CH 7 Blog

Student debt bankrupting a generation

http://www.financialpost.com/news/Student+debt+bankrupting+generation/4874861/story.html

Summary:

Canada is breeding a generation of “debt students” where their first job starts with paying off debt. Nearly 2 million Canadians have student loans worth as much as $20 billion and it includes provincial government loans, credit cards, and family loans. One reason for the increase in debt is tuition fees, which nearly doubled in the pass decade and other fees for necessities. However, the main problem is the interest rate implied on the loans. In a time of very low interest rates, the government charges 8% on student loans. Many students find that a nightmare especially how the interest begins to compound. The fact is that students own so much that saving up an account or starting a retirement program early is almost impossible. As a result, the economy suffers as the generation focuses their money in repaying the banks and saving money.

Connection:

The connection that seem obvious to me is the concept of the bank of Canada. As we know, in Canada the banks have the ability to do many things that will influence the economic conditions. For example, if the bank saw inflation as a serious problem it would try to reduce money supply. This connects with the article because the banks have the ability to change their policies about student loans to be more modest. Another connection is with the supply of money. Because everyone with a post secondary education is in debt, the nation’s GDP will feel the ripple affects as people are going to spend less to cover their debt. Therefore, it effectively decreases the velocity of circulation of money and market transactions. In other words, living off debt is not sustainable and the banks need to act to resolve this epidemic.

Reflection:

It may not be on the top to do list for the government and the banks but it will be of major concern in the near future. If I were to propose a solution to the problem it when be to reduce the interest rate while extending the repayment terms and there should be an adaptable rate to accustom each student for special cases. This really worries me, as I am also a student about to enter post secondary. I know for a fact I do not want to be spend half my life paying off student loans because of high interest rates. I hope the banks propose a plan to fix this cause eventually it may potentially shake the foundation of the country's economy.

Great Depression

Great Depression

1                    Almost all economists can agree that no single one event started the Great Depression. Instead, many events intervene together influenced the start of it. It began with the stock market crash on October 29 1929. As a result, shareholders lost more than $40 billion dollars. Afterwards, bank failure rose throughout the country and because of that people started to lose their savings. Things now escalated to a point where demand for products dramatically drop due to phobia that the economy will worsen. The government anxious hastily implies a policy of tariff. The policy was enforce to protect American companies by raising taxes on foreign goods. However, this would prove to be a catastrophe as it reduces imports and exports. Finally, detriment to crops around America cause difficulties for farmers to pay taxes and in turn lost their farms. It would these events and started a long line of miserly known as the Great Depression.

2                    It came with a bang and left many people feeling the affects of it. The current recession has causes a global crisis and resulted in many powerful nations feeling the consequences and it all began in America. The banks started offering mortgages to individuals and families with poor credit. Under the situation, the citizens were incapable of paying the low-down-payments/low adjustable mortgages. As a last ditch effort everyone began to sell their property before the banks repo their houses. This reaction made prices drop. (It is because of the contrast between and supply and demand changed) In addition, oil emerge record high prices. As a result, of China consume much more oil and the Middle East in continual civil war. The final cause to the recession is debatable with but some people believe it may be because of the decrease of the U.S currency. Nevertheless, it is these reasons that caused the “Great Recession”.

3                    The government in my eyes has done a reasonable job in reacting to the recession. Some of the actions include Barack Obama’s strategy to pump money into the economy by spending but that is only for temporally time. Leaders of the world have made efforts to get together in the G-20 Summit but it is hard to determine if anything even was done during that time. Overall, I do not know if they were successful in their attempts but at least they tried.

4                    Compare to the recession and during the Great Depression they lack advance technology that help us resolve many of the problems faced. In the time of the 1930s they did not have computers, cell-phones and credit cards. The banks use these to great effect today. The computer offer many online benefits that ordinary people have access to that educates them.

5                    Online resources and banking affect America’s GDP because it provides services that help to make profit. For example, the internet gives constant feedback about current prices on products and keeping track on the stock market is that much easier. Another benefit is and banks give citizens a formal way of transferring cash around the world with little difficulties and provide loans. All of the positive things that online resources and banking lead to America to having a better GDP therefore efficiently alter/changing it.

6                    I think the Great Depression affected the world more than the current recession. I can sympathize that people are suffering a lot due to the slow down of the economy however, it’s better than having thousands of ordinary citizens laying on the street starving. It was so troublesome at times people started to commit suicide as an alternative to getting out of debt. In addition, many lack current technology and education on helping themselves to pay off debt and various credit that are essential to fixing their problems. Therefore, I personally believe the Great Depression was much more devastating than the current recession.