Real Investment Advice
APR 3, 2018
Public college tuition in the US has risen 213 percent since 1988. The reason is simple: When the US government took over student loan issuance and made it clear that money would be available for nearly everyone on easy terms, college realized they could raise their prices. A lot.
So the $3,190 it cost you for the school year in 1988 now costs you $9,970. And that’s in the more “affordable” public sector. A private college? Try an average of $34,740. Per year. For four years.
Such is the systemwide state of the economic union. Corporation, households, 18-year-old kids...borrow incredible sums to consume now. How will you pay it back? That’s a question for tomorrow. And in this country, at this time, we don’t think about tomorrow, today.
When consumers borrow money to buy stuff (cars, houses, washers, dryers, computers) leads to a demand push of inflation in the short-term. However, the use of debt is deflationary over the long-term as debt service redirects consumptive spending into debt service. Said differently, if you buy on credit today, you must make payments tomorrow that inhibit your ability to purchase stuff.
There is simply a limit to what consumers can generate for income and to the amount of debt they can absorb.
If I have $100 then I can buy $100 worth of goods. That’s it. However, if I am able to borrow an additional $200, then I can buy $300 worth of goods. When there is more demand, due to leverage, the price of the product or service will rise.
Until the deleveraging cycle is allowed to occur, and household balance sheets return to more sustainable levels, the attainment of stronger, and more importantly, self-sustaining economic growth could be far more elusive than currently imagined.