Imagine a huge, stinking mountain of debt, which represents all of the debt in the world… now look at this chart of student loan debt. Notice anything about this chart of student loan debt owed to the Federal government? Direct Federal loans to students have exploded higher, from $93 billion in 2007 to $560 billion in early 2013. This gargantuan sum exceeds the gross domestic product (GDP) of entire nations—for example, Sweden ($538 billion) and Iran ($521 billion). Non-Federal student loans total another $500 billion, bringing the total to over $1 trillion. Does this look remotely sustainable? Does it look remotely healthy for students, society, taxpayers now on the hook for a half-trillion dollars in potential defaults or the U.S. economy?
Frequent contributor Jeff W. explains the underlying dynamics of this wholesale shift of student-loan debt to Uncle Sam:
Why did Uncle Sam take over the student loan business? I don’t know for sure, of course. But I surmise that it has to do with the nature of debt money. As debt money is being created, it stimulates aggregate demand and circulates in the economy creating (false) prosperity. As long as the government and central banks can keep pumping new debt money into the economy, the economy runs well enough to keep the sheeple satisfied, e.g., housing bubble debt creation years, especially 1992-2006. The banks also profit enormously from the creation of trillions of dollars of new debt money.
Problems develop, however, when there are defaults. Note carefully that when a borrower defaults on a loan, the debt money he and the bank created continues to circulate. It is only when debts are paid back that the debt money disappears from circulation. Thus a condition of debt saturation or debt revulsion (where the people are sick of debt and want to pay off existing debt and refuse to take on more debt) is fatal to a debt money regime.
Central bankers carefully guard against deflation because it causes debt revulsion. If a borrower thinks that $1.00 that be borrows today will have to be paid back, after some years of deflation, with a dollar worth $1.10 or $1.20, the borrower will likely refuse to take out a loan. Debt revulsion causes problems for government (reduced tax revenues, unemployment), but even worse problems for the banks, for the same reason that auto revulsion causes problems for the auto industry or aluminum siding revulsion causes problems for the aluminum siding industry
full article at source: http://charleshughsmith.blogspot.de/2013/09/our-huge-stinking-mountain-of-debt.html
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