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Old 07-28-2019, 07:00 PM
Wrenching Spanners is offline
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Join Date: Jun 2011
Location: London
Posts: 538
So much to refute here. Apologies to Bone, but it’s going to require me to use your fisking style to point out all the wrongs in your statements.

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Originally Posted by k9bfriender View Post
No, I made no mistake here, and for you to assert that paying off a debt destroying money is "thoroughly wrong" tells me that you are very poorly informed as to how debt works in a fractional banking reserve system.
Since you’ve referred to the fractional banking system, I assume your definition of money is “commercial banking money”. I can only guess as why you failed to type the two extra words. There is a causation effect between commercial banking money and the M2 value of money supply. However, you’re really stretching it if you mean that a lower market for loans results in lower interest rates which further results in a reduction in deposits leading to a diminishment in money supply is “destroying money”. Or perhaps you’d like to explicitly detail your explanation of how loan repayments are “destroying money”.

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Originally Posted by k9bfriender View Post
Your point as to money getting back into the system to be lent out again is valid in some times and circumstances, but, as the banks are currently sitting on plenty of excess reserve that is just sitting there, not doing anything but earning interest from the federal reserve on the taxpayer dime, this is not one of those times and circumstances. The banks are not waiting around for depositors to deposit, or borrowers to repay, before they can lend out more money. They are actually looking for worthy borrowers, desperate to get some of this money out into the economy.
Your cite discusses the US Federal Reserve management of interest rate policy, and indicates they may be overpaying for “interest on excess reserves”. The federal reserve is ensuring that banks are able to borrow cheaply, in order for the banking system to have liquidity, but also ensuring that banks maintain adequate reserves – in other words hold more than the required minimum. Basically the article is saying that the federal reserve is getting the balancing act wrong. There may be a slowdown in some global lending, but if so it’s due to: 1) fears that the current upward business cycle is coming to an end, both because of a fear that the cycle has reached a natural peak, and because of uncertainty regarding US, Chinese, and European trade policies, 2) inflationary pressures which may require tighter monetary policy, and 3) the weaning off of cheap credit which, regardless of the fears outlined in point 1, is a move towards long-term monetary policy stability. Any shortage in current lending is not due to people paying off their loans. Furthermore, according to the IMF, global lending was at an all-time high in 2017. https://blogs.imf.org/2019/01/02/new...n-global-debt/ Do you want debt to continually rise, or would you prefer it to taper off after reaching a peak?

Quote:
Originally Posted by k9bfriender View Post
The worst thing you could do to a bank is to have all its borrowers pay off their loans.
A much worse thing you can do to a bank is create a moral hazard where customers feel it is unnecessary to pay off their loans, and then the government, or whatever other intervening agency, also refuses to pay off those loans.

Quote:
Originally Posted by k9bfriender View Post
Yes, when a loan is originated, money is created out of thin air. When a debt is retired, which means to pay it off completely(nothing to do with bankruptcy), that money is destroyed. I used the extremes of the life cycle of a loan to better illustrate the point, but anytime you make a payment against a debt, that money disappears into the same fiat void that it was created from. When you swipe your credit card, that money "magically" appears out of nowhere, and when you pay your statement at the end of the cycle, that money disappears again.
This statement is so problematic, I’m not sure if I’m being whooshed. You started your response addressing the fractional banking system. You do realise that is dependent on deposits and not magical money?

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Originally Posted by k9bfriender View Post
I did not in any way mistake retirement for bankruptcy, which I may point out, is irrelevant where it comes to student loans, as they cannot be discharged through bankruptcy, unlike credit card debt that could have been ran up purchasing frivolites and luxuries.
Congratulations. Ignoring the misspelling of frivolities, it’s one of the few things you haven’t got wrong.

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Originally Posted by k9bfriender View Post
Not sure why you feel the need to point this out, of course higher education has the potential to increase your earnings, that is irrelevant to the discussion.
Here’s your statement: “There is 1.5 trillion in student debt, and that is 1.5 trillion dollars that will not be contributing to the economy.” I’m rebutting that statement.

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Originally Posted by k9bfriender View Post
What is it stopping them from doing? I dunno, moving out, renting an apartment, buying a car, buying a house, starting a family, starting a business, or just spending their money on small comforts and luxuries that make their lives better and bolster the economy. Some of that money already went into the economy, yes, at the schools, in the form of higher salaries for staff, or advertising, but given the nature of loans that you seem to have forgotten or skimmed over, most of the money that is paid is in the form of interest, which doesn't go to the school, but rather, to Sallie Mae.
If the students taking on the loans have correctly bet that their future earnings will exceed their debt payments, their debt payments haven’t stopped them from doing anything. If they were wrong, then yes, they are undergoing some hardship, but it’s a hardship they signed up for. The initial economic benefit went to the school. You’re right that a subsequent economic benefit is going to Sallie Mae, which, if I’m understanding correctly, is the bank collecting interest on the loans? Please correct me if I have a misunderstanding. Otherwise, please explain to me why you object to a bank receiving interest on a loan?

Quote:
Originally Posted by k9bfriender View Post
The best way to stimulate the economy is to get money into the hands of those who will spend it the quickest, and the quickest spenders are young adults with their first taste of discretionary money. By removing that from not just a few, but from a substantial portion of an entire generation will lower the demand for goods and services, slowing the economy.
The single-best economic stimulus is investment, which funnily enough is often government investment. Picking an easy two, federal vaccination programmes and the US interstate system are two incredibly effective economic stimuli. Beyond the simple true-false refuting of your statement, it’s quite complicated. You’re assuming that the money spent by Sallie Mac will have less economic impact than the money that would have been spent by the loan paying students. If you’d like to discuss that idea, feel free to open up a new thread. Your assumption is not a self-evident truth.

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Originally Posted by k9bfriender View Post
While being a productive member of society does entail more than just spending, that doesn't matter to the economy, where the only thing that does actually matter as a consumer is spending.
Actually, deferred spending in terms of saving and investment matter hugely to the economy. Also, relevant to this thread, hasn’t spending already happened? A purchase of a college education has taken place. Are you discounting a college education and saying it has less value than “moving out, renting an apartment, buying a car, buying a house, starting a family, starting a business, or just spending their money on small comforts and luxuries”?

Quote:
Originally Posted by k9bfriender View Post
First, this doesn't actually adress anything I've said, and your last question is pure strawman.
My statement: “Why should the rest of society, including people who didn't go to college, pay for their lack of forethought?” Which statement of yours am I creating a false likeness of in order to burn down?

Quote:
Originally Posted by k9bfriender View Post
Because I pointed out that student debt is a bigger problem to the economy and the country than just the individuals struggling with it doesn't mean that the rest of society should pay for their lack of forethought, but rather, that society should recognize that this is a problem for more than just the individual student struggling to pay off the debt. Do I think that student debt should be wiped out overnight? No. Do I think that actions should be taken to help to prevent young adults from being trapped into a cycle of debt, and that means of working their way out of that debt should be available? Yes. That is entirely different than how you choose to frame the issue.
I’m basing my arguments on the CNBC article I originally cited:
“Sen. Elizabeth Warren, D-Mass., introduced a bill Tuesday that would forgive student loans for tens of millions of Americans. Three-quarters of borrowers would have their balances reset to zero.”
https://www.cnbc.com/2019/07/23/eliz...-students.html
If you think that Elizabeth Warren’s bill is wrong, then we’re in agreement. If you think that more information should be supplied more explicitly to students requesting student loans, then we’re probably in agreement, although I doubt the relevant information is actually hidden.

Quote:
Originally Posted by k9bfriender View Post
As to the personal responsibility thing you are calling for here, you do realize that these are 16-18 year olds that you are talking about, right? Kids who are being told that they will be in poverty their whole lives if they don't go to college. Kids who are swayed by snazzy advertising and marketing campaigns that are paid for by current students who are going into debt. Should they be better informed as to the decisions that they are making? Absolutely. Are we, as a society, properly preparing and educating these teenagers in how to make a proper and informed decision on taking on the debt that is required for them to get ahead in life? No, I do not think so.
I’m assuming that if they’re under 18, there’s a parent approving the loan, but please correct me if I’m wrong. Beyond that, yes, I do believe an 18 year old, or a near 18 year old should be able to do a risk assessment. I’d hope there would be guidance counsellors available to assist them with that risk assessment. If such guidance counsellors aren’t available, then that’s a community flaw.

[QUOTE=k9bfriender;21774835As an extreme example, if I force you to choose envelope 1 or 2, without telling you what is in either of them, and one is a million dollars, and the other is a million dollar debt, do you consider the person who got the million to be more personally responsible than the one that got saddled with the bill? [/QUOTE]
Yes. There is always an element of risk in life. One person may choose to drive drunk and not be caught. A second person may choose to drive drunk and get caught and punished. They each had personable responsibility for their actions. The luck of the unpunished drunk driver’s outcome does not provide moral justification for his decision. Choosing a path through college is far less binary than either of the above examples. However, choosing to accept and pay a loan is, compared to many other decisions in life, a straightforward choice and on where the debtor should be personally responsible for accepting the loan.

Last edited by Wrenching Spanners; 07-28-2019 at 07:01 PM.