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Student Loan Forgiveness And Big Bank Bailouts Won’t Help When The National Debt Crisis Comes: The losses will pile up, and American taxpayers will foot the bill until they no longer can.
The Federalist ^ | 03/16/2023 | A.F. Cronin

Posted on 03/16/2023 7:29:02 AM PDT by SeekAndFind

The losses will pile up, and American taxpayers will foot the bill until they no longer can.

As Congress considers raising the debt ceiling again, the nation must realize that, unlike the Biden administration’s swift response to the student debt crisis and Silicon Valley Bank (SVB) failure, American taxpayers will not receive a bailout from a national debt disaster.

Government employees, media pundits, and politicians often note the hardships people will suffer if the federal government does not make taxpayers pay off their student loan debts or cover their financial losses due to a bank failure, but they rarely mention the burden the growing national debt puts on Americans.

Last week, depositors rushed to withdraw their funds from SVB as it swiftly and spectacularly crashed into insolvency. The Federal Deposit Insurance Corporation now controls the bank. SVB fell largely because it sold the low-interest government securities it had held in reserve at a staggering loss. SVB’s collapse is the largest bank failure since 2007.

Now, at the same time SVB has come under FDIC control, the debate about whether Congress should raise the debt ceiling roils in Washington, DC.

Truth be told, the roiling is mild. There is a consensus among most members of Congress, the Biden administration, and the punditocracy that the debt ceiling should and will be raised. The modest debate primarily concerns how much to raise the ceiling and where to cut the budget to appease the deficit hawks. Very few officials, representatives, or talking heads question whether the ceiling should be raised at all.

Budgetary experts in our nation’s capital claim it would be catastrophic if the treasury cannot continue to borrow money to cover budgetary shortfalls. They predict global financial meltdown, the collapse of entitlement programs, and the replacement of the Petro-dollar with the “Petro-Yuan,” which seems to be happening anyway.

Some so-called experts even insist that, to stop the recurrent panics that flare up whenever Congress approaches its borrowing limit, the debt ceiling must be removed altogether. They claim the nation can maintain budgetary and financial stability only if Congress can assume debt without constraint.

As the debt ceiling debate proceeds and SVB sits on the auction block, the Supreme Court considers the legality of Biden’s student loan bailout. That case depends upon whether a president can unilaterally wipe away government-guaranteed student loans (or a portion of them) without the consent of Congress. The impetus of the loan bailout is, ostensibly, that too many student debtors feel unduly burdened and cannot service the debt they have incurred.

The administration presents the program as “…a three part plan to help working and middle-class federal student loan borrowers transition back to regular payment as pandemic-related support expires.”

In the program’s announcement, the Biden administration dubiously boasts: “Due to the economic challenges created by the pandemic, the Biden-Harris Administration has extended the student loan repayment pause a number of times. Because of this, no one with a federally held loan has had to pay a single dollar in loan payments since President Biden took office.”

The administration presents the fact that “no one with a federally held loan has had to pay a single dollar in payments” as an accomplishment. But when the nation’s college graduates cannot pay back their loans, guaranteed by American taxpayers, the administration has nothing to celebrate. After all, educations financed by student loans should have prepared student borrowers for jobs that pay well enough to service their educational debts.

A trope attributed to J. Paul Getty applies here: “If you owe the bank $100, that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.” Although Getty’s $100 million is penny ante compared to the $30 trillion or so of debt on the nation’s books today. And the bank whose problem the bad loans have become is the United States Treasury.

The U.S. Treasury’s student loan debt brings us back to the Silicon Valley Bank failure. Savvy depositors at SVB began yanking their money — large amounts of money — from the bank a few weeks ago. These withdrawals cascaded into a run on the bank.

SVB had insufficient funds to cover its depositors’ demands. To make matters worse, Jerome Powell and the Federal Reserve have been raising interest rates, causing the government-guaranteed mortgages SVB had held in reserve to fall in value. These older securities have lost significant value because newer bonds have three times the return.

In 2007, bundled government-guaranteed mortgages failed spectacularly and spawned the biggest market crash since 1929. Like last Friday, the federal government stepped in and bailed out the failed financial institutions. The cost of the bailouts in 2008 was, according to a Massachusetts Institute of Technology study, close to $500 billion.

The federal government proposes to forgive about $400 billion in student loans. SVB’s losses, and the losses of its depositors, will cost billions.

All of these bailouts have one thing in common: American taxpayers guarantee them. Taxpayers pay interest on the debt and, when the financial instruments fail, have to cover the disaster clean-up, too. Also, since the federal budget runs a deficit, the federal government covers the failed loans with borrowed money.

It’s a circle game, and not a very fun game at that. And there is no end in sight.

The national debt is more than $30 trillion. The Treasury paid approximately $475 billion in interest on the national debt in 2022. This figure will increase as the debt grows, interest rates rise, and the federal budget balloons. Older debt, now commodified and used as cash reserves, will only lose value as rates continue to rise. The losses will pile up, and American taxpayers will foot the bill until they no longer can.

The largest lenders to the U.S. Treasury are intergovernmental agencies: the Federal Reserve, the Social Security Trust Fund, and the Federal Disability Trust funds. Together they hold almost $7 trillion dollars of the national debt. The other $25 trillion is held by China, Japan, the U.K., other nations, privately held insurance companies, pension funds, and state and municipal treasuries.

If these securities fail, the fallout will be enormous. And the fallout will land squarely on the shoulders of American taxpayers.

Unlike the administration’s concern for student loan borrowers, the idea that the national debt might be too great a burden for the American taxpayer rarely enters into the conversation. After all, Congress’ attitude seems to be that taxpayers exist to pay taxes and support whatever they deem necessary, no matter how ill-considered, redundant, or wasteful it may be. The administration’s plan to hire 85,000 new IRS agents shows how determined they are to collect their due.

The White House wants to suspend student loan payments and cover SVB’s losses while borrowing trillions to cover budget shortfalls. Having gone through a similar scenario in 2008, it is clear that all government debt has one thing in common: American taxpayers must pay the bill when financial instruments fail.

And fail they do. Spectacularly. And far more often than they are supposed to.

Who knows what the real cost is or will eventually be.


A.F. Cronin lives in Los Angeles. He has written for American Thinker and other periodicals.


TOPICS: Business/Economy; Culture/Society; Government; News/Current Events
KEYWORDS: bailouts; baks; debt; studentloans

1 posted on 03/16/2023 7:29:02 AM PDT by SeekAndFind
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To: SeekAndFind

The final solution - total collapse. Only preppers left alive.


2 posted on 03/16/2023 7:43:08 AM PDT by Chad C. Mulligan
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To: SeekAndFind
As Congress considers raising the debt ceiling again,

Stop calling it a debt limit. It is not a debt limit when it increases every time the so-called limit is approached. Instead, call it the gutless excuse to virtue signal fiscal conservatism and then appease the leftist deep state.

3 posted on 03/16/2023 7:44:35 AM PDT by ConservativeInPA ("How did you go bankrupt?" Bill asked. "Two ways," Mike said. "Gradually and then suddenly." )
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To: SeekAndFind

The debt “ceiling” is nothing but an amusing myth, a joke. There is no ceiling and there never will be one as long as these psychopaths are at the controls.


4 posted on 03/16/2023 7:46:21 AM PDT by cld51860 (We’re doomed.)
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To: SeekAndFind

By repealing FDR era lawlessness and restoring governance by constitutional means Eisenhower could have saved us from this doom for a pittance ... but he didn’t.

The cancer has metastasized.


5 posted on 03/16/2023 7:54:21 AM PDT by Rurudyne (Standup Philosophers )
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To: SeekAndFind

Takeover by another nation when folks here start killing each other in a vicious civil war between those who live off of the enslaved public and those who live off of them.


6 posted on 03/16/2023 7:56:48 AM PDT by MeneMeneTekelUpharsin (Freedom is the freedom to discipline yourself so others don't have to do it for you.)
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To: SeekAndFind
Gen. Flynn, is this another designed setup?

Note: Short video, player open in mute mode, volume must be activated.

7 posted on 03/16/2023 7:57:37 AM PDT by Robert DeLong
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To: SeekAndFind

“ Who knows what the real cost is or will eventually be.”

Everyone who thinks about it for more than a minute or two knows.


8 posted on 03/16/2023 7:59:31 AM PDT by VanShuyten ("...that all the donkeys were dead. I know nothing as to the fate of the less valuable animals)
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To: SeekAndFind

Folks,

We have observed a major world power go bankrupt in our life time.


9 posted on 03/16/2023 8:00:47 AM PDT by PeterPrinciple (Thinking Caps are no longer being issued but there must be a warehouse full of them somewhere.)
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To: SeekAndFind

Student loan forgiveness is payoff to Bidens banking Donors. He is going to make sure they get paid. He’s the one in Congress who exempted these loans from discharge in bankruptcy.
Student loan forgiveness is big bank bailout.


10 posted on 03/16/2023 8:18:29 AM PDT by AuntB (Trump is our Ben Franklin - Brilliant, Boisterous, Brave and ALL AMERICAN!)
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To: SeekAndFind

aahmmn, Mr Cronin.

The National Debt in the form of very low interest government bonds induced the failure of SVB.

The bonds are the national debt. For SVB stockholders, the crisis is oast and they lost their collective asses


11 posted on 03/16/2023 8:23:16 AM PDT by bert ( (KWE. NP. N.C. +12) Juneteenth is inequality day )
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To: SeekAndFind
Re: "SVB fell largely because it sold the low-interest government securities it had held in reserve at a staggering loss."

Sorry, that is incorrect.

They sold a $21 billion bond portfolio at a $1.8 billion loss, which was an 8.5% decline from face value.

Today, all we know about the collapse of SVB is that thousands of depositors showed up on the same day and withdrew their money.

Panic? Inside information?

So far, not one word of concern has been publicly expressed about SVB's loan portfolio.

If the borrowers are still making their loan payments, the bank is not dead. It just lacks liquidity.

12 posted on 03/16/2023 8:39:52 AM PDT by zeestephen (43,000)
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To: SeekAndFind

BTTT


13 posted on 03/16/2023 8:58:01 AM PDT by nopardons
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To: nopardons

That’s the China plan.


14 posted on 03/16/2023 8:58:50 AM PDT by Leep (Hillary will NEVER be president! 😁)
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To: SeekAndFind
John Kennedy Delivers Epic Takedown Of Biden For 'Bailout' Of Silicon Valley Bank
15 posted on 03/16/2023 9:20:37 AM PDT by Robert DeLong
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To: Chad C. Mulligan

Interesting how NOBODY is commenting on the billions of dollars in EIDL loans made to small businesses during Covid that are likely now in default. Add that to the stack.


16 posted on 03/16/2023 11:24:34 AM PDT by April Lexington (Study the Constitution so you know what they are taking away!)
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