Hit ‘Em Where It Hurts: A Move From Russia’s Playbook

Rodney Johnson

There’s an Internet myth about the U.S. space program spending millions to perfect a pen that works in space, while the Russians simply used a pencil.

It makes a nice story, but it’s not true (read to the bottom for more on that). However, there are instances where we can learn from the Russians. They go at problems in a very direct way, while we dance around them, sometimes never reaching a solution.

Take dealing with debtors, for instance.

As with America, Russia has a problem with scofflaws who don’t pay their bills, like credit cards and bank loans.

We go through the arduous task of filing court papers, requesting documentation, and desperately trying to chase people down for what they owe. The Russians just hit people right where they live.

Their latest tactic is to put deadbeats on a “no-fly” list, barring them from leaving the country. Russia’s not worried about these people fleeing and not returning. Their goal is to make it difficult for the debtors to go on a nice vacation.

The problem of overdue debt exploded in Russia over the last two years as oil prices fell and the country entered a severe recession. During 2015, some 1.7 million Russians, or roughly 1.5% of the population, spent some time on the “no-fly” list, up from 0.7 million in 2012. Presumably these people were encouraged to stay close to home, spending their extra rubbles repaying what they owe.

Maybe we could do the same sort of thing with student loans.

Credit card debt in the United States is rising very slowly. Consumers are wary about taking on more revolving debt. The two categories rocketing higher are auto loans and student loans.

With cars, at least there is an asset that can be repossessed. With student loans, there’s nothing but air. At $1.3 trillion, student loan debt now surpasses every other category of debt in the United States except mortgages. And the repayment history of borrowers is difficult at best.

The U.S. government reports the default rate on student debt is around 11.5%. That would be awful if it were true, but it’s actually much worse. That figure includes loans not yet in repayment, meaning the borrowers are still students or have some other deferment. 17% of borrowers currently in their repayment period haven’t made a stroke on their debt in over a year, making them seriously delinquent. On loans issued at least five years ago, the default rate is 28%.

Now that the U.S. government is essentially the sole issuer of student debt, these defaults mean more burden placed on all taxpayers.

Maybe we could take a page from the Russians’ playbook.

I’m not suggesting a “no-fly” list for deadbeat student loan borrowers. We can do better than that. As a parent of three kids in their late teens and early 20’s, I think I found a solution. Let’s strip social media and texting off of their smart phones, or at least put limits on them.

Think of all the people you see walking down the sidewalk or sitting in restaurants – not alone, mind you – looking down at their phones. If we could find a way to block texting and social media, then a lot of young people would suddenly have more free time to focus on things like work.

We don’t have to ban social media and texting altogether – we’re not ogres! We could just limit the time of day that such programs are available, like nights and weekends. This might greatly increase productivity in the country, and quite possibly generate a few more bucks in student loan repayments!

Obviously, I’m kidding. I’m thrilled to live in a society where such actions are illegal and aren’t tolerated.

But it does leave us with a problem. Millions of borrowers aren’t repaying their student loans, and it’s going to get worse – more debtors with bigger loans – as time goes on. If we don’t want taxpayers on the hook for those burdens, we’d better come up with an alternative solution – and fast.

As for the pen versus pencil problem in space, it wasn’t the American or Russian government that came up with a solution. It was a private American citizen.

Until 1968, both Americans and Russians used pencils in space because typical ballpoint pens would not work in zero gravity, but there were safety concerns. Pencil shavings and points could break off and float in the capsules, harming astronauts by drifting into their eyes or noses, or fouling electronics. There was also the danger of fire since pencils are flammable. Paul Fisher, owner of Fisher pens, spent roughly $1 million of his own money developing a pen that would work in space. Once perfected, he sent it to NASA for testing. After they approved of the writing utensil, Mr. Fisher sold them to the U.S. and Russian governments for about $2.95 apiece. He never charged for the R&D.

Rodney Johnson

Rodney

Follow me on Twitter @RJHSDent

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Categories: Debt

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.