College student debt has risen dramatically in the last few years and now totals about $1.1 trillion dollars. Three years ago student loans passed credit card balances as the largest form of consumer (non-mortgage) debt. While interest rates on student loans tend to be much lower than the interest rates on credit cards, they cannot be reduced through bankruptcy.

Student debt has gone up as financial aid in the form of grants has failed to keep up the soaring tuition at colleges. Over the last 30 years college tuition has been increasing at three times the overall rate of inflation. Public colleges and universities have seen some of the largest percentage increases in tuition as state governments have cut back on educational spending, especially in the last five years with the deep recession and financial crisis.

These increases in student debt have weighed the most heavily on working class students and African American, Chicano and other oppressed nationality students, who have fewer financial resources to pay for college. Many have to work more hours while in college, which makes it harder to do well and makes it take longer to graduate.

College graduates, and especially college students who don’t get their degrees, are more and more weighed down by student loan debt. With the terrible job market for recent college graduates, with half either out of work or working jobs that don’t require a college degree, more and more college students are moving back home after finishing school and are putting off buying a car, a home, or getting married because of the need to pay off the heavy debt load.

One of the ironies of student loans is that the federal government can actually profit off of student loans. With U.S. government borrowing costs averaging close to 2%, loaning money to students at a subsidized rate of 3.4% or even more, the unsubsidized rate of 6.8% can make money for the federal government. For example, in the last fiscal year (2012), the federal government spending on higher education was actually negative $19 billion, meaning that the government took in more than they spent.

But with all the pressure for austerity at the federal level, from raising the payroll tax to cutting spending – including spending on education – allowing the interest rate to rise on federal student loans would help to cut the budget deficit (which is already falling rapidly) even more. This is just another way that working class and oppressed nationalities are being hit the hardest by today’s government budget cuts and another way that our opportunities tomorrow are becoming more and more limited.

#SanJoséCA #OppressedNationalities #interestRates #Capitalism #federalDebt

This is the fifth in a series. See parts one, two, three, and four.

San José, CA – On Aug. 2, President Obama signed into law a bipartisan deal to raise the federal debt limit and cut federal spending. The deal increases the amount that the federal government can borrow by $400 billion now and calls for about $1 trillion in spending cuts over the next ten years. A bipartisan committee of congress people and senators will propose another $1.5 trillion in cuts, and the debt limit can be raised by about $2 trillion more.

The debt limit deal did not include any increases in taxes, which was a major victory for the Republicans and their Tea Party supporters. The Wall Street Journal editorial after the debt deal hailed it as “A Tea Party Triumph.” The lack of any tax increases is also a victory for the rich, who were able to keep the big tax cuts made by the Bush administration. Big businesses, like General Electric, which paid no corporate income taxes last year despite earning billions in profits, were also winners, as there was no increase in corporate taxes.

The big banks and other financial titans of Wall Street pushed hard for the debt deal. By cutting federal spending and reducing the amount of new bonds that the government would have to sell to borrow money, the prices of bonds will be higher. This will benefits banks, insurance companies and other investors in government bonds. Hedge fund managers will also continue to pay taxes at a lower rate than most workers.

While there were almost no specific cuts (other than a cut in federal student loans to graduate students), there will be cuts to programs that serve poor and working people. Banks and businesses have an army of lawyers and piles of cash to contribute to politicians’ election campaigns to make sure that their interests are protected. The federal government is also likely to cut back on aid to state and local governments, leading to even more cuts in schools, health care and social services at the local and state levels. The debt deal puts the federal government on a path of austerity that state and local governments have already started down.

The debt limit deal also opens the door to cuts in Social Security and Medicare. While the initial $1 trillion in cuts does not include these two programs, the deficit cutting committee is almost certain to recommend cuts to both programs. Both Social Security and Medicare have been running surpluses as the FICA payroll taxes have been greater than the benefits paid, leading to a combined $3 trillion in trust funds for these programs. But Social Security and Medicare will be on the chopping block while the two biggest contributors to the federal debt – the wars in Iraq and Afghanistan and tax cuts for the rich – are not.

Last, but not least, the federal spending cuts will make a weak economy even worse. With unemployment above 9%, the federal government needs to spend more, not less, to stimulate the economy and create more jobs. No other sector of the economy is willing and able to spend more. Consumer spending is limited by high unemployment, falling home prices and still high levels of debt. Businesses are earning record profits and have some $2 trillion in cash, but are not willing to spend and hire more. State and local governments, whose taxes are down because of high unemployment, are cutting spending and jobs. The growing financial crisis in Europe and their slowing economies are going to reduce demand for U.S. exports.

Only the federal government has the ability to borrow and spend more during bad economic times. But the will is gone, with both the Tea Party-inspired Republicans and the Wall Street-backed Democrats all too willing to cut spending. There is a short-run danger that this could be enough to tip the economy into another downturn. But even if the economy continues to grow, the limits on federal spending will leave no safety net for the economy when the next recession hits, increasing the prospects of a major depression much more likely in the future.

#SanJoséCA #SocialSecurity #federalDebt #Medicare #DebtCeiling #austerity

On June 21, the Chairman of the U.S. Federal Reserve Bank, Ben Bernanke, gave a very downbeat report on the U.S. economy following a two day meeting of the Fed. Bernanke, who is also a professor of economics, admitted that he didn’t have a good explanation for why economic growth in the United States was so weak and the unemployment rate stuck at about 9%. But Marxist political economy does have an explanation: that economic stagnation is a natural outcome of a capitalist economy.

Mainstream economics sees economic growth as natural in a capitalist economy. Free market economists blame the government for economic instability; for example they blame government housing policies, not Wall Street, for the housing boom and bust and financial crisis. Keynesian economists are more realistic in that they recognize that financial speculation can lead to a crisis, but insist that proper regulation and strong government action can stabilize a capitalist economy.

The problem is that economic instability can follow times when free market policies ruled (such as the Great Depression of the 1930s following the Roaring 20s, and the Great Financial Crisis of 2008 following decades of deregulation). Economic instability can also follow periods when Keynesian economic policies dominated (such as the decade of stagflation – recessions and inflation – of the 1970s following the post-World War II Keynesian period).

Marxist political economy sees stagnation as rooted in capitalism itself, not government policy (as do free-market economics), or lack of a strong policy (as do the Keynesians). Businesses try to lower their labor costs by cutting wages and benefits – for example more and more companies are dropping or cutting their employee health insurance and defined benefit pensions. But this limits the ability of workers to buy goods and services. At the same time businesses are constantly reinvesting their profits from cutting workers pay into new capital and new technology, becoming more productive and thus able to produce more. The contradiction between limited ability of workers to consume and the growing ability of companies to produce leads to what Marx called “crises of overproduction,” known as recessions today.

Over the last 30 years, the boom and bust cycle of capitalism has been softened by a huge build-up of debt in the United States. Between 1983 and 2007, the U.S. economy experienced two recessions (in 1990 and 2001), fewer than the post-World War II economic boom period. But at the same time total debt grew twice as fast as the economy, from 1.8 times GDP (the measure of total output of the economy) in 1983 to 3.5 times GDP in 2007. The debt boom between 1983 and 2007 was mainly in the private sector, as total (federal, state, and local) government debt grew more slowly. Government debt was 25% of total debt in 1983 but less than 15% of total debt in 2007. The fastest growth of debt was in the financial sector, which went from less than 14% of total debt in 1983 to almost one-third of total debt (32.4%) in 2007.

This huge buildup in debt ended with the debt-fueled housing boom and bust and then the financial crisis of 2008. Since then total debt has actually fallen, a huge change from the almost 9% increase in total debt each year during the 1983 to 2007 period. Financial sector debt, which was the fastest growing type of debt, actually dropped 17% from 2008 to 2010. This was largely made up by a huge increase in federal government debt of more than 47%, as seen in the large federal government budget deficits of the last few years.

But growing opposition to the growing federal debt in Congress and the administration means that the federal government debt will grow more slowly, and total debt will continue to fall. As a result the U.S. economy is likely to slow even more and could even fall back into a recession. Until and unless U.S. capitalism finds a way to grow without the stimulus from ever-greater amounts of debt, high unemployment is likely to continue for years.

#UnitedStates #recession #Capitalism #MarxistEconomics #federalDebt