Would debt forgiveness ruin the economy?

[eric922]

I decided to post this here, because it seems like a few of the best economics people are in OI. On another forum I said that the government should forgive all student, home, and medical bill debts to help the people who are currently struggling in this economy. I personally think housing, education, medical care, should be provided to everyone, but that is beside the point. Would a mass program of debt forgiveness harm the economy as I've heard some people say? I wouldn't think it would since people could then spend their money on more useful things instead of paying back loans. What do you all think?

[Ocean Seal]

Well the capitalist economy is destined for ruin anyway so it doesn't really matter. When the capitalist economy collapses we can start building socialism.

[Revolution starts with U]

Or it can devert to feudalism or totalitarianism. I would not act as if getting rid of capitalism necessarily leads to socialism...

Why would debt forgiveness ruin the economy? The burden of proof is on them, for making the claim that it would.

[Zealot]

How? If the money is owed to the bourgeoisie, then nothing of value is lost. The economy would go on without them. Maybe I haven't thought it through enough since I haven't slept for 2 days, meh. If there are people that claim this, links please.

[Judicator]

Well, debt relief is certainly a disaster at the macro level (http://www.medwelljournals.com/fulltext/?doi=pjssci.2010.34.39). I don't know how much it has been studied at the micro level, but I think there are several reasons (on top of the country example) why debt relief is problematic
1 - moral hazard
2 - people in debt and unemployable will remain unemployable
3 - it's a huge slap in the face to savers

[PC LOAD LETTER]

Well, debt relief is certainly a disaster at the macro level (http://www.medwelljournals.com/fulltext/?doi=pjssci.2010.34.39). I don't know how much it has been studied at the micro level, but I think there are several reasons (on top of the country example) why debt relief is problematic
1 - moral hazard
2 - people in debt and unemployable will remain unemployable
3 - it's a huge slap in the face to savers
By 'moral hazard' are you implying people would intentionally rack up debt, expecting the government will forgive it?

Can you please elaborate on what you specifically mean by someone being "unemployable"? I don't just mean a general definition, but a clear set of conditions.

[Judicator]

By 'moral hazard' are you implying people would intentionally rack up debt, expecting the government will forgive it?

Can you please elaborate on what you specifically mean by someone being "unemployable"? I don't just mean a general definition, but a clear set of conditions.

Yes. Imagine you're a medical student fresh out of med school with some massive amount of debt, say 400k. You're in residency 1 year away from landing a position that will pay 150k. But why bother paying back the debt, just default/ask for "forgiveness" and then keep your free 400k courtesy of John Q taxpayer.

Unemployable means there's a fundamental mismatch between the skills they have and what the economy needs. So for example someone who was in real estate but was towards the bottom of the barrel in terms of aptitude, has been out of work for 2 years, is in some sense "unemployable". The real estate labor market has all the people it needs for awhile, and their skills simply aren't needed.

Google it if you want more examples of how the term is used.

[RGacky3]

It depends how they do it, if they just secure the loans you'll have a moral hazard and banks will just raise the rates (which they are doing anyway).

What the government could do is buy the debts and just drop them, which is a way of bailing out the banks, and then offering government loans at very low interest rates.

Or the government could just strong arm the banks, pay them back less than 100 cents on the dollar and, then offer government loans at low interest (or better have a sane education system)

Now people would argue that it would make the banks unwilling to invest because of a lack of security, bullshit, they'll invest anywhere there is a profit, banks will still loan if people can pay back, if they can't they'll jack up the rates making the problem worse, if the government takes over parts of the financial industry, the financial businesses will still loan out to places where the governmant is'nt involved in and is profitable.

if you want to look at the effects of default look at Argentina and Iceland, they got out of their depression, they defaulted, now look at greece, they are still trying to pay back 100 cents on the dollar.

But the govenrmetn can't just forgive the debt, because its owed to private banks, so it has to somehow take the debt, and the effectiveness of it is just how they do it.

Just forgiving the debt and re-starting the system, is a terrible idea, but taking the debt and restructuring the system, i.e. making these things a public affair is a good idea, covering medical costs while you create a public system is a good idea, taking school debt while making a public funding system is a good idea, doing the former without the latter won't work.


1 - moral hazard
2 - people in debt and unemployable will remain unemployable
3 - it's a huge slap in the face to savers

1. Its not moral hazard, he's not talking about credit card debt, he's talking about university, housing, medicare, these are things that people need any many people NEED loans to take care of, if you forgive certain debts that people needed to take that went out of hand due to the financial industry, its not like people are so stupid they are gonna go out and buy a boat on credit.

The moral hazard would be for the banks, they can just raist interest rates.

2. Thats not really a point, a lot of people if they were out of debt, could move to a place where work is needed, start their own buisiness, take more schooling or whatever.

3. No its not, why should they care what happens to someone else.


Yes. Imagine you're a medical student fresh out of med school with some massive amount of debt, say 400k. You're in residency 1 year away from landing a position that will pay 150k. But why bother paying back the debt, just default/ask for "forgiveness" and then keep your free 400k courtesy of John Q taxpayer.


your not keeping your free 400k, its money owed to the bank, but, how is that moral hazzard? If anything its juts more money for him to spend in the real economy, unless he goes to school again and gets more student debt? But why would he do that?

Thats not Moral hazzard at all.


Unemployable means there's a fundamental mismatch between the skills they have and what the economy needs. So for example someone who was in real estate but was towards the bottom of the barrel in terms of aptitude, has been out of work for 2 years, is in some sense "unemployable". The real estate labor market has all the people it needs for awhile, and their skills simply aren't needed.


But Unemployable can be turned around with the right programs.

[Judicator]

1. Its not moral hazard, he's not talking about credit card debt, he's talking about university, housing, medicare, these are things that people need any many people NEED loans to take care of, if you forgive certain debts that people needed to take that went out of hand due to the financial industry, its not like people are so stupid they are gonna go out and buy a boat on credit.

The moral hazard would be for the banks, they can just raist interest rates.

2. Thats not really a point, a lot of people if they were out of debt, could move to a place where work is needed, start their own buisiness, take more schooling or whatever.

3. No its not, why should they care what happens to someone else.


1 - People dont NEED to go to a shitty college just so they can have a bunch of useless knowledge and become unemployed. You can be a high school drop out and do that.

It's not like people are so stupid they are going to buy houses they can't afford, take out credit card debt they can't afford, etc. :lol:

2 - More schooling? Lol? No amount of schooling will make you more motivated or raise your innate intelligence.

3 - You're giving money to those that borrowed for college, not to those that saved for college. If families people have identical incomes 5 years before they send their kid to college, and one saves while the other doesn't, debt forgiveness is a great big "fuck you" to anyone who saved...since they could have just borrowed for free.

[jmlima]

Or it can devert to feudalism or totalitarianism. I would not act as if getting rid of capitalism necessarily leads to socialism...

With all likelihood, all things being the same as of this moment, it wouldn't. We live in a deeply divided society, where half the people has petty (or justified...) hates against the other half, and that has been nurtured from the craddle, since their grand-parents time to think about themselves first, to think themselves as sole owners of the truth, and to think of their values as the only right ones.

I find if almost impossible to conceive how such a society can develop socialism out of a major event as the collapse of their financial system, that, never forget, is still a core value for many,many people over any other values.

IMO, one of the first things the left must realize is that revolution will not happen overnight. There's an awful lot of work to do before that. And by thinking otherwise we are actually playing into the hands of the capitalist system.

[Judicator]

your not keeping your free 400k, its money owed to the bank, but, how is that moral hazzard? If anything its juts more money for him to spend in the real economy, unless he goes to school again and gets more student debt? But why would he do that?

Thats not Moral hazzard at all.

The hazard part is that he takes on more debt than he might have otherwise, knowing it's probable it will be forgiven. Much in the same way the banks would take on more risk than they should, knowing they would be bailed out.


But Unemployable can be turned around with the right programs.

How are you responding to anything I said?

[Revolution starts with U]

Have you ever met a capitalist who didn't consider themselves part of the smart and industrial people of the world? Have you ever met a libertarian capitalist who did not view everybody that doesn't make $500m/year as a lazy good for nothing moron?
Have you ever met a right winger who did not base his entire worldview on the percieved defficiencies of everyone but themselves?
:confused:

Let the light shine in, brothers :D

[RGacky3]

1 - People dont NEED to go to a shitty college just so they can have a bunch of useless knowledge and become unemployed. You can be a high school drop out and do that.

It's not like people are so stupid they are going to buy houses they can't afford, take out credit card debt they can't afford, etc. http://www.revleft.com/vb/would-debt-forgiveness-t162901/revleft/smilies2/laugh.gif



1. Thats making decisions on judgement, you can't control personal judgement, but there are many many who did the right thing and still got screwed.

As for your second point, personal debt only raised in the US when wages dropped, there is a direct corrolation, unless your suggesting that Americans just suddenly became irresonsible.

Also most people CAN'T get credit nower days anyway, rates are extremely high, and the debt that exists is strangling the economy.


2 - More schooling? Lol? No amount of schooling will make you more motivated or raise your innate intelligence.


Again, no economic argument here, just typical elitist bullshit moralizing (i.e. people are poor becuase they suck, and they've obviously sucked more and more as neo-liberal policies were implimented), and you totally ignored my point, more money in the hands of people who will spend it is a boost to the economy, and disposable income, i.e. having a chance to step up, will mean that many people will.

Your basically saying that we should'ng give people a shot, or boost the economy, becuase people are stupid, its a juvinile and idiotic point.


3 - You're giving money to those that borrowed for college, not to those that saved for college. If families people have identical incomes 5 years before they send their kid to college, and one saves while the other doesn't, debt forgiveness is a great big "fuck you" to anyone who saved...since they could have just borrowed for free.

your hypothetical is rediculous, because everyon in the US does not have identical incomes, many people could NOT save for collage.

Again, this is just bullshit moralizing, no economic arguments here, your basically saying that people will get their feelings hurt if you help people that made mistakes that they did'nt make, even though most of the people being helped just did'nt have the opportunities that they had. I'm guessing that most people are not as narcissistic, sociopathic and elitist as libertarians like yourself are like.

Thats not an economic argument at all.


The hazard part is that he takes on more debt than he might have otherwise, knowing it's probable it will be forgiven. Much in the same way the banks would take on more risk than they should, knowing they would be bailed out.


The banks took on all that risk before the bailouts, the same with consumers, because the incentives were there.

Thats why I'm saying certain financial things should be publically contorlled, like student loans, healthcare payments and others. But we are talking about things like that.

Are you claiming that people will just go to the doctor everyday? Or just stay in collage forever, or go to different schools all the time? Its rediculous.


How are you responding to anything I said?

Your saying that some people are unemployable, so we should'nt give them any relief, but unemployable is'nt a permanent condition, they can go to a different market, get more schooling, start their own buisiness, or whatever, but they need relief and capital to be able to do that.

[jmlima]

...
if you want to look at the effects of default look at Argentina and Iceland, they got out of their depression, they defaulted, now look at greece, they are still trying to pay back 100 cents on the dollar.

But the govenrmetn can't just forgive the debt, because its owed to private banks, so it has to somehow take the debt, and the effectiveness of it is just how they do it.
...

Maybe, but consider that the gov cannot allow Greece to default because that would in turn potentially give ideas to other afflicted countries about default, which in turn would cause a collapse of the euro as we know it, and with it dragging the private banks, and potentially some of the nationalized ones. If that's good or bad it's not the point in this discussion.

[RGacky3]

Maybe, but consider that the gov cannot allow Greece to default because that would in turn potentially give ideas to other afflicted countries about default, which in turn would cause a collapse of the euro as we know it, and with it dragging the private banks, and potentially some of the nationalized ones. If that's good or bad it's not the point in this discussion.

Its not JUST default, its default and restructure.

[GatesofLenin]

Maybe, but consider that the gov cannot allow Greece to default because that would in turn potentially give ideas to other afflicted countries about default, which in turn would cause a collapse of the euro as we know it, and with it dragging the private banks, and potentially some of the nationalized ones. If that's good or bad it's not the point in this discussion.

Not to derail the topic but what happened to the higher ups at Goldman Sachs? They are the ones that flew to Greece to "advise" the Greeks on how to hide their growing debt and failing economy from the rest of the world.
This double standard capitalist love is pissing me off. Plain and simple, Goldman Sachs execs committed FRAUD and should go to jail!

[jmlima]

Not to derail the topic but what happened to the higher ups at Goldman Sachs? They are the ones that flew to Greece to "advise" the Greeks on how to hide their growing debt and failing economy from the rest of the world.
This double standard capitalist love is pissing me off. Plain and simple, Goldman Sachs execs committed FRAUD and should go to jail!

If you remember, there were some articles in the mainstream press about how even Germany and France tweaked their books to fit the euro convergence criteria?...

[molotovcocktail]

1 - moral hazard

It is idiotic to base an economic system on moral. And to answer the OP, normally would it harm the economy by overheating. But right now, we really need the growth it would have provided. The main reason it won't happen, is because the economic system is based on debt slavery.

[RGacky3]

It is idiotic to base an economic system on moral.

Moral Hazard just means your setting up the wrong incentives ...


And to answer the OP, normally would it harm the economy by overheating.

What does overheating mean?

[molotovcocktail]

What does overheating mean?
Oops, i am not sure that is an English word...:lol:
I meant hyper-inflation. If that is a word.

[jmlima]

Oops, i am not sure that is an English word...:lol:
I meant hyper-inflation. If that is a word.

It is.

[RGacky3]

How would it make hyper-inflation?

[ComradeMan]

It's been done before....

In such extreme cases where countries are on the verge of bankruptcy it may well be a final option- of course creditors are going to find a reason why it will cause the apocalypse :lol:

The only proviso is that it is not tabula rasa and then carte blanche to carry on as before.

Neither a borrower nor a lender be, For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry.
;)

[danyboy27]

I decided to post this here, because it seems like a few of the best economics people are in OI. On another forum I said that the government should forgive all student, home, and medical bill debts to help the people who are currently struggling in this economy. I personally think housing, education, medical care, should be provided to everyone, but that is beside the point. Would a mass program of debt forgiveness harm the economy as I've heard some people say? I wouldn't think it would since people could then spend their money on more useful things instead of paying back loans. What do you all think?

If anything it would really hurt the banks and credit agencies, and at the end it would be somehow harder to borrow money from these institutions if they didnt bankrupted in the process. On the other hand, Nothing would stop governement to create institution that would lend money at small or no interest to buisness and peoples.

It would help a great deal, but that would still be only a small bandaid, capitalism being what it is, banking institutions would probably reapear a decade or two after the whole mess and keep fucking people over.

[RGacky3]

and at the end it would be somehow harder to borrow money from these institutions if they didnt bankrupted in the process.

Try get a loan now :)

[danyboy27]

Try get a loan now :)

Well from where i came from getting a loan is relatively easy, especially with credit unions.

Car dealer usually have a deal with big bank to allow their customer to get a loan to buy a car.

[RGacky3]

Canada does'nt have a major financial crisis like the US, (its effected, but the banks did'nt screw up as much as the US and parts of europe).

[danyboy27]

Canada does'nt have a major financial crisis like the US, (its effected, but the banks did'nt screw up as much as the US and parts of europe).

Did you know that, unlike the U.S federal governement, the canadian federal governement dosnt borrow money to the canadian federal reserve, but from private banks with compound interest?

Also, we got a law allowing any banking institution to lend any sum of money to the governement without having any physical asset to back up the loan? any bank could (and also did)lended ton of money to the federal governement without having anything to back it up, that fucking insane.

Wait until the canadian bubble pop up, its gonna be fucking biblical.

[molotovcocktail]

How would it make hyper-inflation?
Because by deleting debt, you are in practice giving money to the households, so they can pay down their debts. This means you are actually printing new money, or devalue. This will cause the currency to be worth less, and savings will shrink in value. A result of devaluation is often hyper-inflation, because inflation=rise in general prices. Devaluation leads to inflation.
If you delete all debt, there will be a sudden rise in the amount of money. Which will result with that everybody have more money, but with the same wealth. This will push up the prices drastically. The definition of hyper inflation is an inflation over 50%, which is about the limit of where it is out of control.

[Judicator]

1. Thats making decisions on judgement, you can't control personal judgement, but there are many many who did the right thing and still got screwed.

As for your second point, personal debt only raised in the US when wages dropped, there is a direct corrolation, unless your suggesting that Americans just suddenly became irresonsible.


You can control your own choices.

Personal debt increased because people wanted to spend more than they could. If your wages drop, spend less. Not complicated.



Again, no economic argument here, just typical elitist bullshit moralizing (i.e. people are poor becuase they suck, and they've obviously sucked more and more as neo-liberal policies were implimented), and you totally ignored my point, more money in the hands of people who will spend it is a boost to the economy, and disposable income, i.e. having a chance to step up, will mean that many people will.


Step back and ask yourself why people with 4 year degrees are unemployed. Is it because they lack schooling, and need more of it? Probably not....

You are claiming you made a point about spending causing stimulus? Where do you find any comment or even mention of the term "stimulus" in your statement: "Thats not really a point, a lot of people if they were out of debt, could move to a place where work is needed, start their own buisiness, take more schooling or whatever."



your hypothetical is rediculous, because everyon in the US does not have identical incomes, many people could NOT save for collage.


Many people do have identical incomes. There are tons and tons of people in the US with income in the $40k-60k/year range, and there is a broad variety of saving and spending behaviors across them. Why do we want to engage in massive wealth transfers from the savers among them to the spenders?



Are you claiming that people will just go to the doctor everyday? Or just stay in collage forever, or go to different schools all the time? Its rediculous.


I am claiming that people will take on more debt than they otherwise would have if they did not expect forgiveness. We are not talking about doctors.



Your saying that some people are unemployable, so we should'nt give them any relief, but unemployable is'nt a permanent condition, they can go to a different market, get more schooling, start their own buisiness, or whatever, but they need relief and capital to be able to do that.


No. I was explaining what I meant by unemployable.

[JFB.anon]

Copy pasta "New Deal".

At this stinking point, debt forgiveness is irrelevant; we need to get the economy back on its feet, start taxing the rich, and end the wars. We need to reform medicaid, and all that silly nonsense that needs pounds of borrowed money thrown at it.

[GatesofLenin]

If you remember, there were some articles in the mainstream press about how even Germany and France tweaked their books to fit the euro convergence criteria?...

Right, so countries and corporations commit fraud = all is forgiven - business as usual but if a hard-working citizen makes a mistake on their taxes - they can go to jail.

[Judicator]

Copy pasta "New Deal".

At this stinking point, debt forgiveness is irrelevant; we need to get the economy back on its feet, start taxing the rich, and end the wars. We need to reform medicaid, and all that silly nonsense that needs pounds of borrowed money thrown at it.

Ahh..the favored solution of the left. If it isn't working, throw more money at it!

[RGacky3]

You can control your own choices.

Personal debt increased because people wanted to spend more than they could. If your wages drop, spend less. Not complicated.


Thats not a policy decision is it, you can't dictate peoples personal choices with public policy, and if you just ignore it, well, you have major problems.


Step back and ask yourself why people with 4 year degrees are unemployed. Is it because they lack schooling, and need more of it? Probably not....


Maybe its because we live in a shitty economy.


You are claiming you made a point about spending causing stimulus? Where do you find any comment or even mention of the term "stimulus" in your statement: "Thats not really a point, a lot of people if they were out of debt, could move to a place where work is needed, start their own buisiness, take more schooling or whatever."


thats if they were so called "unemployable," also those that ARE employed but just neck deep in debt, would spend more if they were out of it.


Many people do have identical incomes. There are tons and tons of people in the US with income in the $40k-60k/year range, and there is a broad variety of saving and spending behaviors across them. Why do we want to engage in massive wealth transfers from the savers among them to the spenders?


We arn't, we are making a transfor from the banks to the people ... essencially, and the extra from the wealhy.


I am claiming that people will take on more debt than they otherwise would have if they did not expect forgiveness. We are not talking about doctors.


yes we are, because we are talking about MEDICAL debt, EDUCATIONAL debt and HOUSING debt, not CREDIT CARD debt.


No. I was explaining what I meant by unemployable.

and I was explaining how that point does'nt fly.

[RichardAWilson]

I think the elimination of indebtedness would ruin the economy. The super-rich aren't saving in savings accountants. America's super-rich are investing and speculating in stocks, bonds, real estate and commodities.

Even high-worth individuals like Theresa Heinz (John Kerry's Wife) are investing in tax exempted municipal bonds. It's the middle class and retired that would suffer from a loss of principal in the banking sector.

Furthermore, the banks would refuse to lend. Do you think credit is hard to obtain now? It'll be impossible to obtain if the banks think you're just going to end up defaulting.

I do believe that during the Dark Ages in Europe, there was a little something called a "usury law," which led to the demise of lending. When lending did resume (Jews were exempted from Usury Laws), it was often much more expensive than it had been before.

I think there are more commonsense approaches that could address the issues and concerns that have been raised in this discussion.

[Judicator]

Thats not a policy decision is it, you can't dictate peoples personal choices with public policy, and if you just ignore it, well, you have major problems.


Personal choices, like whether or not to go to school and take on debt, are exactly that...personal.



Maybe its because we live in a shitty economy.


All the more reason more education won't help. Government spending is just a band aid that will hold them over until the government can no longer keep 20 million people feeding at the trough.


We arn't, we are making a transfor from the banks to the people ... essencially, and the extra from the wealhy.

You're making a transfer from people who saved and paid for college themselves to people who borrowed more for college.


yes we are, because we are talking about MEDICAL debt, EDUCATIONAL debt and HOUSING debt, not CREDIT CARD debt.

Okay, lets talk about mortgage debt. If anyone knew mortgage debt was going to be forgiven tomorrow...guess they'd do? Buy a house, lever it up as much as possible, buy another, lever it up, etc. Then wait for debt forgiveness and sell the houses. Easy money.

Almost reminds you of the subprime crisis, doesn't it?



and I was explaining how that point does'nt fly.


So you think I was lying, and actually meant something else? A definition isn't a "point"

[RGacky3]

Wait until the canadian bubble pop up, its gonna be fucking biblical.

The canadian banking system has much more regulation, so I'm not sure, but in the US the interest paid to the Fed and private banks is the same, its juts treasury rates, but you probably know more about Canadian banking than I.


Personal choices, like whether or not to go to school and take on debt, are exactly that...personal.


Yeah, but we have a global recession that has cuased people who planned correctly to be left out.

If you take a school loan to go to college or whatever, or to start a smart buisiness, then an economic crash happens, and your rates go way up, its not personal. Even if they did just make bad choices, it effects the whole economy.


All the more reason more education won't help. Government spending is just a band aid that will hold them over until the government can no longer keep 20 million people feeding at the trough.


... We are talking about getting rid of the student, medical and housing debt, and replacing the system with a low interest public loan system.

You seem to have an inability to distinguish from different types of government and different types of government spending.


You're making a transfer from people who saved and paid for college themselves to people who borrowed more for college.


Your taking the money from the banks mostly.


Okay, lets talk about mortgage debt. If anyone knew mortgage debt was going to be forgiven tomorrow...guess they'd do? Buy a house, lever it up as much as possible, buy another, lever it up, etc. Then wait for debt forgiveness and sell the houses. Easy money.

Almost reminds you of the subprime crisis, doesn't it?


No they would'nt because first of all we'd put in a socialized banking system in place.

Debt relief happened many many times in history btw, and what you said SHOULD happen never did, (just like all other predictions libertarians make about the disasters that should happen in socialism, or socialized programs.)

Also no it does'nt remind me of the subprime crisis ... Because that had nothing to do with debt relief, infact if there was debt relief there would be no credit default swaps or CDOs.


So you think I was lying, and actually meant something else? A definition isn't a "point"

Saying that a lot of people that are unemployed might be unemployable, is'nt a good point.

[RGacky3]

I think the elimination of indebtedness would ruin the economy. The super-rich aren't saving in savings accountants. America's super-rich are investing and speculating in stocks, bonds, real estate and commodities.

Even high-worth individuals like Theresa Heinz (John Kerry's Wife) are investing in tax exempted municipal bonds. It's the middle class and retired that would suffer from a loss of principal in the banking sector.


It does'nt matter, if the banks loose their bottom line, savings are still protected.


Furthermore, the banks would refuse to lend. Do you think credit is hard to obtain now? It'll be impossible to obtain if the banks think you're just going to end up defaulting.


A: Argentina defaulted, they manage to get loans
B: Thats why I suggest setting up a socialized bank.


I do believe that during the Dark Ages in Europe, there was a little something called a "usury law," which led to the demise of lending. When lending did resume (Jews were exempted from Usury Laws), it was often much more expensive than it had been before.

I think there are more commonsense approaches that could address the issues and concerns that have been raised in this discussion.

Its not juts simple default, I would say, the government takes on the debt, pays less than 100 cents on the dollar, and sets up a socialized banking system to compete.

[RichardAWilson]

Argentina defaulted and they manage to get loans

At an ultra-high interest rate that almost no one can afford.

Furthermore, Argentine businesses and households have a hard time getting approval for loan applications.

However, I do agree that we need to establish a socialized banking system.

I think a better approach would be the immediate socialization of certain large banks.

(Bank of America and City Bank have never been a cheaper acquisition)

[Judicator]

Yeah, but we have a global recession that has cuased people who planned correctly to be left out.

If you take a school loan to go to college or whatever, or to start a smart buisiness, then an economic crash happens, and your rates go way up, its not personal. Even if they did just make bad choices, it effects the whole economy.

By going to college, or starting a small business, you are voluntarily taking on more risk than you otherwise would have. If you have a small business and the economy does well, you'll do really well. If the economy does poorly, you'll do very poorly. It makes your earnings more sensitive to economic conditions.
Policymakers should not induce people to take unnecessary risks by shielding them from the downside.



... We are talking about getting rid of the student, medical and housing debt, and replacing the system with a low interest public loan system.


We already have a low interest loan system...whenever the federal government guarantees a loan it makes the rate artificially low. This encourages people to take risks they shouldn't.



Your taking the money from the banks mostly.


Perhaps we should ask the OP to clarify. Usually "debt forgiveness" means me forgiving your debt to me. I cannot forgive your debt to a third party.



No they would'nt because first of all we'd put in a socialized banking system in place.


The OP was only asking what if we forgave all debt, not what if we socialized banks and forgave all debt.



Also no it does'nt remind me of the subprime crisis ... Because that had nothing to do with debt relief, infact if there was debt relief there would be no credit default swaps or CDOs.


It has to do with the fact that insulating ANYONE, banks, individuals, whatever, against downside risk encourages them to take more risk, even to the extent that they will engage in behaviors with negative economic value. (In my example, buying hundreds of houses).



Saying that a lot of people that are unemployed might be unemployable, is'nt a good point.


They could easily have skills the market doesn't value. This is a completely valid point. We aren't going to get to 2008 levels of construction or housing market churn or anything like that anytime soon (even if the economy improves) so there's no reason to believe there will be jobs waiting in real estate for former real estate agents. Sure, anyone can take out the garbage, but that misses the point completely.

[Robert]

The OP inquires as to government "forgiveness" of debt, even debt that isn't owed to the government. So he presumably really means some kind of forced cancellation of debt.

There isn't a good governmental mechanism to do this I can think of other than through the liberalization of bankruptcy laws. If you can call that "good."

I don't understand this impulse to cede ever greater powers to the government -- to ration health care, to nationalize oil companies, to cancel contracts, to modify contracts, to label nutrient content of packaged foods, to categorize people by race. It can't be good from anyone's perspective, other than from that of a liberal.

[RGacky3]

I don't understand this impulse to cede ever greater powers to the government -- to ration health care, to nationalize oil companies, to cancel contracts, to modify contracts, to label nutrient content of packaged foods, to categorize people by race. It can't be good from anyone's perspective, other than from that of a liberal.

... Its not ceding more power to the government, its taking away power from banks.