Month: February 2017

Why Those Student Loans Aren’t Getting Paid Off

Submitted by Ryan McMaken via The Mises Institute,

Last month, the US Department of Education admitted that a much larger number of students are defaulting on student loans than previously reported. According to the Wall Street Journal: 

[T]the Education Department released a memo saying that it had overstated student loan repayment rates at most colleges and trade schools and provided updated numbers.

 

When The Wall Street Journal analyzed the new numbers, the data revealed that the Department previously had inflated the repayment rates for 99.8% of all colleges and trade schools in the country. The new analysis shows that at more than 1,000 colleges and trade schools, or about a quarter of the total, at least half the students had defaulted or failed to pay down at least $1 on their debt within seven years. [Emphasis added.]

An earlier report released in April had stated that "More than 40% of Americans who borrowed from the government’s main student-loan program aren’t making payments or are behind."

44 million Americans have at least some student loan debt for a total of 1.26 trillion dollars. The overall delinquency rate for these loans is 11.1 percent. 

If that seems like no big deal, just imagine if we were talking about similar numbers for home loans. 

In the days following the foreclosure crisis of 2008 and 2009, approximately ten percent of home loans were 90-days delinquent. But today, in a period when employment and earnings are vastly better than what they were in 2010, the delinquency rate for student loans is more than 11 percent, and has been that way for four years. Imagine if we were told that, year after year, more than one in ten homeowners simply weren't making payments in the midst of an economic expansion. It would be deemed an unsustainable disaster. And yet, that's what we're seeing with student loans right now. 

Indeed, the comparison with home loans appears apt, and can offer us some insights into what's wrong with the student loan process. 

Students Loans Should be Priced According to Major 

As with student loans, home loans are subsidized in a variety of ways, and this tends to drive up the price of the product being subsidized. But, with home loans, the terms of the loan are still at least partially based on the likelihood that the borrower will be able to pay back the loan. A borrower with low income and a poor credit history is going to pay more in interest and fees. 

But, this is not how it's done with student loans. If student loans took default risk into account the way home loans do, students seeking engineering degrees or – other degrees that typically lead to higher wages – would cost the borrower less than would loans made to philosophy and art history majors.

We already know, for instance, that recent graduates with economics degrees tend to pay much less of their earnings toward their student loans than do philosophy majors. 

This is illustrated in a helpful calculator produced by the Hamilton Project at the Brookings Institutition in which students can calculate his or her likely debt burden based on program of study. 

In the comparison below, we find that in the first year after graduation, an economics major (green) pays nine percent of income toward debt service. Meanwhile, the philosophy major (blue) pays twenty percent of income toward debt service. These totals decline over time as earnings increase, but at no point in the first decade after graduation does the economics major approach the same debt load as the philosophy major. 

Now, if student loans were more guided by market principles, and less guided by government policy, a student loan for a philosophy major would require higher interest payments than the economics major. Simply put, lending money to a philosophy major is a riskier proposition than lending it to an economics major. The interest rate would reflect this. 

Should We Just Give Students More Time?  

But maybe we just need to give students more time to pay off those loans? After all, as the Brookings Institution metric showed, the monthly burden of loans goes down quickly over time as earnings increase. 

The problem in this case is that allowing students to simply defer their loans out five or ten years until their earnings go up is much easier said than done. In real life, if a borrower wants to take longer to pay off a loan he or she is going to end up paying more back in interest payments. Wouldn't it be nice if all new homeowners received a ten year grace period before they had to start making payments? This is rarely done because we know what such a grace period would really mean. It would mean that borrowers would ultimately have to pay more in interest, and would likely have to make payment for a longer period as well.  

Moreover, for younger student borrowers, other life goals and needs are going to end up taking precedence over paying off student loans as time goes on. As their earnings increase, younger borrowers will become more interested in purchasing a house, staring a business, and having children. Yes, it's true that earning will go up over time for many borrowers, but so will other expenses. 

The picture isn't much better for older borrowers. The Boston Globe recently featured two Baby Boomers in their 60s who are still often repaying student loan debt from decades earlier:

But [Annette] Pelaez and [Jane] Patrick aren’t fresh-faced graduates or even millennials. Both 63 years old, they are among the fastest-growing segment of borrowers burdened by student loans: Americans over age 60.

“I thought I would have paid them off a long time ago,” said Pelaez, who would like to retire in the next few years from her elder care job but owes $37,000 dating to the 1990s, when she returned to school to get master’s and doctoral degrees

Clearly, giving borrowers "more time" isn't the cure-all some advocates suggest. 

On top of this, we might add the fact that student loans tend to be given out in amounts in excess of what even the students themselves report they need. The New York Times recently reported that: 

More than half of students did not bother to calculate their postgraduate loan repayments, according to a report by the Global Financial Literacy Excellence Center at George Washington University, using data from the Finra Investor Education Foundation’s 2015 National Financial Capability Study.

According to a new study by NerdWallet, a financial tool website, nearly half of undergraduate students say that they could have borrowed less and still have afforded their educations. “On average, they said they borrowed $11,597 more than they needed for undergraduate study,” the NerdWallet report said.

Student loan money is so easy to come by that the students aren't even bothering to see if their degree program has the potential of providing relative ease in repaying loans. 

This isn't to say that the only purpose of formal education is to increase earning potential. People may pursue degrees for a variety of reasons, and education is, quite frankly, a consumption good for many people who simply like going to school or having a degree hung on their wall. 

Are we to believe, for example, that the 63-year old [Annette] Pelaez pursued her graduate degrees because she couldn't make a living wage otherwise? Was she just scraping by for forty years with her bachelor degree until economic necessity forced her back into school to finally finish that PhD? 

In a functioning private marketplace for student loans, how would a lender price a loan made to an aging graduate student in her sixties? Are earnings likely to go up for that student as she approaches age 70 in a few years? Will she work 50-hour weeks in her late sixties to ensure she pays off her PhD loan quickly? That's unlikely, and loans would be priced accordingly. 

Unfortunately, that's unlikely to happen any time soon. Since a formal education at a pricey university is now considered to be a "right," nearly all students have access to subsidized, low-interest loans regardless of the likelihood that the degree program will actually assist the student in ever paying the money back. 

If we're looking for reasons why delinquency rates on student loans are so high, we shouldn't have to look very hard.

 

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Tying a Neighborhood Together Through Choice

The first thing I noticed about the International Charter School in Brooklyn, New York was its Superintendent, Matthew Levey. As I reached the entrance at the beginning of a November Thursday, I saw Levey—sporting an overcoat and a fedora—warmly greeting each of his 225 students by name as they each entered his school building. The Thursday of my visit also happened to mark the monthly meeting of the school’s Parents Association with the school’s principal. In addition to the kids, Mr. Levey seemed to know each parent on a first-name basis as he or she dropped off their children and comfortably chatted with the lingering crowd as if they were neighbors. As we reflect on the recent National School Choice Week celebrations amid an unprecedented national debate on education policy, moments like these stick out to me even clearer. Before I had learned anything about what was going on inside the school itself, ICS was already defying the stereotypes we’ve heard ad nauseam about charters being “unaccountable” to parents.

As the school day began and parents met with the principal, Levey took me up the stairs to show me around ICS. He was a flurry of activity, explaining the school’s history to me while washing cups in the staff kitchen, saying hello to late parents, and making sure a first-grader on a bathroom break was headed back to class (through a conversation in Spanish).

After putting his children through New York City public schools, Levey was disenchanted with the lack of responsiveness to parent concerns or substantive feedback he found and wanted to be part of the . Levey started an arduous, years-long process of trying to attain a charter, securing sufficient funding, finding the right personnel, and attracting enough families to found International Charter School in 2015. ICS is built on three precepts: developing strong foundations in background knowledge and cultural literacy, an emphasis on social-emotional learning to foster a nurturing community, and an effort to build a racially and socio-economically diverse group of students in a gentrifying neighborhood.

Instilling Core Knowledge

A key component of ICS is its emphasis on building solid fundamentals for later learning through a content-rich curriculum in the early grades. The school is inspired by E.D. Hirsch’s Core Knowledge Curriculum, which has its origins in the late 1980s as part of an effort to improve the cultural literacy of America’s youth. International Charter School puts a priority on instilling the basic tenets of the Western canon and history. The emphasis isn’t meant to be an exercise in overt “Protestant American triumphalism,” but, as Levey describes it, part of an effort to familiarize students with the cultural foundations that inform the society they’re growing up in. This is clear the moment one walks in to the school’s main floor, where portraits of Washington crossing the Delaware and Abraham Lincoln grace the hallway.

First graders, for instance, learn about the basic tenets of the three Abrahamic religions. Levey and other proponents of the Core Knowledge program see this kind of learning, regardless of a students’ personal beliefs, as an important dimension to understanding their culture. During the day, Levey called up a local rabbi about organizing a field trip to her synagogue as part of the Judaism section of the religion unit. The visit could give students a chance to experience what they were learning about up close, and Levey hoped seeing different places of worship could help classmates better understand and respect their differences.

A key part of Core Knowledge educational techniques is an emphasis on interdisciplinary engagement. During the call, Levey brainstormed using one of the school’s music classes as a follow up to the field trip in order to teach the students about how Jewish musical stylings had influences on composers identified with the broader American musical tradition, like George Gershwin and Aaron Copland. ICS’s ability to expose its students to these concepts from such an early age speaks to the impressive flexibility that the charter model allows through its curricular freedoms.

A close-knit community

ICS’s emphasis on social-emotional supports was apparent within my first half-an-hour in the building. “In order to learn you have to care,” Levey explained, “and in order to care, you have to be cared for.” Levey adopts this philosophy in his personal interactions with students and in the structure of the school schedule. For example, each day begins with a morning meeting. The time functions as an emotional buffer between home and class where students can share things that are going on in their lives, whether as mundane as a new pet or as weighty as a lost loved one. By giving children a chance to address things on their mind, the meetings help reduce the impact of issues kids may bring from outside school on their ability to learn.

The school’s caring mindset extends to students facing unique challenges. Rather than segregating its special education students, ICS puts them in Integrated Co-Teaching (ICT) classes alongside general education students with the help of an additional special education teacher. I visited a second grade ICT class during my visit, where students were in the middle of their twice-weekly Spanish lessons and creating Thanksgiving turkeys labeled with the vocabulary words they had learned. Mr. Levey pointed out various students to me during the visit, outlining home situations they were dealing with, and how the school worked with these children and their families to evaluate their needs.

One parent I talked to coming out of the Association meeting told a similar story about her oldest daughter’s transition to the school. When Musiki Glover’s daughter first came to ICS after attending a majority-black Pre-K, she found it difficult to adjust to the new, more diverse environment. The school worked with Glover and her daughter through nearly daily meetings about potential solutions being tried as well as a process of “free flowing emails” with the school staff about her daughter’s progress. All of this gave Glover confidence in the school’s responsiveness and helped her child settle in. Now Glover’s daughter is in first grade, with her son in Kindergarten at ICS.

None of these practices are alien to the traditional public schools. Quality school leaders exist everywhere. But the charter schools, driven more directly by parent accountability and student need, rewards educators like Levey for their efforts instead of forcing them to work against the incentives in place. Levey is free to employ who he wants, get rid of them if they don’t measure up, and to teach what he thinks parents want their children to learn. None of that is nearly as easy for traditional public schools.

Diversity by choice

Levey faces a two-pronged challenge in building a diverse school student body. Lower income families, which comprise a quarter of ICS’ population, can face housing and transportation issues that can make it difficult to come to school in the first place, even if they believe in the promise of the school. Levey has to make sure that he’s aware of any of these challenges in his students’ lives so help the school work with them to overcome them. In attracting middle class families whose resources give them more options in a choice-rich environment, Levey’s offers a wide variety of enrichment offerings. Dance and yoga classes, art curriculum, afterschool theater workshops, and Spanish lessons all act as “signals” of quality among the many offerings available. In an environment of competition, schools like ICS that stay open go further.

As Reason has covered in the past, International Charter School’s neighborhood in Brooklyn has been the site of recent tensions along class and racial lines over the redrawing of school zone boundaries. These changes, part of an effort to reduce segregation, typically result in loud, bitter school board meetings. All parents want the best for their children, but when families are forced to go to school based on where they live, those with the resources move to school zones with a reputation for quality, often enhancing segregation in the process. Efforts to increase integration by changing these artificial boundaries can artificially pit groups of parents who want access to better schools against those worried about endangering the funding and quality of their own.

ICS and other schools of choice offer a more workable alternative by integrating communities voluntarily around a commitment to good schools. Levey does so by focusing on developing a quality educational product first and trusting parents to voluntarily buy-in to a shared vision. Glover is one of those parents. She told me about her experiences witnessing highly segregated schools in Houston before she lived in New York, and how she wanted her children to grow up in a more integrated environment to better understand different kinds of people. Glover is part of the Parents Association diversity committee, which she calls “therapeutic.” When there are disagreements about what to focus on curriculum or to prioritize in new hires, the committee “is a nice place to be real with one another.” Even if Glover doesn’t always get her way during the meetings, having the forum and regular access to school leaders makes her feel like her views are appreciated. ICS’ focus on heavily engaging with its families shows, and marks the clearest contrast with the schools families I talked to came from.

Looking to the future

The biggest obstacle for International Charter School’s future is finding a long-term home, a challenge faced by charter schools across the country. ICS was founded as a Kindergarten, and has built up a grade-level each year, currently serving students in K-2, with plans to expand through 8th grade. ICS currently leases its building but will have to eventually move as the school expands further.

Facilities costs are a perennial check on charter expansion in most places, particularly in New York, where the city Department of Education funds charters with only 70% of the per-pupil resources their traditional public school counterparts receive. Charter schools that want to build their own facilities face higher construction costs than the subsidized services traditional public schools have access too. With higher construction costs than the subsidized services traditional public schools have access to, many charter schools rely on vacant or underused public school buildings to find space. While Mayor Bloomberg supported giving underused spaces to charters, Mayor DeBlasio has been less willing share facilities, citing a supposed lack of space.

Seeing what Levey and others are able to accomplish with less funding and higher up-front costs speaks to the power of the incentives that choice creates for educators. In a choice-rich city like New York, ICS is an example of a new school striving to provide the best services possible to students and their families so that it can continue to grow. With a passionate leader, supportive parents, and a choice system that rewards both, it seems the only thing holding back International Charter School is New York City’s own red tape. For the sake of Mr. Levey’s students, let’s hope ICS overcomes it.

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Now On The Cover Of Spiegel: Trump Beheading The Statue Of Liberty

As President-Elect Trump visited Washington in December, and received calls from world leaders, Germany's Der Spiegel magazine makes it clear just what the European establishment thinks of The Donald's future…

 

And now, with President Trump having taken office, the German media (having exclaimed his inauguration address as "a declaration of war"), have dropped their latest 'cover-bomb'…

 

Not much for room for mis-understanding there.

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Trump Signs Executive Orders Rolling Back Dodd-Frank, Fiduciary Rule

As previewed earlier today, moments ago President Trump signed two executive orders aimed at starting the process of rolling back the regulatory system put in place after the financial crisis.

Among the targets are rules that protect against predatory lenders, force brokers to lower fees for retirees and ban proprietary trading. Specifically, Trump took executive action ordering the review of Dodd-Frank rules enacted after 2008 financial crisis, and halting the “fiduciary rule” that would require advisers on retirement accounts to work in the best interests of their clients.

Wall Street CEOs such as Lloyd Blankfein and Jamie Dimon, tired of being constrained from blowing up the financial world with undue government regulations and relying almost entirely on NIM which stubbornly refuses to rise, have been pushing for changes for years, arguing that the industry has been too constrained by the system put in place by the 2010 Dodd-Frank Act. After Trump focused on limiting trade and immigration during his first two weeks in office, policies opposed by many in the financial industry, the president’s stroke of a pen unleashes a process to undo many of the rules they find most “irksome” as Bloomberg put it.

“We’re going to attack all aspects of Dodd-Frank,” Gary Cohn, former Goldman president director of the White House National Economic Council, said Friday in an interview with Bloomberg Television. “We are going to engage the House, we’re going to engage the Senate. They are equally interested in reforming some of the regulatory processes as well. We can do quite a bit without them, but the more help we get from Congress the better off we’re all going to be.”

Meanwhile, Elizabeth Warren – rightfully according to some – lashed out at Trump for rushing to undo the key Wall Street regulations, and issued a statement in which she said “The Wall Street bankers and lobbyists whose greed and recklessness nearly destroyed this country may be toasting each other with champagne, but the American people have not forgotten the 2008 financial crisis.“

“Donald Trump talked a big game about Wall Street during his campaign – but as President, we’re finding out whose side he’s really on. Today, after literally standing alongside big bank and hedge fund CEOs, he announced two new orders – one that will make it easier for investment advisors to cheat you out of your retirement savings, and another that will put two former Goldman Sachs executives in charge of gutting the rules that protect you from financial fraud and another economic meltdown. The Wall Street bankers and lobbyists whose greed and recklessness nearly destroyed this country may be toasting each other with champagne, but the American people have not forgotten the 2008 financial crisis – and they will not forget what happened today.”

While it will take a while to fully roll back the legislation, we are confident that Wall Street is already preparing for the next big push into prop trading, major releveraging, blowing a whole new set of asset bubbles, and all those other things which brought the system to a near collapse less than 10 years ago.

Finally, while Trump was quick to begin the process of undoing Dodd Frank – no doubt with the helpful advice of numerous former Goldman bankers – he has yet to make any comments on bringing back Glass Steagall, the one law that would truly protect depositors from runaway banker greed.

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Despite Dismal Jobs Data, Dollar Jumps On Fed’s Williams Headlines

Disappointing earnings growth this morning seemed to convince traders that The Fed would likely be on hold through March (and The Fed’s statement earlier in the week did nothing to help_ but after tumbling all morning, the dollar is now jumping higher because The Fed’s John Williams says he “sees some arguments to raise rates in March.”

The Fed is clearly in panic mode that they have lost contro of the narrative…

  • *WILLIAMS SAYS MARCH IS ON THE TABLE, DECISION DATA-DEPENDENT
  • *FED’S WILLIAMS SAYS ALL FOMC MEETINGS ARE LIVE
  • *FED’S WILLIAMS: INFLATION MOVING BACK TO 2%
  • *WILLIAMS SAYS MARCH IS ON THE TABLE, DECISION DATA-DEPENDENT
  • *WILLIAMS SAYS 3 HIKES `REASONABLE GUESS’ FOR FED RATES IN 2017
  • *FED’S WILLIAMS SAYS NOT WORRIED ABOUT U.S. ECONOMY STALLING
  • *WILLIAMS: INFLATION WILL BUILD UP IF WE PUSH ECONOMY TOO HARD
  • *FED’S WILLIAMS SEES SOME ARGUMENTS TO RAISE RATES IN MARCH

And sure enought the algos buy it!!

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I Am Long Stupidity

By EconMatters


The Title says I am long stupidity, which I am, but I am also long Corruption, Excessive Government Debt, Excessive Risk Taking in Financial Markets, Excessive Complacency, Terrible Trade Wars, Protectionism. I am So Long Government and Central Bank Incompetence, Long Inflation, Long The Massive Credit Bubble Blowing Up, and Long the entire financial system collapsing.

The reason for this rational belief is because the entire financial and government system is built upon such lunacy, corruption, outright stupidity, and overall bad practices. The entire system is guaranteed to fail, you cannot input such stupidity, and get out good results in the end. It is guaranteed to fail, it is a logical certainty.

This isn`t even a debatable issue or something an analyst would apply a probability model towards, it is a 100% guaranteed outcome result of such poor inputs into the equation. Every single input into the health of the financial system is a patently flawed strategy, not one input is sound and sustainable, 2+2 doesn`t equal NEGATIVE ZERO GRAVITY.

Therefore, the entire financial system is going to crash, as it should with such stupidity and massive incompetence. The only question is how best to play this systemic crash this time around while avoiding counterparty risk issues which occurred during the 2008 financial crash.

The other question is what blame and culpability do Central Bankers get this time around for creating this financial asset bubble, and doubling down on the very strategy that caused the 2008 financial crisis? Nobody could be this incompetent, clueless, reckless, and stupid in their actions, so it has to be outright corruption. And as such these Central Bankers need to start reaping what they sow in creating these financial asset bubbles that ultimately lead to financial system failures like in 2000, 2007, and 2017!

Central Bankers your only job should be to stop creating artificial financial market asset bubbles, that put the entire global economy at substantial risk because the market conditions caused by unsustainable and extremely risky input monetary policies are guaranteed to lead to unstable results because the very nature of them being artificial in nature and unsustainable! Financial Market Bubbles will occur plenty enough on their own due to excessive speculation, but these are manageable.

When central bankers encourage excessive risk taking by market participants however through extreme monetary policy initiatives like ZIRP for a decade represents, this presents risks that are unmanageable to the entire global interconnected financial system. This is where we are at right now, the crux of the issue, and it will end very badly for all countries from China, Japan and Europe to the United States.

Just look at all the government and private debt accumulated on balance sheets around the globe for the last decade, and tell me with a straight face a) this is sustainable, and b) doesn`t have severe consequences for the global economy going forward. Think in terms of the Greek Debt Crisis writ large and applied to the entire global financial system. This is what Central Bankers need to be worried about and not a blip of improvement in the labor market or a tick up or down in inflation, it is financial market stability, and the massive financial asset bubbles they artificially created in markets with ZIRP!

 

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Over 100,000 Visas Revoked Due To Trump Travel Ban

Over 100,000 visas have been revoked following President Trump’s ban on travel from seven mostly Muslim countries the WaPo and NBC reported citing a government attorney in Alexandria federal court Friday. The attorney, Erez Reuveni from the Justice Department’s Office of Immigration Litigation, did not say how many people with visas were sent back to their home countries in response to the travel ban. However, he said no returning legal permanent residents have been denied entry.

Reuveni told the court on Friday that in addition to the 60 people who were allegedly stripped of their legal status and deported, some 100,000 others have had their visas revoked since last Friday, when Trump signed an executive order barring citizens of Iraq, Iran, Sudan, Libya, Somalia, Syria, and Yemen from entering the US for 90 days while the federal government revisits its screening processes.

The number was revealed during a hearing in a lawsuit filed by attorneys for two Yemeni brothers who arrived at Dulles International Airport last Saturday. They allege they were forced into giving up their legal resident visas, they argue, and quickly put on a return flight to Ethiopia. According to the lawsuit, they were detained by Customs and Border Protection agents at Dulles Airport and “forced to sign” I-407 forms “against their will and without their knowledge or consent.”

“The Immigration and Nationality Act provides no way to legally effectuate such a ban against this category of immigrants,” the Virginia lawsuit states. “Congress has provided that immigrants in petitioners’ situation are entitled to enter the United States, and that if the government disagrees, it must institute regular removal proceedings before an immigration judge.”

“The number 100,000 sucked the air out of my lungs,” said Simon Sandoval-Moshenberg of the Legal Aid Justice Center, who represents the brothers. Others meanwhile have said that Trump is merely doing what he promised, and that his immigration “ban” has been seen approvingly by a plurality of the US population as a recent Reuters poll found.

A third, more skeptical group, has noted that the number seems too high to be realistic: “100,000 visa revoked in one week? So 5 million are issued a year from the 7 countries?” a confused commentator noted.

Meanwhile, the lawsuit plaintiffs are being offered new visas and the opportunity to come to the U.S. in exchange for dropping their suits. For people like the brothers, Tareq and Ammar Aqel Mohammed Aziz, who tried to enter the country over the weekend with valid visas and were sent back, the government appears to be attempting a case-by-case reprieve.  However, Virginia Solicitor General Stuart Raphael said such a piecemeal approach was not sufficient, since it is not clear how many people were turned away at Dulles or other airports. The state had sought to join the suit, saying it impacted many state residents. “There’s something very troubling about the way this is playing out,” Raphael said. “While I am pleased that they are willing to whisk people back if they come to our attention, they won’t come to our attention if we don’t know who they are.”

Judge Leonie M. Brinkema allowed Virginia to join the Aziz brothers’ suit. Noting that she presided over the case of 9/11 conspirator Zacarias Moussaoui, Brinkema said she had never before faced such interest in a legal dispute. Other judges dealing with lawsuits against the order around the country, she said, have told her of similar experiences. “I have never had so much public outpouring as I’ve seen in this case,” she said. “This order touched something in the United States that I’ve never seen before. It’s amazing.”

She continued her criticism:  “It’s quite clear that not all the thought went into it that should have gone into it,” Brinkema said. “There has been chaos. . .without any kind of actual hard evidence that there is a need” to revoke visas already granted. People had relied on their visas as valid, she said; families had expected to be reunited with loved ones.

The judge ruled that the lawsuit would be allowed to move forward.

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Rig Count Surges Again To 16-Month Highs (But Where’s The Oil Industry Jobs)

For the third week in a row, the US oil rig count rose dramatically (up 15 to 583 – the highest since October 2015). This is the biggest 3-week surge in rig counts since April 2013… (the biggest 3-week percentage gain since Nov 2009)

 

Production continues to trend with rig count…

 

However, as exuberant as this number is, job gains are nowhere to be found as the robotization of the industry (amid more 'real' costs of capital) provide no help to Americans…

As Bloomberg notes, the addition of just 100 jobs to industry payrolls lags well behind the pace of the overall U.S. economy, which added 227,000 workers during the month. The growing use of robots and other efficiencies honed over the course of a 2 1/2 year market downturn means more work is getting done with fewer people. Confirming previous fears that robots are repacing roughnecks.

The inevitable advance of technology and automation has upended industries such as car manufacturing and food processing. Now robotics is making its way into the oil fields by helping drilling activities and putting together heavy pipes.

For companies, more automation would mean higher efficiency, safer operations, and ultimately, lower drilling and production costs. For oil rig workers, it would mean that part of the jobs lost during the oil price downturn would never return. Also, part of the new job openings would require a different type of skill set: for example, information technology and advanced computer skills.

But even if automation is expected to increase, and some day take over drilling sites and drillships, it is not the norm in the oil and gas industry today. While there have been early adopters, the oil and gas drilling business is still years away from becoming an automated activity.

Companies that had been lavishly spending on drilling at oil prices at $100 per barrel were too busy pumping oil and gas to think of efficiency and production costs. But the oil price bust has squeezed their budgets, and the firms are now seeking to cut costs while increasing efficiency.

Apart from reducing the human factor in drilling such as shifts or fatigue, or work-related accidents and incidents, automation can reduce headcount costs.

Automated drilling rigs may be able in the future to reduce the number of persons in a drilling crew by almost 40 percent, from 25 workers to 15 workers, Houston Chronicle’s Jordan Blum writes, quoting industry analysts.

Drilling company Nabors Industries expects that it may be able to reduce the size of the crew at each well site to around 5 people from 20 workers now if more automated drilling rigs are used, Bloomberg’s David Wethe says.

However, a sensitive issue such as workforce in an industry that had slashed a couple of hundred thousand jobs during the downturn has just become even more sensitive with the new U.S. administration.

“The Trump Administration will embrace the shale oil and gas revolution to bring jobs and prosperity to millions of Americans,” President Trump’s America First Energy Plan states.

So companies are likely to keep a low profile on how much staff costs they would be saving.

“They’ll more likely brag about the automation rather than these head counts,” James West, an analyst with investment bank Evercore ISI, told Bloomberg.

Automation is also likely to drive small-sized subcontractors doing jobs for larger companies out of business.

Although it is expected in the not-so-distant future, automated rigs will not be replacing en masse human workforce this year or next. Right now, there are many conventional under-utilized rigs, especially in offshore drilling, where companies had slashed exploration and drilling expenditure.

In land drilling, activity in the U.S. oil patch is picking up, and employment has recently shown the first signs of gains after more than two years of declines.

Total job growth in Texas is expected to rise from 1.6 percent in 2016 to around 2 percent in 2017, Dallas Fed assistant vice president and senior economist Keith Phillips said earlier this month.

“Job growth picked up in the second half of 2016 due to a stabilization of the energy sector,” Phillips noted.

Part of the jobs lost over the past two and a half years may never return due to increased automation, but the recovery of U.S. drilling may send companies hunting again for staff this year.

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Trump, Terrorism and Freedom: New at Reason

TSAGropingYouTubeA month after the September 11, 2001 atrocities, nearly 60 percent of Americans said they trusted the government in Washington to do what is right almost always or most of the time; that was the highest it had been in 40 years. More than 50 percent were very to somewhat worried that they or a family member would be a victim in a terrorist attack. Keying off of these fears, various commentators stepped forward to sagely intone that the “Constitution is not a suicide pact.” (I prefer “Give me liberty or give me death.”)

Instead of urging Americans to exercise bravery and defend their liberty, our political leaders fanned fears and argued that we must surrender freedoms. The consequences included the creation of the Department of Homeland Security, the proliferation of metal detectors at the entrances of public buildings, the requirement to show government-issued IDs at more and more public venues, the increased militarization of our police forces, tightened travel restrictions to neighboring countries where passports were once not required, and the establishment of a vast program of domestic spying.

How would President Donald Trump react to a significant terrorist attack, especially one motivated by radical jihadist beliefs? It is possible that such a crisis would reveal President Trump as a fierce defender of American constitutional liberties, but the signs all point in a more authoritarian direction.

View this article.

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Utah Bill Sets Stage For State Gold Depository, Further Encourages Use Of Metals As Money

Submitted by Mike Maharrey via The Tenth Amendment Center,

A bill introduced in the Utah legislature would build on the state’s Legal Tender Act, creating a foundation for further action to encourage the use of gold and silver as money, and take another step toward breaking the Federal Reserve’s monopoly on money.

Rep. Ken Ivory (R-West Jordan) introduced House Bill 224 (HB224) on Jan. 27. The legislation would add several provisions to state law designed to encourage the use of gold and silver as legal tender. Passage would set the stage for expansion of gold repositories in the state and authorize further study on several sound money policies.

Specifically, HB224 would authorize the investment of public funds in specie legal tender held in a commercial specie repository. Under existing code, “specie legal tender” means gold or silver coin and bullion. “Commercial specie repository” means an institution that holds or receives deposits of specie legal tender that is located within the state. Practically speaking, passage would give the state the option to hold funds in gold and silver instead of Federal Reserve notes.

The legislation would also direct the State Money Management Council to make rules governing quality criteria for a commercial specie repository, in consultation with the state auditor.

A “GOLD BANK” FOR UTAH

Gov. Greg Abbot signed legislation creating a Texas gold bullion and precious metal depository in June of 2015. The facility will not only provide a secure place for individuals, business, cities, counties, government agencies and even other countries to to store gold and other precious metals, the Texas law also creates a mechanism to facilitate the everyday use of gold and silver in business transactions. In short, a person will be able to deposit gold or silver – and pay other people through electronic means or checks – in sound money.

Ivory said “secure public transaction is the ultimate goal” in Utah as well.

In fact, the United Precious Metals Association (UPMA) already offers publicly available accounts denominated in gold and silver dollars in Utah. According to the UPMA, in the past year it has grown 700 percent in assets under management and made up 2 percent of the market for U.S gold and silver coins.

“Despite a couple of zerohedge articles, most people remain unaware of Utah’s gold bank,” UPMA head of sales and marketing Jeremy Cordon said. “We are a few years ahead of Texas.”

According to Cordon, passage of HB224 would give UPMA and similar repositories a special recognition by the state, and that would likely expand the market for their services. The state of Utah will also be able to hold legal tender gold and silver in such repositories under the proposed law.

HB224 would also authorize Federal Fund Commission “to study and assess the taxpayer reporting requirements for specie legal tender income and the remittance of taxes on specie legal tender income; the collection of severance taxes in specie legal tender for taxes assessed under Section 59-5-202 on gold and silver production; and (viii) the issuance of bonds denominated and payable in specie legal tender for the purpose of retiring existing government debt.”

LEGAL TENDER

In 2011, Utah became the first state in over 80 years to pass a law making gold and silver coin legal tender. The following year, the legislature followed up, approving a bill clarifing several tax measures and more importantly, expanding the definition of specie to include gold and silver coin approved by the state.

Passage of HB224 would take the next step forward and further open the door for the use of gold and silver in everyday transactions in the state.

In a speech to the UPMA announcing the legislation, Ivory emphasized the connection between sound money and liberty. He told the story of a woman who tried to pay her bill at Walmart with gold coins. The cashier told her she needed “real money.” When the lady went to the bank, the teller gave her face value for the 14 Double Eagle coins – $280. The value of the gold itself was over $20,000.

“Think about where we are when we don’t understand the value. The nature of our property, the nature of our liberty embodied and represented in money that has a fixed standard.”

IMPACT ON FEDERAL RESERVE

The United States Constitution states in Article I, Section 10, “No State shall…make any Thing but gold and silver Coin a Tender in Payment of Debts.” States have simply ignored this constitutional provision for years. It’s impossible for states to return to a constitutional sound money system when it taxes gold and silver as a commodity.

State actions like Utah’s Constitutional Tender Act, and the creation of a bullion depository in Texas take steps toward that constitutional requirement, ignored for decades in every state and sets the stage to undermine the monopoly of the Federal Reserve by introducing competition into the monetary system.

By making gold and silver available for regular, daily transactions by the general public, the state depositories create the potential for wide-reaching effect. Professor William Greene is an expert on constitutional tender and said in a paper for the Mises Institute that when people in multiple states actually start using gold and silver instead of Federal Reserve notes, it would effectively nullify the Federal Reserve and end the federal government’s monopoly on money.

“Over time, as residents of the state use both Federal Reserve notes and silver and gold coins, the fact that the coins hold their value more than Federal Reserve notes do will lead to a ‘reverse Gresham’s Law’ effect, where good money (gold and silver coins) will drive out bad money (Federal Reserve notes).

“As this happens, a cascade of events can begin to occur, including the flow of real wealth toward the state’s treasury, an influx of banking business from outside of the state – as people in other states carry out their desire to bank with sound money – and an eventual outcry against the use of Federal Reserve notes for any transactions.”

Once things get to that point, Federal Reserve notes would become largely unwanted and irrelevant for ordinary people. Nullifying the Fed on a state by state level is what will get us there.

NEXT

HB224 was referred to the House Rules Committee, where it must pass by a majority vote before being referred to a standing committee for further consideration.

Watch Rep. Ivory’s Speech

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