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Biden’s Illegal Student Debt Cancellation and the Inflationary Consequences

Biden’s Illegal Student Debt Cancellation and the Inflationary Consequences

The promise of student loan forgiveness has been a hot topic since President Joe Biden took office. With the recent announcement that the administration has forgiven approximately $127 billion in student loans for over 3.6 million borrowers, it seems like a dream come true for many. However, beneath the surface, there are deep concerns about the inflationary impact of this massive debt relief and the fairness of such a move to those who diligently paid off their loans.

In June, the Supreme Court delivered a significant blow to Biden’s ambitious student debt cancellation plan. The court ruled that the administration lacked the authority to wipe out hundreds of billions of dollars in student debt for tens of millions of borrowers, citing the absence of a legal basis for such a broad-scale policy. While this ruling closed one avenue, Biden decided to explore alternative routes, utilizing various tools that no previous president had ever employed to such an extent.

One of the most pressing concerns regarding the student debt forgiveness program is its potential to exacerbate inflation, a problem that has plagued the nation for over a year. In a time when prices have been persistently on the rise, the cancellation of student debt has the potential to add fuel to the inflationary fire.

The theory behind this is rooted in the idea that investors in U.S. Treasury securities, such as bonds and notes, only invest if they believe they will be repaid in the future. This notion establishes an intertemporal government budget constraint, which dictates that the real value of government debt must be matched by future surpluses of revenues over spending, properly discounted. In simpler terms, the government must generate enough resources to pay off its debt holders in the future.

The critical insight is that the real value of debt is tied to real future resources. Given that most federal debt is nominal, the current price level becomes the variable that aligns these metrics, considering their expected future levels. In essence, debt cancellation reduces future interest and principal payments, effectively reducing expected net revenues. This reduction becomes insufficient to back the existing debt, leading to a rise in the price level to diminish the real value of debt as future revenues decline.

Estimates suggest that debt forgiveness could lead to a monthly inflation rate of up to 1.7 percent, representing an upper bound estimate. Various mitigating factors could lessen this impact, such as fixed contractual prices, potential modifications or phase-ins of forgiveness programs, or even future tax hikes by Congress.

The Inequity for Responsible Borrowers

While the inflationary consequences of student debt cancellation are alarming, it’s essential to address the fundamental unfairness of the policy. Those who diligently paid off their student loans over time, often through considerable personal sacrifices, are now faced with the prospect of being indirectly burdened by the debts of others.

The cancellation would not erase the total amount of student debt but would shift the liability from individual borrowers to the federal government, ultimately placing it on the shoulders of taxpayers. This means that responsible individuals who repaid their loans will bear the financial brunt of the debt relief, even if they never benefited from the original loans in the first place.

President Biden’s student debt cancellation program may seem like a lifeline for millions of borrowers drowning in student loan debt. However, the potential consequences of this policy cannot be ignored. The inflationary impact, combined with the unfairness towards those who responsibly paid off their loans, raises serious questions about the wisdom of such a move.

Biden is determined to push as much of this as possible through, despite the consequences and the Supreme Court ruling. This, along with his other draconian spending packages has sent inflation through the roof, and their is no end in site. The damage to the savings accounts of responsible Americans is almost unmeasurable.

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  1. Dan tyree

    Democrats are seriously stupid concerning money. The idiots know nothing about business. And the sheeple who stand bleating gimmee gimmee are selfish and ignorant too Why can’t we have democrats like John Kennedy? Not what your country can do for you but what you can do for your country? Ring a bell? I guess not.

    • Robin W Boyd

      Not stupid at all. Democrats are using tax dollars to bribe millions of people to vote for them.

  2. Frank stetson

    In 2020, Trump put in 3.1 trillion in new money into two stimulus packages. This was new debt outside his inflationary budget . In 2021, Biden put in 1.9 trillion in the same way, outside his inflationary budget.l. There is some carryover here and that the second Trump stimulus was offered as an election incentive in December 20 20, with much of the payout Coming in 2021.

    Today, in 2023, we are still feeling the inflation affects from that, albeit diminished from earlier in the year. But you get the drift on how much new money to create that much inflation.

    What Biden is talking about here, according to Joe, is 127 billion. I believe in terms of federal budgeting we call that chump change. Especially since this amount has been spent over the last three years meaning that it’s approximately 42 billion a year. This year’s defense budget is 750 billion. It’s like 5% of that

    Since the money is coming out of the existing budget, there should be no more inflation that was already planned in the existing budget. Plus, at these amounts, I don’t think he would feel it or could link it.

    In other words, Joe is kind of highlighting a red herring for inflation in order to show his dislike of the Biden Loan Forgiveness plan. In actuality, this plan is just taking advantage of current programs.

    The real issue is the total budget and what type of inflation does that cause. That’s the 800 pound gorilla on the table. This fu fa ra is a nit.

    We do need to spend less:,across the board.

    • Dan tyree

      Ok. I agree. So let’s quit paying able bodied people to not work.

      • Frank stetson

        Dan, which able bodied people?

        • Robin W Boyd

          That would be all of those who took out student loans. All of them are much younger and more able bodied than I am, yet at 70 years old with multiple health issues, I have to still work to supplement SS benefits I have paid for my entire working life. Why am I now to be responsible for paying loans taken out by others?

          • Frank stetson

            Robin; I am pretty sure the loan takers are working quite often but the jobs don’t match the loan payments. I already posted that imo this is buying votes, that they took the loans and I am not for the programs. I might be for interest forgiveness, but not the whole nut.

            I am sorry if you must work, hope you like what you do and that your health holds out. Think this year’s cola is less than inflation too. Timing.

            Folks; hear Robin’s words. If you expect to retire on social security Snd medicare, you can’t. It’s a safety net, not a retirement plan. You need more.

            Just look at you current monthly; see how you live, go to social security website, you should be able to project what you get, and figure what 62, 65, etc. looks like. Plus, seriously consider when you can take social security, the government scares you into thinking later is richer. It probably is not.

        • Dan tyrer

          The younger able body people who choose to not work

    • Marie

      I don’t believe that your Trillions are correct! Trump did not put in 3.1 trillion in new money into two stimulus packages. Biden has spent more than 1.9 trillion ……..we are at 32 Trillion since Biden/Obama took office in 2021 ! Check your facts please! Democrats are seriously stupid concerning money. The idiots know nothing about business. And the sheeple who stand bleating gimmee gimmee are selfish and ignorant too Why can’t we have democrats like John Kennedy? Not what your country can do for you but what you can do for your country? Ring a bell? I guess not. We have too many people wholive here, who don’t pay taxes, from teir salaries, and get paid under the table, too many people who live here are too lazy to get a job, and too many people on welfare, collecting food stamps and all other social programs like cell phones, closed caption phones for non taxpayers….and the taxpayers are taxed heavily. We need some common sense policies like we had when Trump was in power !

    • Robin W Boyd

      The issue is citizens taking responsibility for their actions. If students don’t have to pay back loans they signed a contract for, why should I or the rest of us have to pay loans we took out for anything?

      • Frank stetson

        +1 to that Robin.

    • Robin W Boyd

      Do you by any chance remember a little thing called the Wuhan virus. Let me refresh your memory. Communist China teamed up with Progressives in the U.S. government to develop a biological weapon that was released into the world with the help of the WHO supporting Communist China’s claims that there was nothing to be concerned about. The economy of most of the world took a major dive, and yet the U.S. remained solvent.

      • Frank stetson

        Got evidence Robin. Yes, China. Gets muddy after that.

        Progressives, that’s just a lie. Period.

        Frakin Trump reversed Obama to let US fund gof studies again. Get it a rest. Since when is fauci and the cdc progressive….. oye.

  3. Frank stetson

    Andy, especially across three years and from the existing budget.

    That said, I still do not favor buying votes like this and would like to see less giveaway. I would be much more amenable to an interest forgiveness program for example. They did take the loan.

    But the topic was inflation and that’s not sound math.

    Fact is Biden is spending too much, think the deficit will be out of whack, we need tax revenue, inflation still to high, it’s a mess that a good gdp will not solve. America needs to pay more, spend less, and lower the debt. Not just lower the debt increase, lower the debt. Time to put on the big boy pants.

    Unfortunately, two wars and an open border add a lot of expense. Not to mention my social security and medicare ;-).

    • Robin W Boyd

      Don’t you just love the way our SS benefit repayments are taxed because we have to work to make up the difference between SS and being able to live? I not only have to pay taxes on 85% of my SS, I also have to continue paying into the SS system. It’s like being sodomized while also being smacked in the back of the head by government agencies.

      • frank stetson

        Yeah, it sucks. Not to mention having to return to school to be able to factor all those numbers…..

        Again, Robin, I really feel for you, Social Security is not a retirement fund targeted to meet your cost of living. Never was. It is a safety net. Yes, we all pay taxes on the 85%, think we get deductions on the health numbers, can’t remember, whatever BUT those taxes are based on your total income like all income. And if you work, yes you pay SS but may get increased SS because of it.

        Folks: again, it’s pretty ez to figure your current salary, your lifestyle, what ss will pay in the future and how much more you need to keep that lifestyle at your current experience.

        When WAH was a deduction, pre-Trump, I tracked all costs for tax purposes, had my current family incomes, all investments, expected pensions, 401K expected interest amounts, —— EVERYTHING on a single spreadsheet the final page of which had 12 scenarios of retirement income with special scenarios for time of taking SS, differing ROI factors, yada yada yada. What fun!

        I had my required bankroll target by the time I was 35 and the only big error was college tuition —- no way was I gonna believe that shit, and yet, they undershoot the actual increases. Amazing.

        But folks, if you plan to retire on Social Security, you are imagining that Democrats will save you……. The program is a nest egg, not a full retirement package. You will probably need more, or do with far less than you have today.

  4. Robin W Boyd

    There is no rational reason for students not to repay loans they took. These folks signed a contract to repay the cost of whatever education they received. If their choice of education or their ambition did not work out for them, that is a choice they need to live up to. If we are all allowed to be completely irresponsible by having government agencies take care of US, there will soon be no one responsible enough to pay for government at all.
    Let’s face it, this is just another way for Progressive Democrats to use taxpayers’ money to pay for votes.

    • Dan tyree

      Anytime I borrowed money I was required to pay it back. Why not student loans? I suppose that retard joe is using loans as a means to get good little commiecrats to vote for him

      • Frank stetson

        Yeah, Dan, not one Republican is taking advantage.

        Cuz they don’t need no stinkin kolkeje edukashion to werk at non union free work plant.

        Brilliant assumption….

        Just like the term commiecrat. Only a Trumplicant would say that since less than 10,000 members of us communist party.

  5. Darren

    You borrowed it! You pay it back!
    I need a new Vehicle for work! Where is my Free Vehicle?

    • Frankbsretson

      That’s what Don said as he went bankrupt and got us tapayers to bail him out. How many times?

      Im tired on sending all my tax dollars to red states so they can feed their stupid kids instead of just aborting what they can’t afford and then begging me for bucks to feed em

      Pay for your own kids and quit sucking off big government’s teat.

  6. JoeyP

    The old FASHIONED way . . . take out a LOAN and PAY it BACK – If you’re HONEST.

  7. Andy

    Guess what this chart says? Last time this happened was in the early 30’s. Anybody know what happened in the 30’s?

    There is about a one year or more lag between changes in money supply and price changes…

  8. Mike f

    Why am I not surprised that Joe would not want to offer assistance to people in need? (Of course he is a Republican, so assistance to those in need is not one of his priorities). The bottom line is, the US needs more people to attend college if we are going to maintain our edge in the world (ie-make America really great). That will not happen if the percentage of young people attending college continues to decline. So what is the cause of the decline? Due to the high cost of a higher education, many young people have decided it is not worth the expense to attend university-despite the fact that those who attend college make significantly more over their lifetimes than thos who don’t. Another issue of course is the proliferation of universities offering worthless degrees (think trump university as a prime example here) who saddle attendees with debt and no job prospects. The bottom line is that forgiving some of the debt for recent attendees is not inflationary (yes, I know that idiots on the right blame our government spending for the inflation that we have seen since Covid, rather than the actual cause of disrupted supply chains and people who were able to keep their jobs during Covid not spending, and thus having significant built up cash. That money is basically gone, supply chains have been restored, and inflation has dropped dramatically). The bottom line is some debt forgiveness will aid people who are strapped by this debt-a debt that has been incurred to the benefit of our country. This is just a bandaid of course, what is actually required is to make attending university possible for anyone who would benefit from an advanced education….