The $1.5 Trillion US Student Loan Debt Scam: Schools Get All of the Benefits and Avoid All of the Risk

US student loan debt stands at $1.5 trillion and cannot be erased through bankruptcy. The youth of America are captives to colleges and universities that hold a monopoly over credentials. A hundred schools have endowments worth over a billion dollars.

The Looming U.S. Government & Private “Debt Trap” Threat

The signals from financial markets today indicate that we could be on the verge of a new credit crisis.  The looming debt trap threat has ensnared millions of Americans, and they firmly believe that their government (which is $22 trillion in debt) will somehow protect them and save them from themselves.

There will come a time when no one will loan the government any more money. When that time comes, if you are dependent on the government for either welfare or a salary, you’ll be in a world of panic. But it won’t be much easier for those who are dependent on themselves either.  At that point in time, the government will attempt to steal more money from producers to try to make up for their horrible spending habits.  The economy will plunge into ruins taking society and the American standard of living with it.

Peter Schiff: “The American Standard Of Living…It’s Going To Collapse”

Debt has become a looming crisis, and in America, it’s a trap.  People borrow more money than they will ever be able to repay and more and more creditors are willing to loan high-risk borrowers more money. According to Seeking Alpha, the debt based system we’ve been forced to live under is a ticking time bomb, and no one can see the clock.

Our best-case outcome of controlled price inflation is essentially that forecast by the Congressional Budget Office. Working from the CBO’s own figures, by 2023 we can estimate accumulated debt including intragovernmental holdings will be $26.3 trillion, including our estimated interest cost totaling $1.3 trillion.

The CBO assumes GDP will increase by 48% by 2028 to $29.803 trillion, whereas our cyclical case is for debt to rise to $51.4 trillion. While both these figures should be taken as purely indicative, clearly, US government debt will increase at a faster pace than the growth in GDP and will strangle economic activity.

If the purchasing power of the dollar declines more rapidly than implied by the CBO’s assumed 2% price inflation target, interest payable on Federal debt will in turn be sharply higher than expected, compounding the debt problem. The federal government will face a potentially terminal debt trap from which there can be no escape.

Seeking Alpha

As Americans struggle with record levels of debt in an economy they are all too often told is just fine and doing great, they face increased prices from trade war taxes and the costs of regulations.  It is a trap that is difficult to get out of.  Infamous financial guru Dave Ramsey has said: “you can wander into debt. You cannot wander out.”

Unfortunately, not one politician in Washington is focused on the national debt, unless it’s on how to raise it even more.  The best way to prepare for this horrific apocalyptic economy is to store some essentials, such as food and water, and have things that can be bartered. Also, consider getting yourself out of debt. Do what you can to pay off or pay down what you owe and stop borrowing money. A financial crisis is looming and it will impact those who are not prepared more than those who are.

“If we have learned one thing studying the history of disasters, it is this: those who are prepared have a better chance at survival than those who are not.” -Tess Pennigton, The Prepper’s Blueprint

Yesterday’s Perfect Recession Warnings May Be Failing You

Submitted by Michael Lebowitz of 720 Global

Recently, Wall Street and the Financial Media have brought much attention to the flattening and possible inversion of the U.S. Treasury yield curve.  Given the fact that an inversion of the 2s/10s Treasury yield curve has predicted every recession over the last forty years, it is no wonder that the topic grows in stature as the difference between the 2-year Treasury yield and the 10-year Treasury yield approaches zero. Unfortunately, much of the discussion on the yield curve seems to over-emphasize whether or not the slope of the curve will invert.  Waiting on this arbitrary event may cause investors to miss a very important recession signal.

The Incentive to Lend

A friend approaches you and asks for a loan. You are presented two options, lend her money for two years at 2% annually or for ten years at the same 2% annual rate.

Later that day, another friend approaches you for a loan. This time you have the option of lending money for two years at 2% or for ten years at 6% annually.

For the lender/investor in both cases, we will ignore inflation risk and assume the two borrowers are in similar financial circumstances. Given the options, you likely answered that if you were forced to lend in example one, it would be only for two years as lending for ten years produced no additional financial incentive to compensate for the additional eight years of risk. Keep in mind most of us would not lend for two years either due to the low-interest rate.

In example two, you may have been incentivized by the higher ten-year interest rate the borrower was willing to pay you. In example one, the “yield curve” is flat at 2%. In example two it is considerably steeper as 10-year “yields” are 4% higher than 2-year yields.

As portrayed, when investors are faced with a flat or inverted yield curve, their incentive to lend for longer terms is greatly diminished. The opposite holds when the yield curve is steeper as in the second example. Taking this one step further, when the absolute level of yields is very low, the incentive to lend, irrespective of the slope of the curve, is also greatly diminished.

When lenders have no financial incentive to extend credit, economies dependent on ever-increasing amounts of credit tend to struggle.

Yield Curve Predictive History

The graph below plainly shows that when 2-year Treasury yields exceed 10-year Treasury yields, otherwise known as “a curve inversion,” a recession has always followed. Following the inflection point of the inversion, as circled, the curve steepens through a recession and for some time afterward.

Given the curve is approaching the inversion point (black line), this compelling evidence is supposed to convince us that the odds of a recession are currently increasing but, and this is important, a recession is not a foregone conclusion yet. While a solid argument based on history, it rests on the theory that there will not be a recession unless 10-year yields drop below 2-year yields (black horizontal line in the graph).

There is another significant trend in the graph, which has gone largely unrecognized. The table below shows the lowest readings of the 2s/10s curve occurring before each of the last five recessions. It is the point of maximum curve inversion for each cycle.

As shown, the magnitude of the greatest yield curve inversion has steadily declined in each of the past five pre-recession episodes.

Increasing Debt Burden and Tight Lending Conditions

The graph below compares total domestic Debt and GDP.

The graph highlights that debt is growing faster than GDP, with GDP representing our collective ability to service repay our debt. In this situation, it takes increasingly greater amounts of debt and lower interest rates to service the existing debt as well as generate new economic activity.

With this troubling dynamic in mind, think back to the two lending propositions we presented earlier. As the yield curve flattens and, by default, lenders are less likely to lend money and economic activity so dependent on that lending activity, slows.

If you accept that line of reasoning, then you must also agree that economies with larger debt burdens are more sensitive to a tightening of financial conditions. Taking it one step further, the amount of inversion required to generate a recession in such a scenario also declines. Might we now be at the point where inversion is not required, and a flat enough yield curve will hamper borrowing and stymie economic activity? 

Summary

Based on history, one may deduce that if the curve were to steepen from this point, the odds of a recession decline. We strongly disagree. Given the incremental debt accumulation that has occurred as compared to the accumulation before those five prior episodes, financial conditions have more than likely already tightened enough to induce a recession. The recent steepening of the curve, which might be misinterpreted as a relief, is a flashing red signal that a recession is still very much possible.

For those of you that are stubborn and waiting on the curve to go to zero to sound the recession warnings, we share the graph below, courtesy of Crescat Capital LLC.

The graph looks at numerous yield curves and computes the percentage of them that were inverted at various points of time. Note that about 40% of curves are currently inverted. Have the collective curves already sounded the alarm, but everyone is too focused on a flat 2s/10s curve to hear it?

Citi May Liquidate Over $1 Billion In Venezuela Gold Within Weeks

Back in April 2015, when Venezuela still had a somewhat functioning economy and hyperinflation was not yet rampant, the cash-strapped country quietly conducted a little-noticed gold-for-cash swap with Citigroup as part of which president Nicolas Maduro converted part of his nation’s gold reserves into at least $1 billion in cash through a swap with Citibank.

As Reuters reported then, the deal would make more foreign currency available to President Nicolas Maduro’s socialist government as the OPEC nation struggled with soaring consumer prices, chronic shortages and a shrinking economy worsened by low oil prices.

As Reuters further added: “former central bank director Jose Guerra and economist Asdrubal Oliveros of Caracas-based consultancy Ecoanalitica said in separate interviews that the operation had been carried out.  A source at the central bank told Reuters last month it would provide 1.4 million troy ounces of gold in exchange for cash. Venezuela would have to pay interest on the funds, but the bank would most likely be able to maintain the gold as part of its foreign currency reserves.”

Needless to say, the socialist country’s economic situation is orders of magnitude worse now, and in addition to a full-blown blockade of the country’s only key export, petroleum, the president has a simmering, US-backed coup to contend with as well.

Fast forward three years when Venezuela’s gold swap with Citi is about to mature, and according to lawmaker Angel Alvarado, advisor to Venezuelan opposition leader and self-proclaimed president, Juan Guaido, Citi would be entitled to keep the gold if cash-strapped Venezuela does not pay the loan when it expires in March. Considering the country’s financial dire straits, the last thing Venezuela can afford is to pay Citi to reclaim ownership of the collateral.

As a result, on Friday, Guaido’s advisors asked Citibank not to invoke the guarantee and not to claim the gold put up as collateral for the 2015 loan made to the government of President Nicolas Maduro if his administration does not make payments on time, Reuters reported, citing a Venezuela lawmaker.  Opposition leaders have claimed that Maduro usurped power last month when he was sworn in to a second term after a disputed election widely described as a sham.

“Citibank has been asked to stand by and not invoke the guarantee until the end of the usurpation,” Alvarado said in an interview. “We don’t want to lose the gold.”

Confirming what we reported back in 2016, a finance industry source told Reuters that the gold is worth $1.1 billion.

While it is unclear whether Citi will comply with the requests, there is now a non-trivial possibility that the US bank may find itself liquidating over $1 billion in Venezuela bullion in the open market, an operation which could potentially send the price of the precious metal sharply lower.

* * *

Meanwhile, far from pushing to reclaim its gold, Maduro has only been selling more of it, as Abu Dhabi investment firm Noor Capital confirmed when it said earlier this month that it bought 3 tons of gold from Venezuela’s central bank, but would halt further transactions until the country’s situation stabilizes.

Guaido has also asked British authorities to prevent Maduro from gaining access to gold reserves held in the Bank of England, which holds around $1.2 billion in bullion for Maduro’s government. So far the British central bank has refused to comply with Maduro’s demands to remit the gold back to Venezuela, although when asked for comment, the BOE said it does not comment on client operations.

Meanwhile, Hugo Chavez, who spent the last years of his life repatriating Venezuela’s gold is spinning in his grave.

Florida Man Charged In $100 Million Fraud, Triggered Largest Ever Bank Collapse In Puerto Rico 

A pharmaceutical executive whose lavish Miami lifestyle included fancy automobiles, private jets, yachts, and luxury homes, was found guilty of  federal fraud charges in connection with a $100 million scheme more than a decade ago that triggered the 2010 collapse of Westernbank, one of Puerto Rico’s most prominent banks at the time, reported the US Department of Justice Office of Public Affairs.

Jack Kachkar, 55, was convicted earlier this month of eight counts of wire fraud affecting a significant financial institution following a 21-day trial before U.S. District Judge Donald L. Graham in Miami. Kachkar is expected to serve decades behind bars; the sentencing will be held on April 30.

“Jack Kachkar’s fraud caused substantial harm to the 1,500 employees of Westernbank and the people of Puerto Rico,” said U.S. Attorney Fajardo Orshan. “The U.S. Attorney’s Office remains committed to the prosecution of those individuals and corporations that use Miami and other South Florida communities as their base to operate multinational fraud schemes.”

“Today’s verdict holds the defendant accountable for orchestrating fraudulent schemes that resulted in more than $100 million in losses to insured institutions and the FDIC as receiver,” said Inspector General Lerner. “The FDIC Office of Inspector General remains committed to investigate cases of deception and swindles that undermine the integrity of financial institutions, and we will continue to work with our law enforcement partners to bring to justice those who commit such offenses.”

“IRS Criminal Investigation will always pursue investigations like this where Mr. Kachkar, for his own personal benefit, orchestrated such a large scheme at the expense of one of Puerto Rico’s largest banks and its 1,500 employees,” said IRS-CI Special Agent in Charge Palma.  “This investigation shows that the appearance of success can be a mask for a tangled financial web of lies, and we are proud to be part of the prosecution team that is bringing Mr. Kachkar to justice.”

“HSI San Juan will continue working with our local, state and federal partners to investigate and prosecute these types of cases as well as those involving violations to the more than 400 federal statutes that we investigate, “ said HSI Special Agent in Charge Arvelo.  “This man was responsible for one of the largest fraud schemes ever recorded in the banking business in Puerto Rico and he will pay the consequences.”

“This defendant’s greed was powerful enough to destroy a bank, taking with it the jobs of approximately 1,500 hard working citizens of Puerto Rico,” said FBI Special Agent in Charge Leff.  “The FBI thanks the US Attorney’s Office for sending an equally strong message that most fraud schemes will eventually lead to a prison cell.”

According to the trial evidence, from 2005 to 2007, Kachkar was the CEO of-of Inyx Inc., a publicly traded specialty pharmaceutical products and technologies company. The fraud began in early 2005, Kachkar entered into a series of loan agreements with Westernbank in exchange for collateral in assets of Inyx and its subsidiaries. Under the loan agreements, the bank advanced money based on Inyx’s customer invoices from “actual and bona fide” sales to Inyx customer.

However, the evidence showed that Kachkar organized a scheme to defraud Westernbank by creating dozens of fake customer invoices worth tens of millions of dollars.

During the course of the scheme, Kachkar falsified and deceived Westernbank loan officers about imminent repayments from its international lenders to continue the scheme of pumping more credit into Inyx.

Kachkar distorted additional collateral to Westernbank executives, including numerous mines in Mexico and Canada worth hundreds of millions of dollars.  The evidence showed that the additional collateral was worth a fraction of that presented by Kachkar.

Westernbank lent about $142 million, primarily based on false and fraudulent customer invoices to Kachkar over the two years. The evidence showed he diverted tens of millions of dollars for his benefit, including “a private jet, luxury homes in Key Biscayne and Brickell, Miami, luxury cars, luxury hotel stays, and extravagant jewelry and clothing expenditures,” said the DOJ.

At the end of the scheme, in the summer of 2007, Westernbank declared a default on the Inyx loans, ultimately suffered losses of more than $100 million. Shortly after, the losses triggered a series of catastrophic events leading to Westernbank’s collapse.

What Shutdown? Federal Spending per Day Is Down Only 7 Percent

This article was originally published by Mark Brandly at Mises Institute

In our Principles of Microeconomics courses, we sometimes consider whether a firm should shutdown some line of production. A firm shuts down when it ceases operations, when it closes down and stops its production. The firm stops spending money on everything except its fixed costs.

A federal government “shutdown” has a completely different meaning.

There has been much hand wringing over the current government shutdown that began on December 22 of last year. The Treasury department, with its Daily Treasury Statements, has provided us with details regarding federal spending through January 18. So we have the data on the first four weeks of the shutdown. Let’s try to determine the definition of a government shutdown.

In order to have some baseline for comparison, consider the budget for Fiscal Year 2018. The Treasury Department reports on all of the dollars withdrawn from federal accounts. In one sense, this is all federal spending. In FY 2018, withdrawals from federal accounts totaled $13,961.9 billion. That works out to a daily average of $38.3 billion.

In the first 28 days of the shutdown, the feds total withdrawals were $1,163 billion. That’s a daily average of $41.5 billion. If we define federal spending as the total withdrawals from federal accounts, then average daily spending during the shutdown is about 8.5% higher than it was in Fiscal Year 2018.

However, the federal government is rolling over a large amount of its debt. It is issuing new government securities and using the funds from this sale of these securities to pay for previous securities that have come due. These withdrawals are under the line item Public Debt Cash Redemptions. It’s analogous to a firm borrowing money to make the principal payments on its debt.

The bulk of federal spending is this type of spending. The reason this spending number is so high is because of this debt service.

Most everyone, all households and businesses, would classify loan payments as spending, even if they financed the loan payments by borrowing money. However, most analysts, when they discuss federal spending, omit this debt service. They usually only include the other types of spending. So let’s take a look at that.

In FY 2018, federal withdrawals (spending) not including the debt service (PDCR) totaled $4,757.8 billion. That’s a daily average of $13 billion. (As an aside, please note that two-thirds of federal spending in FY 2018 was debt payments. This should make us uneasy regarding the federal government’s long term financial viability.)

For the first four weeks of the shutdown, December 22, 2018 to January 18 of this year, withdrawals less PDCR totaled $338.5 billion for a daily average of a little more than $12 billion.

So by this measure of federal spending, the feds are spending on average 7.3% less per day during this shutdown than they did in FY 2018.

Regardless of your position on the shutdown, we should recognize the deceit involved in calling this a shutdown. Spending $12 billion per day is not a shut down. Spending 7% less than you spent last year is not a shutdown.

Calling the current budget impasse a shutdown is just another example of the political corruption of our language.

About the Author

Dr. Mark Brandly is a Fellow of the Mises Institute. He holds a PhD in economics from Auburn University, where he was a Mises Research Fellow, specializing in the areas of Public Finance, International Economics, Natural Resource Economics, and Industrial Organization. He has published articles in The Wall Street Journal, The Journal of Commerce, Public Finance Review, The Quarterly Journal of Austrian Economics, The Free Market, various newspapers and websites. Since 2003, Dr. Brandly has taught at Ferris State University. He also taught at Ball State University and Taylor University. Prior to his academic career, he worked in the Colorado oil and gas industry managing the drilling, completion, and production of oil and gas wells.

Philippine financial service firm flags data breach affecting 900,000 clients

A lock icon, signifying an encrypted Internet connection, is seen on an Internet Explorer browser in Paris

MANILA (Reuters) – Cebuana Lhuillier, a Philippine financial service provider, said on Saturday that the data of 900,000 clients had been accessed without authorization and that it had already alerted authorities to investigate the incident.

The breach came as Philippine investigators were looking into allegations by the country’s foreign minister last week that a privately contracted firm took away documents and data from the Department of Foreign Affair’s passport database.

Cebuana Lhuillier, whose services include pawning, remittance, microinsurance, and business to business micro loan solutions, said some information like birthdays, addresses and sources of income, were affected in the breach involving an email server used for marketing.

“It’s just a very small portion of our clientele. The main server containing all clients of Cebuana Lhuillier remains protected and uncompromised”, said Richard Villaseran, the company’s corporate communications division head.

He added the company’s clients had been advised how to further protect their personal information.

(Reporting by Karen Lema; Editing by Michael Perry)

Economist’s Warning To Senators: “Expect A Recession In 2020 Or Earlier”

An economist has warned Maryland Senators that a recession is coming and that they should begin to prepare for it. The economist said that the indicators point to the recession happening in mid-2020, perhaps sooner.

Dan White, director of government consulting and fiscal policy research for Moody’s Analytics, told members of the Senate’s Budget and Taxation Committee that there are financial indicators of an upcoming recession according to the Baltimore Sun.

“Ten years is a long time for us to go without screwing something up,” Dan White said.  When Senators in Maryland asked White how they can prepare for a recession, he said to save some money. “The simplest solution and the most effective solution seems to be to make sure you have enough in your rainy day fund to get through the next recession,” White said. He did caution the addition of new spending that will not be sustainable during a recession.

Morgan Stanley’s CEO Jamie Dimon says a possible near-term recession wouldn’t look anything like the previous financial crisis which was driven by loose underwriting and subprime mortgages, according to a report by Fox News Business. “There will be a recession one day. So when people say, ‘Is there going to be a recession?’ Yeah, I don’t know when it’s going to be, but there will be one and something will trigger it and it will be a little bit different than the last one,” he said.

This time, the recession will circle around the student loan debacle which is currently a $1.5 trillion crisis and climbing. The main concern with student loan debt is that it is largely owned by the government, not a private bank.  “The lender will not be there, so a lot of these borrowers are going to be stranded,” he said. “It won’t be anything like you saw the last time for the large banks.” In other words, Dimon says the government will not be regulating and taxing themselves out of this problem.  The government won’t be able to fix the problem they caused.  The pain and discomfort will fall on the backs of the borrowers.

The Federal Reserve estimated that the average monthly student loan payment increased from $227 in 2005 to $393 in 2016, according to statistics reported by CNBC. That payment is going to be difficult to make for some during a recession.

How Prepare For An Economic Downturn: Go Debt-Free In 2019

Republicans block Senate proposal to keep student loan rates low

ShareThis

Republicans block Senate proposal to keep student loan rates low 08 May 2012 The political battle over President Obama’s plan to keep student loan interest rates from skyrocketing escalated as Senate Republicans [Grade ‘A’ sociopaths] blocked a Democratic proposal to tax wealthier earners to pay for it. Republicans stopped the effort with a filibuster. Rates for 7 million new undergraduate student loans are set to double to 6.8% on July 1 if Congress fails to act. The vote was 52-45, failing to reach the 60-vote threshold needed to overcome the GOP filibuster.

Citizens for Legitimate Government

Audit finds legal problems with 84% of foreclosures

An audit of foreclosure cases ordered by San Francisco’s assessor found “clear violations of the law” in 84% of the cases studied.

The violations ranged from failing to notify homeowners that they were in default to problems with the transfers of loans from one entity to another. It also found problems with the accuracy of data in the Mortgage Electronic Registry System, which has been the subject of numerous legal challenges.

“If there were any lingering doubts about whether the problems with loan documents in foreclosures were isolated, this study puts the question to rest,” Kathleen Engel, a professor at Suffolk University Law School in Boston, said to The New York Times.

Read full article

Loan guarantees pave way for first new U.S. nuclear reactors in years

ShareThis

Loan guarantees pave way for first new U.S. nuclear reactors in years 16 Feb 2012 President [and Wall Street troll] Barack Obama announced $ 8.3 billion in loan guarantees Tuesday for two nuclear reactors to be built in Burke County, Georgia. A new nuclear power plant has not been built in the United States in three decades. The new reactors are to be part of an expansion of an existing nuclear facility near Augusta, Georgia, operated by Atlanta-based Southern Co… Nuclear power critics slammed the administration’s decision to back the construction of new reactors. “The last thing Americans want is another government bailout for a failing industry, but that’s exactly what they’re getting from the Obama administration,” energy analyst Ben Schreiber said in a press release issued this past weekend.

Citizens for Legitimate Government

Iran Vs. USA: The Fix Is In

The Intel Hub By Tony Muga February 19, 2012 Wars are for profit, not peace, and behind both sides of every war are the bankers. It takes money to finance any military engagement but the banker involvement starts long before any loan takes place. Bankers are the initiators of military conflicts because ultimately, they are […]

Car Company Gets U.S. Loan, Builds Cars In Finland

By MATTHEW MOSK, BRIAN ROSS and RONNIE GREENEABC, ABCNews.com

With the approval of the Obama administration, an electric car company that received a $ 529 million federal government loan guarantee is assembling its first line of cars in Finland, saying it could not find a facility in the United States capable of doing the work.

Vice President Joseph Biden heralded the Energy Department’s $ 529 million loan to the start-up electric car company called Fisker as a bright new path to thousands of American manufacturing jobs. But two years after the loan was announced, the company’s manufacturing jobs are still limited to the assembly of the flashy electric Fisker Karma sports car in Finland.

“There was no contract manufacturer in the U.S. that could actually produce our vehicle,” the car company’s founder and namesake told ABC News. “They don’t exist here.”

Henrik Fisker said the U.S. money has been spent on engineering and design work that stayed in the U.S., not on the 500 manufacturing jobs that went to a rural Finnish firm, Valmet Automotive.

“We’re not in the business of failing; we’re in the business of winning. So we make the right decision for the business,” Fisker said. “That’s why we went to Finland.”

The loan to Fisker is part of a $ 1 billion bet the Energy Department has made in two politically connected California-based electric carmakers producing sporty — and pricey — cutting-edge autos. Fisker Automotive, backed by a powerhouse venture capital firm whose partners include former Vice President Al Gore, predicts it will eventually be churning out tens of thousands of electric sports sedans at the shuttered GM factory it bought in Delaware. And Tesla Motors, whose prime backers include PayPal mogul Elon Musk and Google co-founders Larry Page and Sergey Brin, says it will do the same in a massive facility tooling up in Silicon Valley.

To read more, visit:  http://abcnews.go.com/m/story?id=14770875

RE Tea Party » Finance

We Are Change TV.US