Month: January 2015

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The Dollar’s Flaw as the Global Reserve Currency

Middle is now immersed in AP Economics, learning about variable and marginal cost curves and utility, yet still without any notion of something as basic as the definition of money.  This is a follow-up to a previous article that I wrote for him – So, Just What is Money? – because I find it problematic to learn about details without a general understanding of larger, more basic topics within the subject.  So, Middle, once again grab a soda and your earbuds and make yourself comfortable for another lesson.

There’s a solid argument to be made, amidst the ongoing currency wars, that the American Dollar could soon lose it’s status as the Global Reserve Currency despite its present big kid on the block status when compared with the rest of the world’s currencies.  I frankly believe that it will happen and sooner than later.  Yet while there are many rationales and explanations for why this might occur, I think that the true reason rests at the economically molecular level of the definition of money.  Yes, many in the world want to see the dollar fall as a poke-in-the-eye to the arrogant Americans and God knows there are others who cannot reconcile a Global Reserve Currency with a huge debtload.  But the core reason is that we no longer manage our currency, the dollar, with the same emphasis as the remainder of the world must manage their own currencies and the world will somehow – messily – create a system that better aligns its needs.

Understand that there are three operative characteristics for anything that is agreed upon to serve as money.  First, it is a unit of measure that is uniform, such that different products can be easily measured against a common metric.  Second, money is a medium of exchange which serves to simply make the daily transaction of business all that much easier.  My wallet is far less bulky with three Benjamins than it might be with the assortment of chickens and rabbits that might be required to purchase a like amount of goods were the Benjamins not available.  Finally, money should be reliably relied upon to serve as a store of value; it should be expected to purchase the same amount of goods and services in the future as it does today.  With a few exceptions in the world, most nations have a currency that serves as money because each sufficiently meets the three criteria that the population accepts it.  When there is a sufficiently large breakdown in a currency, such as in Zimbabwe, then the population creates and sustains a black market in some other material that serves in lieu of the local currency.

And it’s here, within these three characteristics, that the flaw lies.  Since the end of the Second World War, the American economy has been predicated upon consumption as an economic driver and all efforts have gone to build and sustain that consumption.  The supposition is that as people spend their money on goods and services, that money flows throughout the economy and provides demand for other goods and services in a sort of virtuous economic circle.  It was during the Great Depression of the 1930s that the American government adopted Keynesian theory in the hopes of providing demand by running governmental deficits, using public debt as fuel for a stricken economy until it could recover enough to not require the debt-fuel.  That thinking has generally continued since then with debt run-ups shifting back and forth from private to public sector through the decades until there’s presently a huge overhang of total debt.  The use of debt to fuel consumption also serves to pump money into the money supply, which is essentially an inflationary practice that not only has a domestic effect but an international effect as well since the dollar is the global reserve currency.  The upshot is that if business is transacted in dollars and the cost of a good rises as the supply of dollars rises, then any nation wishing to engage in business will see prices rise in its own currency since it would take more to purchase the dollars to satisfy the transaction.  The offsetting result to this practice is that while consumption continues and debt builds, such practices are inherently inflationary and slowly, willingly sacrifice the store of value characteristic.

This is apparently fine for our own country but it does create problems for the rest of the world.  The American economy since the Second World War has been something that’s outstripped any previous economy in the history of the world.  Our citizens have prospered and reached a standard of living that no other society had ever before achieved.  Having a currency with the Global Reserve Status allows a privilege and latitude that people with other currencies don’t enjoy if simply by dint that those with the GRC status can literally print as much as they choose while the Norwegians, South Africans, Jordanians and Chinese cannot.  These other countries must still contend with the quaint notion that money should serve as a store of value so that their people can continue the finer things in life, such as bread and adequate shelter.  They do not have the amount of wealth as the average American – or at least the .1% – and their economic security in the global economy is a bit more tenuous and dependent upon the policy decisions of foreigners than we are as Americans.  At least for now.

Writers such as Yves Smith of naked capitalism have explained how economists went to great lengths to quantify economics and make it into a hard-style science such as physics or chemistry.  Yet why a nation’s currency is granted the GRC status is essentially unquantifiable, based upon non-economic factors.  It’s that nation which is not only militarily strong, but also perceived to be solid and relatively prudent, at least until the leadership drinks the kool-aid and sends that nation down the path to Wonderland.  The key word is perception and that is simply unquantifiable.  But any money must meet the three criteria for common acceptance and there has to be a general agreement amongst all users – domestic and foreign – that there is a semblance of parity between the three.  There can be temporary discrepancies but if the semblance of balance isn’t maintained, then pressures grow within the system until such time that the perception breaks and something new comes about to take its place.  In the case of the Dollar, the notion that a store of value could be maintained existed so long as the Dollar was essentially backed by gold, that material that everyone across the globe considers as the principal store of value par excellence.  But when Richard Nixon took the United States off of the gold standard in 1971, it was then that the notion of perception truly took center stage.  It is because we have chosen to so over-emphasize the medium of exchange characteristic, sacrificing the store of value as our leadership purposefully strives for inflation to simultaneously stoke consumption and inflate away our debt, that the rest of the world has altered their perception of our collective wisdom to manage the dollar in a way that is truly mindful of its status as the Global Reserve Currency.  There is no way to quantify how this perception has suffered or measure when such a massive change will occur.  But the rise of the BRICS and the increasing use of the Remimbi to settle international transactions makes clear that the Dollar’s days are numbered.  The problem for the average person is that reading about it is, by nature, sterile and unexciting; real life however, is generally far more exciting and colorful as it plays out in the store aisles and down the street.  We have raised our children in a society that demands consumption.  We will have to collectively figure out how to raise them in a new society that is far more mindful of value than it has been in generations.

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A WTF Proposal on Reducing 529 Tax Benefits

It was an audible what the f*#% that escaped my lips as I read a NY Times article that explained how President Obama was now proposing to eliminate tax-free withdrawals from 529 college savings plans.  Under the proposed changes, the money earned from any new contributions to 529 accounts would lose the capital gains tax protections that have made 529 plans a decent tool in the belt for paying for higher education.  In addition to the loss of the capital gains tax forgiveness – if the money is used for qualified educational expenses – the money earned via the accounts investments would actually be taxed at the much higher ordinary income rate.  Incredibly enough, the proposal is part of a much broader package that a White House official described as designed to consolidate a variety of educational tax breaks and also funnel more money to middle-class families.

Let’s take a few minutes to actually parse through the proposed changes since this strikes me as a measure with multiple intents.  First, I have no doubt that this is tied to the floated proposal to fund free community college for eligible students..  While the tuition proposal is the carrot however, this measure would be the stick to help herd even more young people into the community college track.  We already know that the disparity between the stagnant income and the wildly inflative tuition rates has led to a shifting of family income levels downwards through the college system.  What I mean by this is that as tuition rates have risen far faster than family incomes, what a family could afford for their children has shifted downwards from private non-profit institutions (Yale or Pacific Lutheran for example) to state supported institutions (any of the SUNY institutions or your local state college).  So while a solidly middle class family could get the kids through a Pacific Lutheran in 1980, the same family would be hard-pressed to do so in 2015 and would be more likely to have the kid attending the local state college or university instead.  Even if the states are, as a group, funding less on a per student basis than in the past decades, state schools are still more affordable and the 529 plans are a legitimate tool in saving for that alternative.  Remove the 529 plans as an effective savings instrument and even the public institutions become more unaffordable; the result is that if the youngsters are going to be educated, then one of the few alternatives is to utilize the community college for an associate degree or if a bachelor’s degree is sought, the first two years of general education requirements.

Second, make no mistake that there’s an almost punitive intent in this proposal.  It would be one thing to make the 529 less attractive by simply removing the preferred tax status of capital gains forgiveness and there are more than a few people who would probably look at the 529 and say meh, moving on to other alternatives.  But this proposal moves far beyond that: this actually turns standard taxation and accounting measures on their heads by taking what monies have been made from a capital gain status – which is precisely what they are – and wholesale shifting them to an income status with a concomitant increase in taxes.  The authors of this proposal are doing the old west equivalent of dumping dead animals in the water hole to poison it for anyone else.

Third, there is signifcant debate over what income level is, in the eyes of the authors, the middle class.  The class card is played by the notion that the 529 plans “primarily provide a subsidy to people who would save in other forms anyway”, according to Sandy Baum of the Urban Institute.  Yes, it does provide extra bang for the proverbial buck over other investment vehicles.  But that tax provision was an intentional public policy message that higher education did matter and this program was an effort to help offset what even then was recognized as an oncoming problem.  The notion that the 529 is simply another investment vehicle, akin to the standard mutual fund or whatever, is also not true since anybody who’s investing in the 529 plan understands that use of the funds for any other purposes means that there’s going to be a tax penalty for withdrawal.  If this is just another savings vehicle, then just take the money and dump into a consistent money-losing fund that costs you 10% annually.  The class argument is also offset by the fact that the average 529 account only has about $19770 and the average regular monthly contribution is $175.  This isn’t the kind of investor that’s looking to get subsidized; this is the kind of investor that’s hoping to squirrel away enough money to get the kids through a state institution.  The GAO notes that while only a small percentage of families utilize 529 accounts, the median income of those families with 529 accounts is three times that of those without 529 accounts.  I believe that would actually be true, apart from the fact that it’s coming from the GAO.  The simple fact however, is that it’s common knowledge that higher incomes simply remove the possibility of any grant or need-based scholarship for the student, leaving the costs to be either borne by the family and/or student with savings and debt.

The Obama Administration notes that it has other incentives to more than adequately offset the 529 change.  These include making the American Opportunity Tax Credit permanent, with a maximum credit of $2500 annually, subject to income requirements.  The other notable action put forward by the administration is that the tax bill on any student forgiven (yes, they’ll forgive the debt but you have to pay taxes as though it was an income) would be eliminated.  The reality there is that unless you are engaged in a program that eliminates student debt in return for service of some kind, it’s damned hard to get the student debt forgiven.  The onus is upon the borrower and the person has to demonstrably show that it is indeed a hardship for self and family; that is a steep hill to climb and few are able to do so.

The families utilizing the 529 plans are the ones who are looking ahead to the future and making an effort to save for it.  Eliminating the benefits of the 529 is as much a penalty for savers as are the other policies of the government, most especially the ridiculous rates on various savings accounts.  The message from the power structure is that we aren’t to worry, that there will be other options and if nothing else, we can always just borrow more when the time comes…precisely the last thing that savers and responsible parents want to hear.

There is also another aspect to this entire matter that bothers me, but it’s something that I frankly have to work through before I put it out there.  Suffice it to say, there will something more on this when I’m comfortable that I’ve thought it through.

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So, Just What is Money?

It’s been clear that we’re involved globally in currency wars and the recent decision by the Swiss National Bank to cut its peg to the Euro is one more skirmish.  Yet at the same time on the family front, Middle is beginning a semester course in AP Economics so there are basic questions about economics to be discussed.  I’ve already written about what interest rates are as well as the definition of inflation with the notion that the kids will read them at some point.  But what’s happening globally begs a very, very basic question: just what is money?  I’ll be forwarding this to Middle for his light evening reading because I believe that the heart of the current global currency wars and economic dislocations centers on a basic disagreement of the operational function of money, particularly between the United States – holder of the global reserve currency – and the Chinese.  So, Middle, grab a soda and earbuds and settle down for a little while…

We’re inundated with all manner of informational overload about Personal Finance.  We worry about what the kids are learning and how they’ll cope in their future.  But for all of the ink, there’s a simple question that’s overlooked: what exactly is money?  What is it about that crumpled five dollar bill that I just pulled out of your jeans before they went into the wash (and it’s now waiting for you on the dresser) or that 1 Euro coin that came back from last summer’s long-awaited trip?  They are obviously different in all ways – shape and substance, language, etc. – but each serves an identical purpose for its respective nation(s).  It doesn’t make much sense to go into marginal analysis and supply/demand curves or ascertaining the cost of interest if you don’t at least have a handle on that most basic financial tool, money.  For all of the differences in currencies across the globe – dollar, euro, krona, yuan, yen – each has three operative characteristics in common that make them able to serve as money.  It’s important to understand these three characteristics because I believe that the heart of the most basic issues involving the currency wars is because the rest of the world places a greater emphasis upon one characteristic than the US does and the difference has created fundamental problems for the world that can no longer be ignored.

The first characteristic of money is that it is fungible.  One unit of money within a particular issuing region is precisely interchangeable with any other unit of that money.  In other words, that crumpled five dollar bill on your dresser could be taken to the soda cave at the nearby convenience store and used to purchase a bottle of Stewart’s Orange Cream Soda as well as the five dollar bill that I pulled from my wallet to give you for that same bottle of soda, assuming of course that I was willing to do that.  You could borrow a five dollar bill from your buddy for the soda and that would serve as well as the crisp new fiver that you got from the bank.  The point is that they are interchangeable for use – fungible – and the store clerk is legally required to take any fiver presented to pay for the soda.  The sole reasons for not taking the note would be that it was either somehow damaged beyond repair – sorry, but half of a note is unusable – or there’s reason to believe that it’s counterfeit.  This same premise holds true across the globe in any reasonably functioning nation in which the citizenry actually has a semblance of trust in its currency; any ten pound note could be used to purchase chips in an English pub and any renmimbi note could be used to purchase cigarettes in a Chinese market.  If the people of a particular country want to take some other currency instead of their own for daily life – think Zimbabwe or Argentina for instance – then they have much deeper issues both economically and politically since the two go together like crap and stink.

The second characteristic of money is that it serves as a medium of exchange for any transactions that occur in an economy.  It that sense, money is a kind of tool that makes life easier.  The classic example would be in a simple farm and trade economy in which everybody has to barter what they have – chicken eggs for instance – for something else that they need.  If Farmer A has eggs but needs a plow fixed and the blacksmith doesn’t need eggs but would rather have sheep wool, then Farmer A has to figure out exactly who both needs his eggs and has sheep wool; if no one else readily comes to mind, then the potential range of transactions becomes larger:  A trades his eggs to C for five bushels of excess grain and A in turn gives four of those bushels to F for the wool; A can then give the wool to the blacksmith for the plow repair and keep the grain as profit.  Over the course of centuries of this barter economy, people began to use various forms of money to make their lives easier and eliminate the need to navigate a massive web in order to get the plow repaired.  The biggest hurdle to overcoming barter and moving to money was the rise of a common belief that that form of currency would be good so that all parties could buy into that system and participate.  This was frequently based upon the belief that the political power was stable to enforce the laws and back that currency.  If you want a more up-to-date example of currency and the forms that it could take, think back to the night that we watched Stalag 17 on Turner Classic Movies.  William Holden played Sergeant JJ Sefton, a cynical anti-hero who was the resident scrounger and procurer of all good things within the German prison camp.  There’s a scene in the first half in which he has his minion – because we all need our minions – inventory the contents of his usually locked footlocker.  He is loaded with cigarettes but also has a lesser quantity of chocolate bars, silk hosiery, men’s cologne and even a camera.  In the closed society of the Stalag, the American dollar is worthless for everyday transactions because it is simply not accepted as a medium of exchange and God knows that the Germans wouldn’t be giving the prisoners Deutschemarks.  But the cigarette is the commonly accepted medium of exchange for transactions between the prisoners and even the guards since the Germans produced lousy cigarettes and even they acknowledged that.  The cigarette is ideal because in that time and place, everybody smokes and accepts them; there is also a constant, but rationed supply coming into the Stalag via the Red Cross parcels that the prisoners periodically receive.  So if you want to bribe a guard or transact some business with another prisoner, the cigarette is the ideal form of money and the lesser quantity items would serve as the higher denominated forms of money.  A Red Cross parcel might contain two packs of 20 cigarettes each but only two chocolate bars, so in the purely theoretical world of currency exchange, a chocolate bar would be worth a pack of cigarettes and if it wasn’t, then that would be due to purely local conditions.  The point is that everybody accepted them because all believed that American cigarettes were superior and that they were typically available.

Which leads to the third operative characteristic of money, a store of value.  People will use something as a form of money if it can reliably be found to hold it’s value, particularly measured by an ability to purchase the same amount of something over time.  If that form can’t maintain it’s value, then the people will engage in economic behaviors to account for that until another form of money is found to replace it.  What might those behaviors be?  One might be to simply spend it as soon as possible instead of even bothering to save – the grasshopper side of Aesop’s Ant and the Grasshopper – because there’s no point to keeping it.  The person might also find something else to purchase that she believes will hold value better than the current form of money and in this regard, so-called hard assets such as gold, silver or even diamonds are prime examples.  No, you can’t buy a Stewart’s Orange Cream Soda with a gram of silver but you’ll purchase the silver and simply set it aside and hold it as a form of savings since it can hold value.  When there’s a reason to purchase the Stewart’s, then you simply sell the silver and use the actual money as the medium of exchange with the clerk.  For the record, I can see absolutely no reason to sell silver in order to purchase Stewart’s and if there is, you have more important items to purchase for survival than Stewart’s.  Think back to the example we used from the movie Stalag 17.  The cigarettes are also a valid form of money because they do hold their value well.  There is a general equilibrium of value between the supply of cigarettes (periodic supply via the Red Cross parcels) and the demand for cigarettes since they are all smoked.  The conditions are set as well for their use since there’s really nothing else of commonly-accepted value amongst the general population that could change.  On the one hand, the war might end as victorious Allied armies overrun the camps which means that the prisoners are released to the larger society in which they use dollars, and cigarettes become much more plentiful and hence less valuable.  On the other hand, the Allied Air Forces under the command of General Bernanke might decide to provide a mass cigarette drop on all known German Stalags as a morale boosting effort.  That would certainly make the prisoners happy, but it would utterly ruin Sefton’s meticulously constructed business.

So what’s the takeaway from this lesson?  That whatever serves as a viable form of money in an society must meet three basic criteria and that there should be a general balance between the three.  There can certainly be stresses to a currency dependent upon any number of factors whether they are social, economic or political, internal or external.  But to appreciate what’s going on around you, you have to get your nose off of the screen and begin to pay attention, especially over the course of time; you have to start thinking beyond the now and try to view something as dynamic and within the context of a much longer timespan.  And finally, look for any number of ways to place what you’re seeing within the context of the greater world.  You don’t live in a vacuum and what occurs nationally or globally can have a significant local presence right in front of you.

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Another Look at the American Middle Class

There’s been a persistent drumbeat of commentary over the past eight years – since the onset of the Financial Crisis of 2007 – that pertains to the demise of the American Middle Class.  It’s the start of a period that I refer to myself as The Great Reversion.  It’s framed within the context of a declining median family income as well as declining number of assets, backdropped against what is now the largest gap in wealth distribution since the Roaring Twenties, prior to the Great Depression.  But to consider the American Middle Class in such a light is too shallow, both in terms of what it is happening as well as how it came about.  What’s happening to the American Middle Class is not just an economic event.  To say that the American Middle Class will suddenly make a magical comeback with a

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PracticalDad Price Index -January 2015

The New Year came and went and immediately afterwards, I did the routine for determining the activity of the PracticalDad Price Index of 47 items.  This composite marketbasket of 37 foodstuffs and 10 non-foodstuffs is done at the first of each month at three unrelated grocery stores in the area and has been occurring monthly since it’s inception in November 2010 (November 2010 = 100).

After a signficant jump in the 37 item Food-Only Subindex from November 2014’s 113.87 to December’s 115.13 (November 2010 = 100), the January 2015 Food-Only Subindex dropped back to 114.00.  The Full Basket Index of 47 items (see here) actually rose slightly from December’s 111.18 to January’s 111.32 based upon price increases in non-food items such as soap, diapers and paper towels.

The December increase was led by a rise in the cost of a dozen large eggs, reflecting foreign demand for American supply due to Avian Influenza and I surmised then that the price would decrease again, and this occurred as the average price of a dozen eggs dropped by 19%; this was still higher than the November price before the December spike.  Dairy products also showed an improvement as Milk (1 gallon 2%) and butter (1 lb quarters) each dropped by 8.8% and 10.7% respectively.  Looking at the 37 foodstuffs in all, there were eight items with a price increase versus seven items that decreased in price, although the average price decrease was 6.58% versus an average price rise of 2.17%.

The price increases in soap and diapers were extremely small but the index was affected most by a price increase at one store – and yes, there’s the downfall to a small sampling size – of paper towels by 52%.  Because this store was part of a chain, I checked at another of the same chain’s stores in the area and the price for that item was consistent elsewhere so this change was not an individual store’s error.  This massive increase was not seen by the other two stores as one of those stores actually had a small decrease in the cost of their paper towels (eight rolls double ply package).  What I do know is that across the past several years, this particular store with the major price increase has become a sort of canary in the coal mine for me with price changes occurring here first and then reflected elsewhere at a later time.  So we’ll just have to see as the next several months go on as to whether this change is meaningful or just some isolated anomaly.

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Some Thoughts on Free Community College

I was sitting with my Better Half when there was an online article about President Obama’s recently announced plan for free community college tuition.  As we read the article and then followed up with other sites, the commentary flowed.  On the one hand, it can be trolled as yet another spending program with dubious results but there are some other aspects to consider.

Our conversation was framed by a discussion earlier at dinner with one of Middle’s friends, who is presently a college junior at a state university.  As he explained his course load, he commented that the very first Gen Ed class that he took on Day One was a math course, which started with the concept of counting.  Both of us looked at him and my wife stopped and asked for clarification and he confirmed that it started with simple counting before moving on to more complex topics such as addition.  This was on top of stories from others of his contemporaries, which led us to the conclusion that much of the early college course load is simply remedial and if this is indeed the case, then there is actually some value in the President’s proposal.

But before that, what is the core of the proposal? When you read the brief articles – and yes, the devil is in the details – there are requirements of all parties involved for this to work.  First, the students – those who are eligible and I smell income requirements in the air – are required to maintain a GPA of 2.5 and must be in school for at least half-time.  They must also show continuing progress towards their program goal, whatever that may be.  For their own part, the community colleges will have to offer programs that are either fully transferrable to a local four-year public university or occupational training programs for which there is high demand (and oh yeah, actual job opportunities).  The government part of the deal is that the Federal Government will put up three-quarters of the money and the states will put up the other quarter of the funding; in the ideal theoretical world, the student would be able to save $3800 in tuition each year.

Now let’s pick this apart as we did on the sofa.  The reality facing America is that our students, as a whole, are performing poorly versus their peers across the globe.  Our students are behind in science and math, critical in today’s technological society.  But look at the cost differential of the same type of course taught at both the community college and local state university.  A basic three credit Math 100 course at my local community college (and I’ve verified the numbers via the respective tuition website pages) would cost a student $458 while a basic three credit Math 100 course at the local state university would cost $792, a differential of $334.  Since these basic courses would be generally identical in scope, it makes no sense on a societal level to duplicate the courses with some students paying the higher amount and effectively wasting the resources.  This is clearly an effort to bring about some relief to the issue of student debt, which now is in excess of $1.2 Trillion, more than the amount of outstanding credit card debt.  It is also a concrete effort to combat the several decade mantra that the college route is the route to take after high school; it’s a mantra that has now sucked in enough people to swell the rolls of student debt holders to more than 40 million young adults.  The inclusion of the word local is also meaningful to students.  Part of the message sold over the past several decades is loosely reminiscent of Bluto Blutarsky’s infamous line from the movie Animal House: …the best seven years of my life.  The community college proposal is squarely saying that a quality higher education doesn’t have to include the now-expected time away from home.  I understand that there are plenty of young people who crave that – God knows that I did – but that was a different time with a different set of circumstances.  With the job market being what it is in terms of wages, would you rather live away from home now and take on debt or clear your decks now and then proceed with your life?

There are other points to make here.  It’s a message to community colleges that they need to take greater care in offering programs that are indeed timely and of value.  As costs drive more away from any higher education, the message is that the money will be there for students if there are programs that make sense; so cull away the nonsense and put together curricula that meets society’s demands.  It also sends a message that there has to be a greater effort by both the community colleges and four year institutions to mesh what’s offered so that money isn’t wasted on credits that won’t transfer to the four year university.  There have been several instances in which I’ve been told by someone that their kid or neighbor’s kid won’t have credits transferred, meaning that the resources are wasted.  Multiply this across – at least – several hundred thousand students and that’s considerable money simply down the tubes.  There’s likewise a message to the four year institutions that perhaps there are other options to the public and that in a period of declining resources, they’re best served putting the money into that which truly does train, educate and enlighten.

Since I began this article two days ago, other information about the proposed cost has been issued by the administration, assuming that you actually believe them.  According to the Press Secretary, the President’s program would cost about $60 Billion over the course of a decade…so call it roughly $6 Billion annually.  The knives will come out and it’s going to be decried as budget-busting, although the concept that an outlay of $6 Billion – nah, since we’re all of going on $20 Trillion in debt, let’s use the lower case and call it billions – is actually laughable in the greater scheme of things.  There’s actually the argument that this type of spending would actually be an investment.  According to the Federal Education Budget Project, produced by the New America Foundation, the collective student default rate for federal student loans as of 2011 was approximately 18%.  Yes, this is 2011 data but let’s apply this default rate to the 2014 student loans issued in the amount of almost $100 billion; this is a default of approximately $18 billion.  The same article from FEBP shows that the net recovery of defaulted money is approximately 80% for a net loss of $3.6 billion.  The net differential on the $6 billion average annual outlay is a loss of $2.4 billion.  The important thing is that as the system begins to change over time, the defaults should lessen and the money begin to flow to where it’s most effective.  This doesn’t even address the psychic and emotional toll on young adults who are stuck with a debt albatross around their neck as they start out in their adult life, nor does it address the delayed creation of households, which is actually important for the national economic health.

There’s one other point from both our conversation and a review of the information.  There’s a collective failure when the colleges – community and four-year – are forced to offer such utterly ridiculous course offerings as taken by Middle’s friend.  This information is certainly offered by at the secondary – hell, even the primary – level and it’s a complete failure that the information isn’t being collectively learned.  And that’s on us.

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Embracing the Suck

The term embracing the suck was popularized some years ago as a military term, the modern equivalent to the WW2 GI terms FUBAR or SNAFU.  The gist of the expression is that there are times when regardless of what you try to do, you’re going to be stuck with something so you might as well make the best of it.  It’s a term that’s come into use in the PracticalDad household and particularly in regard to Youngest, who is now in middle school – Dear God, when did that happen? – and finding it as I did during that time, a purgatory to be endured until able to move on to someplace better.  The issue surrounds interpersonal stuff with kids, especially the use of nicknames. 

It’s an issue that I know all too well, having spent years – from late elementary school through high school – with the moniker “Weird” attached to my last name.  It came quickly enough in elementary school when Bill Cosby premiered his Fat Albert show on Saturday mornings and the kids in my class latched onto it since the character’s first name is literally the same as my last name.  But the name stuck for more than a short period and suddenly, I found it downright painful at times.  I don’t know that I was any more weird than any other boy of that age, at the cusp of puberty and entering a phase that truly can be odd on any number of levels.  Regardless of my own opinion, the name stuck.

In Youngest’s case, his is a nickname that comes not out of behavior or appearance but instead, circumstance.  Youngest is an active kid who is in some ways a throwback with his neighborhood buddies, a group of boys who have routinely gathered at different yards after school to play sandlot football and generally beat the crap out of one another.  But through the unorganized activities and the various sports, he’s incurred a string of significant injuries over a span of time that have, in each instance, wiped out months of any strenuous physical activity.  The most recent injury has had a permanent effect since he’s now forbidden to play organized football in school, a sport for which he’d campaigned for several years and one which his mother and I had finally relented, agreeing to give permission to play.  With all of the facts now coming out about traumatic brain injuries and the recurrence rate among athletes who have already incurred such an injury, the risk is simply too great.  With yet another freak accident this Autumn, his fate and nickname were sealed and even kids at school who don’t know his real name, recognize him by the nickname.

Youngest would come home and in discussing the day, he’d express frustration at the ongoing situation.  Not only was there too much drama among the collective hormonal melting pot, but now there was this damned nickname.  As the conversations continued, he learned that there are really only three options when dealing with the interpersonal crap from others.  The first is to simply try ignoring it in the hopes that it either becomes boring for others or someone else is gifted with an even worse moniker to steal the verbal limelight.  The second is to make an issue of it with others and deal with it head-on, and typically in an aggressive and occasionally violent way.  The third is to simply embrace it, taking it on and trying to make peace with its existence.  The first option of trying to ignore it is, for a kid, largely unrealistic.  Kids have little patience and sense of time and it would probably take much longer to die away than they’re willing to wait.  I discussed my own experience with him and freely acknowledge that my own situation eventually went on for years…so look how well that one turned out for me, son.  The second, aggressive, option is generally unworkable since there’s always – and at any age – some ass who’s more than happy to twist the knife and watch the ensuing fireworks.  The reality is that by going off, you’re surrendering control of the circumstances and wind up dancing to another’s tune.  The last option is to simply try to find a way to make peace with the situation and even work it to your advantage, i.e. embrace the suck.  This option is the one that I adopted in my own youth after some conversation with my own parents.  The opinion that I took was that if I was going to be called weird, then I might as well give people something to talk about and hey, maybe even have some fun in the process.  So yes, I wound up doing some things that I might not have were it not for the nickname but the truth is also that I had a bit more fun that I would have had otherwise.

Youngest realizes that of all the possible nicknames in the world, his isn’t even remotely the worst possible one; this is especially after learning from his grandfather that one of that man’s childhood friends was nicknamed booger, a moniker still attached even after six decades.  Youngest has also decided to embrace the situation and one of his Christmas gifts was something that he can wear to school that pokes fun at his own situation.  It’s something that he asked for specifically after seeing it advertised and it now awaits the proper moment for an appearance in school.  I have to admire his willingness to go ahead with it and understand it completely since purposefully trotting it out in front of others takes their power away by showing that you can’t be affected by their own remarks, comments often made with the intent to belittle and cut.  I have no idea when he’ll pull out the item and it’s possible that it will wait until the weather is not so bitterly cold.  But it will come out and Youngest will embrace the suck, a lesson in character that will last him, like others, a lifetime.