Dumps

January 31, 2013 at 7:13 am 2 comments

imagesCAL02VMAHave you ever gone to bed at night slapping yourself on the back for a job well done only to wake up the next morning to a reminder that your dog isn’t quite housetrained yet, the realization that your account balance shouldn’t be quite so high if all the bills were paid, and a nagging suspicion that you didn’t close the car door after taking out the last of the groceries?  That’s the way we should all feel about the economy this morning.  Yesterday provided several reminders that while the worst of the Great Recession is over and the economy is no longer in intensive care, it is far from healthy and will remain in the doldrums for quite some time.

First, the Labor Department reported that the GDP actually shrunk in the fourth quarter, the first such contraction in three years.  The experts are pointing out that the contraction was caused, in part, by economic disruptions resulting from Hurricane Sandy.  Still, there’s plenty to fret about.  For instance, the Wall Street Journal, which is as determined to point out flaws in the Obama Administration’s economic policies as Keith Leggett is to point out the foibles of credit unions, notes in an editorial today that while the storm undoubtedly hurt the economy, it also benefitted from a rush of tax revenue as taxpayers cashed in before being hit by higher tax rates.  Combine this with the fact that it is becoming more and more likely that sequestration will take place, resulting in a sharp and sudden decrease in government spending and there is reason to think that the economy isn’t quite a strong as anyone thought it was.  (By the way, sequestration sounds an awful lot like what they did to my dog last week.  Sorry, boy, it had to be done.)

Against this bleak economic news, the Federal Reserve announced that it was full speed ahead with its $85 billion a month purchase of bonds and treasury securities, generally referred to as quantitative easing.  Credit unions know that this is starting to do more harm than good by making it more difficult to get safe returns and spurring refinancings, which is fine, but not doing all that much to actually encourage new home buyers.  Still, Chairman Bernanke is determined to whip this horse and at least he realizes that things aren’t as good as policy makers in Washington would like to pretend they are.

Finally, TransUnion released an analysis, reportedly produced at the request of credit unions, indicating both bad news and good news about student lending prospects.  The bad news, which is getting most of the attention in this morning’s papers, demonstrates that default rates for government-backed student loans are increasing sharply (a 27% increase between 2007 and 2012).  In addition, more than half of all government student loans are currently in deferment.  The good news is that default rates for private student loans, the type of loans given out by credit unions, has actually decreased (-2% in the same time period).  Could it be that the government is actually subsidizing runaway tuition while private student lenders have to take a more responsible look at what a student can actually afford to pay back?  Sounds like a topic for another blog.  Have a nice day.

 

 

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2 Comments Add your own

  • 1. david  |  January 31, 2013 at 8:47 am

    Mr. Meier, re. student loan default, a ticking time bomb for many families (as well as students) using residence refis to help pay for college. Tuition inflation is endemic, any suggestions beyond throttling supply of government back student loans to curtail college costs?

    Reply
    • 2. Henry Meier  |  January 31, 2013 at 9:46 am

      Thanks for reading. I don’t think you can separate the cost of tuition from federal student loan programs but with the caveat that this is outside the scope of my usual posts here are some additional thoughts about how to adress the college tuition crisis
      1. Mandatory disclosure of accurate employment and salary data. People need to know that not everyone is guaranteed to make the big bucks. For too long graduate schools have been able to present deceptively optimistic employment #s.
      2. Tie federal student loan eligibility to these statistics. In other words there are schools that just aren’t worth it and no one should be paying for.
      3. Let’s have Congressional hearings investigating why tuition has skyrocketed. Does it reflect the cost of providing a college education or simply the leverage colleges have because of the importance families understandably place on getting their kids a degree no matter the cost.

      Reply

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Authored By:

Henry Meier, Esq., Associate General Counsel, New York Credit Union Association

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