Tuesday, July 8, 2014

The BS of Obama's loan forgiveness

Here are the rules for loan forgiveness:

Make 120 payments:
  • Must have been made after October 1, 2007
  • Must be on-time (no later than 15 days after the scheduled due date)
  • Must be made each month, satisfying in full the installment amount due for that month


  • Pay As You Earn Plan (not available on parent Direct PLUS Loans or Direct Consolidation Loans that paid a parent PLUS Loan)
  • Income-Based Repayment (IBR) Plan (not available on parent Direct PLUS Loans or Direct Consolidation Loans that paid a parent PLUS Loan)
  • Income-Contingent Repayment (ICR) Plan (not available on parent Direct PLUS Loans or Direct PLUS Consolidation Loans)
  • Standard Repayment Plan with a 10-year repayment period
  • Any other Direct Loan Program repayment plan with payments that are at least equal to the monthly payment amount that would have been required under the Standard Repayment Plan with a 10-year repayment period

So here's my issue:
If you make 120 payments on the standard plan, thats 10 years on a 10 year plan.  You're loan is paid off and you don't get any forgiven...

Next, lets figure out the Income based.  The payments are 15% of discretionary income.

So your discretionary income is:

I used 20k as a rough poverty estimate (its actually closer to 18 but it will go up over time).  

So payments=.15*DI  and total amount paid over 10 years (I have an average 6.25% rate) is .15*DI*12*1.0625^10

So lets plug in an income and see what we'll get forgiven:

If you have an income of 50 k for those 10 years:
payments=375 per month

You would need to have a loan of over 60,015 dollars in order to get any forgiven. 

So in other words...good luck getting shit forgiven.  Unless you're one of the few people with loans over 100k or you make a miniscule amount of money for 10 years, you're probably just better paying it off and not worrying about capping your income.  

Tuesday, July 1, 2014

Fill in the blank with bad decisions

Government Statement for Stimulus Needs.  

*Country needs *Product.  

*Product have been a backbone of our culture and way of life for centuries.  As our economy as grown over the past century, more and more citizens have been able to enjoy the benefits of *Product.  In fact, basic economic theory tells us that the richer we become as a nation, the more *Product we have.  Since the purchasing and maintenance of *Product has a measurable and long lasting effect on the local population and  leads to a wealth effect generated when other owners of *Product see the value and worth of their investments rise.  Therefore it is essential that the government go into debt via central bank financing in order to maintain the availability and growth of *Product.  We are sure that our investment in *Product will lead not only to jobs for *country in the short run but to long term benefits from the ownership of *Product. 

The USA--houses
Brazil--soccer stadiums

Monday, June 30, 2014

The Supreme Court decision and Obamacare

I'm sure you all saw...
"The Supreme Court ruled Monday that some corporations can hold religious objections that allow them to opt out of the new health law requirement that they cover contraceptives for women."

And more importantly, its the first precedent that uses the term:
"closely held corporation" (the companies allowed to opt out).  

But what is this closely held corp.: http://www.investopedia.com/terms/c/closely-held-corporation.asp  
So basically any corporation that is private or where 50% of its stock is owned by a few individuals.

"Yay" all the republicans say...we don't need obamacare! But this was never about health care.  This law was written by health insurance and drug manufacturers and is now pruned by big business.  So now big business doesn't need to buy you health insurance (it's started just as contraceptives), but the part of Obamacare that forces you to buy it is still there.  And as businesses start to opt out of various things (contraceptives, out of wedlock pregnancy, aids tests, etc), the prices should get cheaper; only they wont.  You'll still have to pick one of the obamacare plans, you just won't get that coverage.  So just great...we continue down the path of paying for more healthcare and getting less.  

Thursday, June 26, 2014

Effects of low interest rates

We all know the story.

If you lower interest rates, the theory is that it boosts the economy by pumping money into the system.  But do low interest rates really spur inflation?

So I'm keeping the graphs together for comparisons.
The top is the monthly inflation rate.  It's much more volatile than you would expect because a recession really kicks it lower.  The next is the  Fed funds rate, the middle is the average of future inflation (orange is one year, grey is 5), so if you have a high orange bar in january of 1970, the period of Feb1970 to Jan 1971 will have high inflation. And the last graph is the monthly interest rate minus the inflation rate.

So now lets see what we have here:
First...I'm going to fight against some libertarians here and say that inflation is not out of control right now and that this data is most likely correct or pretty darn close.  To prove my point, if inflation is 10% like some people claim, that means prices would double in 7 years.  And I mean we all know that prices are rising, but to say that anything (think cars, houses, utilities) has doubled since 2007, you're just trying to be difficult. The interest rates too...those are right and sad in their own aspect. 

So do low interest rates cause inflation?
In theory....yes.  In practice...it's hard to tell. It actually appears (and has been shown) to be a rather backward looking tool.  Usually inflation will drop and THEN the interest rate will drop.  The interest rate is much more reactionary to inflation rather than actually causing it.

Now you say...well its cyclical, so we have low interest rates that cause inflation and then we raise them, crash the economy and start over.  But as you see, and Japan has shown, a period of high rates doesn't lead to a period of low rates and a period of low rates doesn't lead a period of high rates.  We've been relatively low since circa 2000 (thats 14 years with annual inflation under 4%) and in the 70's (74 to 83), we had 9 years of above 5% inflation, some years much higher.  So you can't say that low interest rates will lead to economy wide inflation.  The theory is broken.

So Japan has had low interest rates for what...30 years?  We've had them for half that, and both countries fail to get that Keynesian 8% inflation that will boost our economy out of the liquidity trap (or so the theory goes).  So why then even have lower interest rates:

You guessed it...debt.  And not just any debt, corporate and government debt.  Household debt is relatively flat (same as in Japan) and corporate debt looks flat, but theres one sector thats just rocking it and thats financial sectors.  These low interest rates are making more debt and thats it.  

We don't get a boost in the economy.
We don't get any 'inflation' or even cheap debt for households (we want less debt). 
Instead we get more debt for the financial sector and governments and thats exactly why we're never going to raise rates.  It's not about the economy.  A look at the graphs shows that interest rates don't have nearly as big of an effect as economists like to say.  The truth is that people get rich of these rates, so don't expect it to change.