I got in a discussion earlier this week, and was surprised to discover that people don't realize that student loan debt forgiveness would be a massive wealth transfer to the rich.
Reality check for a second: Student loan debt forgiveness is a massive wealth transfer to the rich.
There are some sob stories out there of people getting useless educations at massive expense, but reality is that college educated individuals still have the lowest unemployment rate and the highest incomes. That's indisputable.
Some people might counter saying that the rich wouldn't have student loans. That isn't true. If you're wealthy and you can get someone else to pay for something, you do. Especially if it's the government. Once you have student loans, you could pay them off, but your financial planner is going to advise against it because of something called opportunity cost. If you spend the money to pay off your student loans right away, then that money won't be available to invest, and if your student loans are charging 4% and you can make 7% in a balanced and diversified portfolio over time, you're basically giving money away by paying off the loans.
I've seen people saying that the rich don't have debt. That's absurd. Of course the rich have debt. Again, if you can use someone else's money then that's how you get really filthy rich.
So poor people pay for inflation that will be part of the way government pays for student loan forgiveness. Poor people will be paying taxes as well. Poor people's kids will be on the hook for the federal debt. And all so we can give people who are statistically speaking the most likely to be rich a bunch of money.
Odd, isn't it?
Reality check for a second: Student loan debt forgiveness is a massive wealth transfer to the rich.
There are some sob stories out there of people getting useless educations at massive expense, but reality is that college educated individuals still have the lowest unemployment rate and the highest incomes. That's indisputable.
Some people might counter saying that the rich wouldn't have student loans. That isn't true. If you're wealthy and you can get someone else to pay for something, you do. Especially if it's the government. Once you have student loans, you could pay them off, but your financial planner is going to advise against it because of something called opportunity cost. If you spend the money to pay off your student loans right away, then that money won't be available to invest, and if your student loans are charging 4% and you can make 7% in a balanced and diversified portfolio over time, you're basically giving money away by paying off the loans.
I've seen people saying that the rich don't have debt. That's absurd. Of course the rich have debt. Again, if you can use someone else's money then that's how you get really filthy rich.
So poor people pay for inflation that will be part of the way government pays for student loan forgiveness. Poor people will be paying taxes as well. Poor people's kids will be on the hook for the federal debt. And all so we can give people who are statistically speaking the most likely to be rich a bunch of money.
Odd, isn't it?
Why on earth would debt forgiveness be deflationary?
A bunch of money would be created, then handed to universities (and book stores, and land lords, and grocery stores, and liquor store, and bars). Then, instead of the individual paying it back and reducing the money supply, the state paid it using state debt which will not be paid back during our lifetime. The places that got the money won't have to pay it back, so the number of dollars in the system which would have shrank over time if student loans were paid back will stay the same in the base case since the dollars that would have been removed from the economy by paying back the loans will not ever be paid back, and in the worst case will be inflationary since the individuals who previously were encumbered with debt might then go out and take out additional debts to buy all those things that student loans were preventing them from going out and buying.
A bunch of money would be created, then handed to universities (and book stores, and land lords, and grocery stores, and liquor store, and bars). Then, instead of the individual paying it back and reducing the money supply, the state paid it using state debt which will not be paid back during our lifetime. The places that got the money won't have to pay it back, so the number of dollars in the system which would have shrank over time if student loans were paid back will stay the same in the base case since the dollars that would have been removed from the economy by paying back the loans will not ever be paid back, and in the worst case will be inflationary since the individuals who previously were encumbered with debt might then go out and take out additional debts to buy all those things that student loans were preventing them from going out and buying.
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Countries like Japan keep on borrowing because they have low inflation, but countries like Zimbabwe need to stop borrowing because inflation drives feedback mechanisms that stop the expansion of debt.
Let's swing this over to more human terms. You might predict that poor people have more debt than rich people. After all, the rich are rich and can afford to pay it off so you'd think they would, and the poor are poor and can't afford to pay it off. Therefore, it seems intuitive that the poor would have more debt than the rich. That's absolutely untrue, however. In reality, the wealthier one is, the more debt they tend to have.
Why? Because they can. They can convince the bank to give them huge amounts of money at a reasonable interest rate because they're rich and they can afford to pay it back. Meanwhile, a poor person will struggle to get anyone to give them any sort of loans at any interest rate because they're poor and will struggle to pay it back.
Some people actually do make the mistake of assuming this means that in order to be rich you must be in debt, or that if you want to get rich you must become incredibly debt laden first. That's getting the cause and effect backwards.
Let's swing this over to more human terms. You might predict that poor people have more debt than rich people. After all, the rich are rich and can afford to pay it off so you'd think they would, and the poor are poor and can't afford to pay it off. Therefore, it seems intuitive that the poor would have more debt than the rich. That's absolutely untrue, however. In reality, the wealthier one is, the more debt they tend to have.
Why? Because they can. They can convince the bank to give them huge amounts of money at a reasonable interest rate because they're rich and they can afford to pay it back. Meanwhile, a poor person will struggle to get anyone to give them any sort of loans at any interest rate because they're poor and will struggle to pay it back.
Some people actually do make the mistake of assuming this means that in order to be rich you must be in debt, or that if you want to get rich you must become incredibly debt laden first. That's getting the cause and effect backwards.