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2014-12-13 20:30:00Gabriel Paulot
US Student Loan - A Quick Overview
Student loan in the United-States are rising at a dramatic pace reflecting constantly increasing cost to attend colleges. The total amount of student loan has increased by an annual rate of +12% from the end of 2004 (USD 346 billion) to the end of 2013 (USD 1,080 billion). It now stands at USD 1,126 billion (September 2014).

This increase is driven in equal proportions by the number of student going through student loan to fund their college fees and by the average amount of these loans.
The number of student going through student loan has increased by 6% per annum from 2004 (23 million of people) to 2013 (39 million). This reflects for a part a positive trend as more and more young people are attending shool and universities. However, this number in increasing just slightly above +2% per annum - accounting for less than half of the 6% increase
The average amount has increased over the same period of time by 5.9% per annum moving up from USD 15K to USD 25K.

The graph below shows the evolution of prices for tuition and school fees compared to overall inflation. Since 1980 the overall prices have been multiplied by 3, but schooling and child care costs have been multiplied by almost 10.


Out of 10 senior students who graduated from public and nonprofit colleges in 2013, 7 where having student loans with an average amount of USD 28,400.

Close to 90% of these student loans are done through federal student loans.

This increasing level of student debt, unlike other debt, is showing an increasing % of deliquency albeit it is virtually impossible to default on a federal student loan as the government has a lot of power to recover the money.


This situation is not only a risk in term of debt not being repaid but also for the economy has young people, facing the burden of student debt, has less money to spend on other things. In addition it also reduce their capacity to get a mortage credit which has a negative impact on home construction - one of the major sector in the US economy.

But the most critical point on a long term view is that this situation may result in unequal opportunities according to the wealth of the family student come from.
2014-12-12 17:15:00Gabriel Paulot
Drop in Oil Prices - Bad Sign and Good News
The drop in oil prices is a bad sign of the global economy condition as it reflects lower demand - especially from China - on the back of reducing growth.

Since September 2013, China has become the first net importer of petroleum and other liquid fuels - ahead of the United-States, as Chinese net imports continue to increase when US net imports are decreasing rapidly (about -40% over last 3 years) with increasing production on US soil.


So it should not be a surprise that slow down in Chinese indusstrial production result in a drop in oil prices due to lower demand.

In the meantime offer for oil and gas is increasing - notably thanks to increasing production in North America - and even more for coal and lignite which has registered a 4% annual increase since the year 2000 (versus 2.6% for gas and 1.1% for crude oil).


As of December 12th, 2014 (USD 57.45 per barrel), the WTI price was back to its level of June 2005 in current dollar but still significantly above its level prevailing over the period 1986 -2003 (USD 21 per barrel) before prices started increasing rapidly. Restated for inflation, it also remains higher (US 31 per barrel).


However, this drop is also a very good news as it result in a massive transfer of purchase power from oil producting countries and oil major's shareholders to middle classes all across the world.

In the developped world, Europe, Japan and other developped Asian countries will be the main ones to get benefit of this drop. Middle-class consumers in the US will also benefitiate significantly from this trend (they will gain more as a consumers than they will lose as shareholders - shareholding being concentrated in highest revenu categories).

For the non oil-producing emerging countries, this is also a fantastic news. Countries like India, Morocco, Turkey, East Africa will see a significant improvment in their terms of trade. For those who rely on government subsidy to reduce oil cost (like India) this will also be positive for their budget balance.

As a matter of fact, it is interesting to notice that the global crisis occured few years after prices of oil, as well as other commodities, started to increase at unprecendented pace. If prices of oil come further and durably down consumers all across the world will benefitiate from higher purchasing power, sustaining economic expansion, and recovery in job markets (especially in Europe).
2014-12-11 18:04:00Gabriel Paulot
2014 GDP, Population and GDP per Capita
2014-12-05 15:00:00Gabriel Paulot
The Bay Area - A Home to Innovative and Creative Global Leading Companies
Here is a list of IT related companies headquartered in the bay area.

The list of names and their annual sales give a good picture of the impressive concentration of global leading, creative and innovative companies, in this small part of the United-States.


2014-12-04 15:30:00Gabriel Paulot
Is lower inflation level a threat to the economy?Français
Is the fall in inflation level, or even sometime a slight decrease in prices, a threat to the economy?

The usual answer is positive and is mainly based on three arguments, two are economic, the third one is political:
- The first argument is related to the demand level: lower prices push people to postpone their consumption decisions
- The second is related to the offer: price decrease is negative for investment
- The third is political: inflation makes budgetary decisions (social and tax transfer) smoother

The third argument, political in nature, will not be covered in this paper.

Regarding the two economic arguments, how do they resist to scrutiny?

Before we answer, we need to assess what is the possible decrease in the level of prices? If we look at different situations of sustainable price decrease, Japan in the 2000s (-0.3% per year), the UK (0.0% between 1830 and 1914, -0.7% between 1918 and 1939) and the United States (-0. 5% between 1800 and 1861, -0.7% between 1865 and 1914, -1.1% between 1918 and 1940) in the nineteenth to the late 1930s, the price decline is between 0% a -1%.

Argument 1: lower prices push people to postpone their consumption decisions

The argument is twofold:
1. It is based on intuition: if prices fall then consumers differ their purchases to take advantage of these declines
2. Related to observations: there is a visible correlation between the consumption dynamism (and thus growth) and price evolution. If we stick to the developed countries, the hierarchy of GDP growth (USA ahead, then Western Europe, Japan last) it is a duplicate of their ranking in term of consumer price evolution.

Does the intuitive argument really operates? Let's take a simple case, of a large domestic appliance, for example. Based on a price of 500 USD and a decline in prices of -0.5% per year, the consumers can expect, after one year, a saving of 2.5 USD. In this type of scenario of decreasing prices the return of money can also be considered as negligible. The intuitive argument which claims that people would wait a whole year to purchase a 500 USD appliance to save two and a half dollar seems rather fragile.

Now lets look at more substantial facts to see if reality confirms or not that a slight price decrease does not result in lower consumption. Indeed, inflation is a general phenomenon, but different products can evolve somewhat differently.

If the price decline leads to purchasing reports - then consumption should be less dynamic for sectors where the pressure to lower prices is stronger. Actually reality shows that the decline in prices leads to rather strong growth in production. For this we need to look at areas where the act of purchase can actually be postponed (which is not the case for food for example). This is the case generally related products related to IT, telecommunications or air transport.


It is clear that these sectors, which registered a steady declined in prices over the period in question, have also grown rapidly in their production contradicting the idea that the decline in prices hampers demand.

In conclusion, the first argument, does not sustain neither logical scrutiny and analysis or facts.

So why this correlation at the country level, that we can currently see (it was not the case in the XIXth century at the time of Industrial Revolution), between low inflation and low growth rates?

The explanation lies in the demographics. Indeed, it is demographics that pushed demand down, and, consequently, prices. Japan is a very good example of this phenomenon: the stagnation of its economy in the 2000s accompanied a stagnant and ageing population. This mechanically leads to decreasing prices (-0.3% per year). Similarly Europe which is increasingly facing deflationary pressures is also marked by a demographic situation resembling more and more to the Japan one.

On the contrary, the United States which are enjoying a more sustained population growth, as well as a dynamic entrepreneur and innovative mindset, are also recording higher economic growth and inflation of about 3% per year in the late 1990s and 2000s before the crisis and slightly less than 2% per year since the crisis 2007.

This also may explain why the extreme monetary policies implemented in different countries (including the US and Japan) had no measurable impact on the level of consumer prices.

Argument 2: deflation is a barrier to investment.

The idea is that inflation dilute debts thus encouraging investment. In reality, dilution of debts happen only if case of an unexpected increase in inflation. One that is already present or anticipated generates higher interest rates which offset this benefit.

In fact, the decline in prices is not a brake on investment as evidenced by the industrial revolution. This period of sustain and rapid growth took place in a context of stability or slight decrease in prices. The case of the UK and the US in particular illustrates this point.




The fact that inflation does not generate growth explains the failure of monetary stimulus policies.

These have certainly helped in reflating asset prices (stocks, real estate in particular) but have no visible impact on pushing up consumer prices. These continue to reflect the supply / demand balance in goods and services. And this one is set, on the demand side, not only by the total amount of income distributed but also by their distribution (increase of the highest income has little or no effect on consumption - these being largely affected to saving).

In addition, increase in consumer price does not imply economic growth.

Long-term economic growth is the result of population growth - which has an impact on both offer (work) and demand, and technical progress (new products and productivity gains), itself related to the level of education, which acts at the level of the offer. The level of demand is strongly influenced by income distribution: due to a propensity to consume inversely proportional to income, all other things being equal, the greater the income disparities are increasing, the more long-term growth is diminished.

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