|
|
 Originally Posted by CoccoBill
Wait what? Wiping out student debt would be done by telling the banks you ain't getting shit? Not by the government paying the debt? Are you sure?
Good point.
In that case, a primary effect would be markets would expect future taxes to be higher in order to pay for the govt debt payments. The effect would be downward pressure on the economy.
Supply of student loans (from private lenders) would probably increase too, because they'd be viewed as less risky since the govt would have precedence on "bailing them out".
Interesting related topic: the above effect is one of the biggest known issues of government acting in markets. It is thought to have greatly contributed to economic failures in the past (and will do so in the future).
Example: leading up to the 2008 crisis, government backed a bunch of loans that banks thought were too risky to make themselves. But when the government backed them, that risk vanished, and banks then loaded their balance sheets with loans that were no longer risky to them (but were risky to the economy).
|
Reply With Quote