Real Estate Debt, Student Debt
next, the fiery furnace
At American Greatness, they are noting the housing affordability crisis.
According to Realtor.com, middle income earners can only afford 23% of the homes and condos on the market for sale right now. For context, that number was above 50% just five years ago.
And did you know that Big Capital is buying up homes as rentals?
At Epoch Times, they are reporting on various efforts to tackle the student loan crisis. Dems just want to give it away; GOPs propose “‘a smooth transition back into repayment’ while still providing relief to those most in need.”
May I say that these are two disaster areas for the ordinary middle class, because government? And because government has subsidized debt?
Let’s look at real-estate debt, subsidized by Fannie and Freddie since the late 1930s when government started marketing 30-year fixed rate mortgage loans backed by the government. Here’s how “agency” debt from usgoernmentspending.com — mostly for mortgages — flourished from WWII through the Crash of 2008.
Yeah. Whaddya know. From zero to 50 percent of GDP in half a century. Do you think that might have boosted real-estate prices? What could go wrong?
Now here’s Student Debt from FRED, since 2006.
What could go wrong? So it’s gone from $500 billion to $1.7 trillion in less than 20 years.
The problem with real-estate debt and student debt is that government has no clue. It has no clue that debt for government and debt for ordinary people is not the same.
See when government gets into debt it is betting with the people’s money. If the bet goes wrong, the people suffer, but the government does just fine. Unless, as with Germany after World War I and hyper-inflation, the Germans end up dumping their social democratic government and electing Hitler.
But when ordinary people get into debt it is not so much fun. Because if the bet goes wrong the actual debtor suffers. Lefty David Graeber wrote a whole book Debt: the First 5,000 Years to prove conclusively that this is so, and that where debt is concerned, the poor always get screwed, and therefore we should elect socialist governments and live in egalitarian paradise.
Debt is simple really. When you borrow money, you are assuming that you will have the income to repay the debt. If your income goes down instead, then we got trouble right here in River City. In other words, when someone get into debt they are assuming that “the future’s so bright, I gotta wear shades.”
Here’s what happens when the government subsidizes real-estate debt. Home prices go into the stratosphere, and ordinary middle-class people can’t afford them, like right now.
And what happens when government subsidizes student debt? College fees shoot up into the stratosphere, and college becomes unaffordable for middle-class students, and nice girls that get useless degrees can’t afford to repay their loans. Like right now.
Yes. But what do we do now?
Obviously, we should stop government-subsidized real-estate loans, and we should stop government-provided student loans.
Problem is that that would destroy millions of peoples’ home equity as housing prices came back to Earth. And it would destroy thousands of colleges as tuition costs came back to Earth. Can you spell Revolution?
Cue Chantrilĺ’s Law, that government programs cannot work because you can never reform them.
Why not? Because whenever a government program is cut back, millions of people will lose out and suffer and they will riot and protest and set fire to cities and whatever else they can get away with.
So, the moral of the story is that government should not have any programs, because they always end in tears.
But, with all of our current government programs it is too late for that.
That is why the Age of the Educated Class and its cool big-government programs will be followed by the Age of Sorrows.
But don’t worry. The Educated Class will do just fine. It is ordinary people what will suffer in the Age of Sorrows.