Is Biden's Student Debt Jubilee a harbinger of an even bigger Jubilee?
Abraham George Macro Musings
In my past articles, I’d alluded to an upcoming debt jubilee many times. It is not a full-blown debt jubilee as yet but we are seeing the first signs of that. Yesterday President Biden announced he will forgive $10,000 in student loan debt for millions of borrowers.
In some cases, it can go up to $20,000. There are about 27 mln who have availed of the loan debt and all this will be erased from their loan balance. Around 9 mln people could have all their loans cleared to make them as white as snow. It is not that a magic wand created this forgiveness but it was made by someone, i.e. past and present taxpayers via the federal government and future generations who will still have to pay. Total federal student debt is in excess of $ 1.6 trillion but this is just the beginning of something big.
The concept of a jubilee is listed in the Old Testament book of Leviticus chapter 25. According to the Jewish customs of that time, there was debt forgiveness and the freeing of slaves roughly every 50 years.
In the Christian Era, Pope Boniface VIII proclaimed the first Christian Jubilee in 1300. Rulers throughout history have periodically used a jubilee to re-set the financial system especially when they feared that the peasants and poor citizens could revolt against them.
In the 1930s President Franklin D Roosevelt forced all Americans to turn in their gold. On 5 Apr 1933, the president issued an executive order to turn in each ounce of gold for a price of $20.67 in paper money. If not the public had to face dire consequences and people did turn in their gold. Then he raised the price of gold to $35 wiping out nearly 70 % of the savings of anyone who followed the rules. Seizing the gold enabled the government to print more dollars to help stimulate the economy, and also to buy more dollars on the international markets to prop up the exchange rate. But something more drastic happened in 1971.
With an election approaching in 1972, President Richard Nixon decided to default on the French government when they sent a ship to collect all their gold at $35. The French returned empty-handed. On Aug 15, 1971, President Nixon issued an executive order saying that the dollar will no more be tied to gold. That day the dollar died.
As for me, this forgiveness of debt doesn’t solve anything. You moved money from Peter to Paul. Joe Biden fulfilled one of his campaign promises and this action is clearly inflationary.
What comfort does this give to people who never took a student loan or paid their loans in time or in advance? Why should they be punished indirectly?
About half of student loan debt has been racked up by people who went to graduate school. So you have rewarded them more than the tax-paying blue-collar workers who have never been to college? This doesn’t solve anything to bridge the wealth gap.
With the historical precedents that we have from 1933 and 1971, we can expect any sort of unexpected actions from the government and we have alluded to some and given some hints as to how the government could play this out.
Through this student loan debt forgiveness which could amount to anything from $ 300 bio to $ trillion in 10 years, CHIPS act, PACT act, inflation relief act, and what more is left. The White House is pouring fuel to the inflation fire and the Fed is giving lip service to reducing QT. This is all a joke. Hope to make some sense out of Jackson Hole.
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Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and multi-billion dollar portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.