In the past, the subject of student borrowing and its effect on the overall economy were easily ignored. However, a decade ago outstanding loans for students approximated to $300 million and even up to date student loan debt estimated to $1.1 trillion is dwarfed by mortgage debt. Nonetheless, individuals who borrow loans to finance their education may not have a chance of defaulting in payment. Unlike car loans, mortgages or credit cards which lack equivalent foreclosure. Similarly, in case a student becomes bankrupt or insolvent, the loan has to be paid. Hence, this may be an advantage from the lender’s perspective.
However, evidence shows that the increasing levels of debts from students inform of loans are limiting the potential of young adults in becoming economically stable. The large of amounts of outstanding debts prevents them from buying houses or cars limiting their chances of living a comfortable life in the future. Whilst, the total debt of student loans falls a great deal below that of mortgages which are estimated to be $8.2 trillion, it is usually distributed across a small group of people. In contrast, the students’ loans are distributed across a significant number of individuals in their early 20s and late 30s, a group that is active enough to drive the country’s economy into greater heights. One of the major explanations that dwindle the expansion of the housing market to support vigorous economic growth lies in the fact that young adults are restricted from obtaining their own houses due to outstanding student debts.
Ever since the financial crisis, only a few number of young adults have been capable of borrowing loans to purchase homes, and this decline is as a result of a large number of young adults who are yet to pay their student’s debts. Latest reports issued by the New York Fed on the household debts indicates that prior to the 2008 financial crisis, approximately 30% of the young adults within the age bracket of 27-30 years accessed loans backed by home. More interestingly, 33% of the individuals in that age group also had outstanding student loan debt. However, following the occurrence of the 2008 financial crisis, the percentage of young adults within 27-30 years age bracket had dropped to approximately 22%, based on the data released by the New York Fed. Also, this was in line with the homeownership trend noted by the Census Bureau, as well as other sources of data. Hence, the problem can be linked with high levels of unemployment, as well as weak wages for young adults.
Based on the evidence from the New York Fed regarding the impacts of student debt to the economy, a greater percentage of young adults in 2012 would have higher chances of having mortgage if they never had outstanding student debt than when they did. Likewise, similar trends held for car purchases. However, this may not seem to be making sense as graduates from college have a tendency of earning more wages as compared to their counterparts. Hence, this implies that they are supposed to be leading in purchasing of homes and cars. Nonetheless, this may not be accomplished as the student debt limits them from owning these properties. Thus, it can be said that other forms of debt are crowded out by the student debt.
Outstanding student debts have a tendency of damaging the credit score thereby limiting their chance of accessing loans. Additionally, student debt raises their total debt, making it difficult to qualify for other loans particularly under the new mortgage regulations that restrict the amount of total debt borrowed to 43% of the borrower’s annual income.
The BOJ (Bank of Japan) is certain that the CPI (consumer price index) may keep on rising at a steady state above the estimated rate of 1.0% in a few months to come, even after admitting that the positive implication of the weaker yen is growing less. Therefore, this implies that the central bank needs to take action through the use of monetary policy to prevent the economic downfall.
Although, the BOJ has recently come up with measures to reduce inflation in its semi-annual report, the economic growth has been slow. Hence, the rising consumer price index has been foreseen by private economists though it does not include volatile perishable goods. However, the BOJ Gov. Haruhiko Kuroda maintains his stance that the index probably will achieve 2.0% BOJ’s target in early 2015. Nonetheless, if the index were to remain above the rate of 1.0%, this would be critical in the coming few months and may compel the BOJ to take additional easing action. This is because a fall below the level of 1.0% in this year could prove difficult for the BOJ to meet its objective to achieve 2.0% rate of inflation in the early 2015. Due to the moderate rising of the consumer prices in Japan, with the index reaching 1.3% in March, inflation is expected to increase. Policy makers speculate that a contracting labour market, as well as the rising levels of inflation, may result to higher wages that would encourage producers to raise the prices of their products and services.
Although the impact of the weakening yen on prices of imported energy has dispelled the effects that would have affected other goods that include the luxury, there is yet to be full materialization of items. Hence, the expected rise in insurance premiums for car may have a tendency of supporting the consumer price index. However, while the BOJ is not inclined to the sharper decline in the yen, the yen’s reversal strength following the severe easing of April 2103 coupled with its current stability are enough grounds to support the bullish outlook of prices by the BOJ.A single price change may not signify general inflation in the entire economy. Thus, in order to determine the overall inflation, change in price of a large “basket” consisting representative services, as well as goods is measured.
Therefore, this is the rationale for the price index that takes into consideration the combined value of a “basket” of numerous products and services. Hence, the combined price represents the summation of the items weighted prices in the “basket.” Recent stability of the dollar in the market is favourable for Japanese main exporters as they may obtain huge profits from the foreign exchange earnings that would help them remain competitive. However, the BOJ does not explicitly approve the yen’s current stability though this kind of stability is vital for the BOJ’s prospects in export recovery that will moderately offset a decline in consumption after the tax on sales raised in April.
In conclusion, effects of the increase in tax on the consumer price index and inflation need to be accessed to avoid negative impacts on the growth of the economy. Nonetheless, measures on inflation are regularly modified after a while both for the comparative weight the goods in the basket and the manner in which the present goods and services can be compared with the past goods and services.