I am going to start this by stating that this is not meant to be political but it sure is going to sound that way after I give a true and accurate accounting of what will happen economically to the US if this Student loan forgiveness is allowed to go through. I will not even get into the extreme unfairness this is and the blatant attempt to get votes this is, that would not be productive to the economics of this. We are going to explore history, and what happened in the past when the Government tries to spend it’s way out of inflation and a recession.
It appears the current administration believes that the value of the dollar will not decline if they put more dollars into the economy. That is like saying if I gave you more money what would you do with it? Then give everyone more money and ask what they are going to do with it. You would be right if you said they are going to buy things with the money, cars, houses, clothes, vacations, electronics, etc.. Logically, you can say if more people are buying more things and those things are in high demand the price of those things will go up. This is called inflation. Inflation happens when more people want the same things and the supply can’t keep up with it. If you forgive someone’s debt it is like giving them a raise, they will have more money every month to spend if they are not spending the money on the debt they owe because the government paid it off.
As you ponder that basic economic theory, let’s look at the effect on the value of the dollar worldwide and how that will affect you here in America. So, our government gives its citizens money, and in this case to pay off debt. By doing so they put more US dollars into circulation and that will devalue the dollar worldwide. Why? Simple the more of anything everyone has the less value it will have. For example, if I produce a specific widget and I have more than I can sell I will have to lower the price of the widget to sell them. The same holds true with the dollar, the more US dollars that are out in the world the less value they have to other countries. If other countries, see our dollar as plentiful or in oversupply then they will ask for more dollars when they sell stuff to the US thus inflation. This type of economics is called Keynesian Economics and in the history of the world this has never worked, kind of like socialism has never worked, I digressed.
I told you I would not get into politics here so I will give you the facts and you can do what you want with the information. Keynesian economics is a tax and spend way of running a monetary policy. Yes, after the spending will come the taxation, it is inevitable and already shown by the government wants to hire 87,000 new armed IRS agents. It doesn’t take much of an economic mind to see what our government is trying to do. When you couple the climate change agenda with all this and the slowing of domestic oil production you are staring at an economic disaster. The people it will hurt the most are those older folks that have saved for retirement all their lives to see it all erode away with poor government money management.
Again, trying not to be political here, but I am 59 years old and have seen this disastrous mindset in the early to late 1970s. Back then the monetary policy was very similar to today’s tax and spend mentality. Where that ended up was high inflation and high-interest rates which was called stagflation (a stagnant economy with high inflation). I started in the mortgage business in 1982 and mortgage interest rates at the time were hovering around 18-20% for a fixed rate loan for 30 years. We have just seen mortgage rates jump from the start of the year (2022) when they were at a nice 3-4% to a staggering 5-6% with no end in sight for how they will go. The Federal Reserve (for those that don’t know is not part of the Federal Government they are a Central Bank that other banks use), has vowed to continue to raise interest rates until inflation gets back down to 2%. Anyone can see that under this tax and spend regime we will never get there, so interest rates will continue to rise. If you go back to my previous posts from last year you will see how correct I have been in my predictions.
You might be making more money now at your job and that is great but now if the government cut your expenses more than half you would have even more money to spend. Initially, you think this is a great deal but eventually, you will have to pay for it and in the end, you will be paying a lot more than the short-term relief you got. It is simply the price of everything that went up and so has your tax obligation. The more money you make the more you pay in taxes. Next, the Government will raise your tax rate to cover the short-term benefit of getting your student loans paid off, and over your working life, you are paying more in taxes than the student loan was by about 10-fold. So not to be political, but would you rather pay fewer taxes and have more freedom to open a business and not worry about the government coming after you, or would you rather pay more taxes and see the government pay for people that have not contributed to our economy in any way or send money overseas? Or simply put would you like to put your neighbor’s kid through college or your own kid? If you are close to retirement and you have saved all your life for retirement, would you like to see the government tax your retirement away to pay for people you don’t know and suffer because of it? If you are a first-time home buyer, would you rather pay a 3% interest rate or a 6% interest rate and be taxed on your income at a higher rate? If you said yes to any of the above then your wish has been granted by this administration. Again not being political, I can’t stand back without informing those that have not had the benefit of a good education to fully understand the principle here. You can probably tell I don't like the idea of paying off student debt or any frivolous government spending that appears to be only for getting votes at the expense of every American.