Incoming president Joe Biden just proposed that $10,000 of student debt be forgiven for each borrower.
This sounds generous but is actually just the opening bid in a negotiation that will end in a very different, much more expensive place – and that will be repeated for many, many other groups of borrowers. Here’s how this first round will go:
The vast community of ex-college students who still owe big bucks on their much-less-valuable-than-expected college degrees will scoff at Biden’s miserly offer. Articles will appear in the corporate press with headlines like “Bob Smith owes $275,000 on his history degree. $10,000 won’t save him. Not even close.”
The new government – correctly recognizing that deeply-indebted college-educated baristas are a core voting bloc – will immediately come back with a bigger number. This too will be roundly rejected as not fixing the entire problem.
It will only be when the bailout number cracks the $1 trillion mark that the complaining will subside. The Treasury will then write the checks, the Fed will finance the required borrowing, and the circus caravan will move on to the next needy group. Which will almost certainly be state and local governments, whose criminally mismanaged pension funds will make the student loan bail-out look like chump change.
And so it will go, through corporations that borrowed record amounts to buy back their own stock and are now broke, frackers who financed themselves with junk bonds but can’t generate enough cash flow to pay the interest, colleges that spent their endowments on shiny new stadiums, and foreign entities that borrowed too many dollars and might inconvenience big US banks by defaulting. Eventually, Washington will get around to the actual legitimate victims of government policy like restaurants and landlords, but by then the world will have stopped noticing and/or processing big numbers of any kind.
Somewhere along the way, questions will be raised about the impact of adding another ten or so trillion dollars to what looks suspiciously like a banana republic balance sheet. But with everyone’s eye firmly on their own upcoming bailout, the naysayers will be de-platformed for scaring fragile Robinhood daytraders.
Oh, and of course the vast bulk of the bailout funds will eventually find its way to the bank accounts and offshore vaults of the 1%. But that’s just obvious. Buy gold.