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Old 07-29-2019, 01:46 PM
k9bfriender is offline
Join Date: Jul 2013
Posts: 11,494
Originally Posted by Wrenching Spanners View Post
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.
On preview, I realize that this is actually all just a hijack of whataboutism in trying to point fingers at the democrats about personal responsibility and student debt, and is not relevant to the thread, so this will probably be my last post on this subject on this thread. If you'd like to discuss monetary policy further, we can do that elsewhere, and if you want to talk student debt, I think that there are probably already threads about it.

But, as I did spend a decent amount of time on this, I'm gonna hit submit anyway. Let me know if you would like to continue this elsewhere.

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”.
Are you under the impression that commercial banks only lend to commercial entities? I am stating specifically and simply that paying a debt destroys money, that's how it works.

Here's the bank of England on the subject.

some quotes
Whenever a bank makes a loan, it
simultaneously creates a matching deposit in the
borrower’s bank account, thereby creating new money.
Rather than banks receiving deposits when households
save and then lending them out, bank lending creates
One common misconception is
that banks act simply as intermediaries, lending out the
deposits that savers place with them. In
Commercial banks create money, in the form of bank deposits,
by making new loans. When a bank makes a loan, for example
to someone taking out a mortgage to buy a house, it does not
typically do so by giving them thousands of pounds worth of
banknotes. Instead, it credits their bank account with a bank
deposit of the size of the mortgage. At that moment, new
money is created.
Just as taking out a new loan creates money, the repayment of
bank loans destroys money. For example, suppose a
consumer has spent money in the supermarket throughout the
month by using a credit card. Each purchase made using the credit card will have increased the outstanding loans on the
consumer’s balance sheet and the deposits on the
supermarket’s balance sheet. If the consumer were then to pay their credit card bill in full at the end of the month, its bank would reduce the
amount of deposits in the consumer’s account by the value of
the credit card bill, thus destroying all of the newly created
That PDF also contains links to some videos where they discuss the subject further, if that is an easier medium for you.
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. Do you want debt to continually rise, or would you prefer it to taper off after reaching a peak?
My cite was solely to refute your assertion that banks are waiting on deposits to be made or loans to be repaid before they are able to issue new loans. The reason that they are not issuing as many loans as they would like, where they get a much higher interest rate than off the excess reserves, is because there is not enough demand from qualified borrowers, and the reason that there is not enough demand from qualified borrowers is because there is not enough demand for increasing our capacity for delivering new goods and services. This is a consumer driven economy, and while supply side economics may occasionally be valid, at most times, including this one, it is not.

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.
That would be bad, but it would be hard to compare, as either would crater the economy, fortunately, no one is suggesting any such thing.

To get back to the thread, you may say it is detrimental to create a moral hazard where a CEO is able to write their own paycheck, and make millions or more off a company going bankrupt, where they get to gain great personal wealth and leave their employees and creditors to pay for it.

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?
I put "magic" in quotes for a reason, but are you trying to say that you think that lending is dependent on deposits, and not on fiat currency?

Congratulations. Ignoring the misspelling of frivolities, it’s one of the few things you haven’t got wrong.
Would you say that declaring bankruptcy is personal responsibility?

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.
Actually, you are correct in that statement is not entirely correct. That 1.5 is the current debt. Not only will that number be going up as more students go into debt, but the repayment of that 1.5 trillion will be more like 3-4 trillion in actual payments after interest.

But yes, I am sticking to my statement that money that goes towards paying debts is money that is not being spent in the economy. You have not refuted that, nor posed anything that makes a good go at rebutting it.

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?
This misstates my position yet again, as your question is irrelevant. Students should not have ever had to have taken on such a debt in order to have a decent shot at a living wage, and those who have had to make that choice should have a way to assist them in getting out from under the debt they had to take.

Yes, new graduates spending money setting up their lives are going to contribute more to the economy than CEOs at Sallie Mae getting bonuses.

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.
Funny you should say that, as the actual best government investment in economic stimulus is education.

If you get rid of the mountain of debt that a new student is signing up for, then you create more graduates, who make more innovations and spend more money, didn't you put up a cite before that having college graduates is good for the economy? Why would you choose to follow policies that make people avoid going to college?
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”?
They are not deferring their spending in terms of saving and investment, they are deferring spending because they are paying off loans. As far as saving and investment, that is another thing that they are being denied. If you start saving for retirement in your 20's, you are going to be in a far better position than if you start in your 30's. This is forcing them to deffer their savings and investment until later in life when it will do them less good.

I do not say that a college degree has no value, as many employers obviously put a great deal of value on it. In fact, it has become so necessary to have a college degree, that many employers are now asking potential employees to go even further into debt for more advanced degrees.

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?
None of my statements, as that is more or less out of whole cloth. I may as well ask you "Why won't you stop beating your wife?" for as leading and inaccurate as your statement was.

A better question, and one that is relevant, is "Why do you not think that society should provide an education adequate to achieve a living wage to our next generation?"

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.”
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.
Meh, that's a good negotiation starting point. Look, if we want to talk policy, and what is best for the the students and the economy, we can have a give and take, and I can lay out what I think would be best, both as being practical and fair to students, both future and past, and what I think would be a good compromise. We could probably agree on most things, but I do think that it is more than just information to prospective students that is a problem.

But if we are having a negotiation, and you are coming from the position that nothing should be done, I cannot start at my compromise position, as then we end up on a policy that is somewhere between the minimum that needs to be done and nothing. By starting from extreme the position of wiping out all student debt, and giving a pro-rated check to all previous SD holders, then we can find a middle ground that is actually useful.

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.
The risk assessment is that if you don't take on this loan, you will struggle with low wage jobs the rest of your life. That is not a fair assessment to force someone to make, especially teens and young adults. I really do see it as extortion on some levels, and that it is not a choice that is made without duress.
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.
Do you think that society should provide our next generation with the tools that are required to succeed? 50 years ago, a high school diploma was enough to live a decent life and raise a family, and that high school diploma was paid for by society. Now we are in a time when a high school diploma is not enough to achieve a living wage for most, and so I do think that society owes that generation the education it needs to achieve that.

How exactly we go about that is a complicated subject that will probably require quite a bit of compromise where no one is able to really get what they want, but my point is that your assertion that democrats are hypocrites to talk about personal responsibility because they are concerned about the effect of student debt on the economy and on future generations was not just simplistic, but actually utterly wrong.