RiverDog wrote:Once again, how does this initiative help future generations? You and C-Bob keep ducking that question because you either don't know the answer or if you do know it, you don't want to admit it.
Regardless of whether or not I agree with you, what you're talking about is completely irrelevant to this initiative.
I'll explain it again in a little more detail like I did a bit up. You're a business major like me. I figured you would understand how debt works, the time value of money, and how inflation affects it. I broke this down for you and maybe a few others who understand the economics of debt like maybe
Mack. That is why I figured you were keeping your arguments to ethical arguments because I already explained the beneficial effect of debt forgiveness in an inflationary environment. Money is not static. 10,000 dollars loses it's buying power over time. If you had 10,000 when you were young, you could probably put a down payment on a house or buy a car outright. 10,000 dollars in the modern day doesn't have as much value and you couldn't even afford a new car and it would be maybe 1/10th the necessary amount for a down payment on a house.
I broke down how it was past money that is already a sunk cost with a return of aruond 5% which at the current rate of inflation is a loss of 3.5%. The base value of the 10,000 dollars awarded has been reduced by the inflation amount yearly which makes it so 10,000 dollars forgiven right now is roughly only 9,200 dollars forgiven and reduced with each passing year of inflation. The taxes on the 10,000 expenditure has also already been collected, so has the revenue by the school. The bank or lending institution is losing a roughly 5% per annual return and the base value of the principle whose buying power is reduced by inflation yearly.
Thus the taxes, consumption, and overall economic activity of 10,000 to 20,000 additional consumption in the modern day allows current taxes and businesses to collected again on the same 10,000 dollars which has already been spent and is generating no additional taxation or consumption and is only generating a 5% return.
This is one of the reasons why it is so easy to declare bankruptcy in the United States for a business entity, especially for corporations because the way debt and money works is it is wiser to allow a wealthy person to protect a good deal of their investible assets by virtue of incorporating so only the business itself collapses with the debt and losses absorbed by the various entities who have invested in the going concern freeing up investment while eliminating a company that isn't capable of sustaining itself while allowing investors and companies to write off the losses against future taxable profits.
It's not different for the government forgiving debt. Debt is not a constant. It's not "We robbed hard working taxpayers." It's actually a very calculated way of creating room for additional consumption, growth, and taxation from a sunk cost. Private institutions like banks write off unpaid debts all the time as do companies and governments.
On top of that, the students having the debt forgiven will produce a much higher level of taxation than the taxpayers that originally paid into the revenues that loaned the original 10,000 dollars. Given the higher taxes on consumption and labor, the return on investment for the taxpayer from the additional consumption by the receiver of consumed debt will be quite a bit more than the 5% return. For example if a Washington State student has 10,000 dollars forgiven and they spend 10,000 dollars on consumable items with the current 10% sales tax rate the government gains 5% on the expenditure above the 5% annual return which becomes a smaller and smaller amount as inflation eats the principle and the interest calculation is based on the smaller and smaller principle of the loan.
Suffice it to say economically speaking, the debt forgiveness will be a small, but meaningful overall gain for the economy. I'm sure there are some Republican spinning this another way relying on the economic ignorance of the American public and their voting bloc, but use them business skills you learned and analyze the movement of the money from the debt given the current rate of return on the loan, the current inflation rate, and the idea of a sunk cost with profit, taxes, and all associated fees and other profit generating benefits having been collected from a sunk loan.
It's like when you buy a house and pay your escrow fees, your real estate agent, and all other associated fees as well as the house seller during the initial purchase. Then your house becomes a sunk cost that operates like a bond for the bank earning a yearly return based on the interest rate they charge you. They could make more money investing the money in the S&P index at a higher risk, but they would not have the collateralized home with a rising property value set against the value of the loan which lowers their risk substantially and acts as an inflation hedge which is why the interest rates are often set according to The Fed rate as the Fed rate rises to dampen inflation. Which is why homeowners with big loans benefit greatly from inflation as the time value of the borrowed money is greatly lessened by the increasing value of their property and rising wages.
It's no different with student loan forgiveness.
The economics of this move are beneficial in the long run. Debt forgiveness, tax cuts, tax credits, and the like are all generally beneficial to the economy as they act in a stimulative fashion to encourage growth.
And as I explained, the government needs to inflate their way out of the COVID debt bubble they built up, but they wont' tell you that.
As far as the ethics, sure, it could have been better targeted and it seems like more scattershot handouts to garner votes. But on a base economic level in the current inflationary environment it will be a net positive due to the way debt works in relation to inflation and the time value of money.
That's the best I can do at the moment to explain positive economic effect on the economy without doing a bunch of math and writing a long paper. This is one of the reasons why I try to simply assure you and others this is a completely fine move by the government, just like the bailouts were fine, and the economic stimulation to keep the economy afloat during lockdowns. But now we have to clean some of it up and that will require some inflation as well as a break on the inflation with rising interest rates to try to reach the "soft landing" as much as possible.
I've analyzed the economics of this move. It's completely fine for future generations, the current generation, and even your generation who is going to need a really strong labor force to ensure your social security and medicare is paid for including the coming COLA increases.
