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Lewis Grotelueschen's avatar

It absolutely is inflationary. Instead of making payments on debt, the beneficiaries of this program will have money to spend on consumer goods which will have the effect of bidding up prices.

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Jane in NC's avatar

Even if all 20 million people eligible for partial debt forgiveness received the full $20K - a wildly over the top scenario - it would amount to about 6.6% of the total federal budget. That's not likely to trigger an acceleration of inflation. It's a blip on the screen.

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Lewis Grotelueschen's avatar

JVL has the cost at $360 billion. That's about 1.7% of current GDP. There is no offsetting revenue here to prevent this from contributing to inflation. Raising taxes to pay for this would spoil all the political fun, but it ought to be done.

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Jane in NC's avatar

Forbes is reporting today that the $400B in debt forgiveness [their estimate] could actually boost GDP slightly while having a similarly minor effect on inflation. IMO, the hair-on-fire response about this program is overblown. Intentionally. There's an election coming up.

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Liberal Cynic's avatar

This won't be hitting the economy all at once. Payments aren't changing and their loans all have different end dates.

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Beth Daugherty's avatar

They probably will spend the money on reducing other debt. Debt relief programs in the past have not been inflationary. See Dominque Baker, SMU. And if being able to keep up with rent increases, not go hungry, and maybe, just maybe, have the ability to search for a better job is inflationary, well, then, there's an underlying problem there, isn't there? I really can't see the bulk of people getting this relief, which are people earning less than $75,000 a year, and many earning less than $30,000 a year, increasing inflation much.

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Liberal Cynic's avatar

What money? They aren't being sent $10,000 checks.

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Beth Daugherty's avatar

Exactly. The only money they'll have is the money they would have been spending on debt payment.

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Sherm's avatar

And that's just if their loans are paid in full. Most will just have the life of their loan reduced, while still making the same payments.

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Peter  V's avatar

Not to mention the increases in taxes they will pay because their annual salaries will be far higher when they have advanced degrees.

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Liberal Cynic's avatar

OK, I see what you're saying now.

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Liberal Cynic's avatar

The payments aren't changing.

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Lewis Grotelueschen's avatar

Confused by this. If a loan is forgiven, in full or in part, the whole point is to change the payment, no?

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R Mercer's avatar

If the forgiveness actually is enough to "pay off" your loan, then obviously your payment goes away. If it is not enough to pay off your loan, then you are still making payments--the loan did not go away, you will just end up making fewer payments.

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Liberal Cynic's avatar

From what I've read, and it could be wrong, is that the payments don't change. There will just be less of them.

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knowltok's avatar

Well, that would definitely be a change to the inflationary angle. Not fully eliminating it, but certainly a driver pushing it further down the road vs. something that reduced payments of everyone getting it.

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Bruce G's avatar

Yes, beneficiaries will have a small amount of extra money to spend each month. The sum total of this is negligible compared to the overall economy. Hardly a big inflation booster.

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JB's avatar

Agree and many have paused payments for some time freeing up money for the past year+. I think it will not really increase spending much. The spending increase already happened.

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Lewis Grotelueschen's avatar

I've seen estimates of $300 billion. If this is in the ballpark, it is not negligible. Possible that these estimates are wildly inaccurate.

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HoyaGoon's avatar

Over how long a period? $300B is a drop in the bucket of the overall economy. And, as has been pointed out, it's not as though people are getting mailed checks, they are merely seeing the balance they owe drop by $10K or $20K. No one suddenly has a lot more money to spend right away. Any inflationary effects that this will have will be so widely dispersed in both time and amount as to have no appreciable effect.

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Liberal Cynic's avatar

If I understand the program correctly it's basically the government forgiving it's own loans. No new money is being sent to individuals.

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Donny from Queens's avatar

Not really, because the payments have been paused for nearly 3 years. That money is already being spent on consumer goods, so this is not introducing new money.

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Lewis Grotelueschen's avatar

Paused is different from forgiveness. A person planning ahead to be able to resume loan payments will behave differently than a person who no longer has to worry about repaying a loan.

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JB's avatar

Not reallyтАж not with the current price of gas, food, products.

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Sherm's avatar

How many of the people receiving this no longer have to make payments on a loan? The majority of impacted borrowers will just have the distant day when they're done moved forward in time.

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Liberal Cynic's avatar

I saw a graphic yesterday that showed this small bit would totally erase the debt of 53% of eligible borrowers.

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HoyaGoon's avatar

This is such an under considered point. For most of those affected, it just means that there may be a date in their lives they can realistically expect to finish paying off their loans instead of being bogged down forever.

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Donny from Queens's avatar

You assume people plan :-)

As a consumer bankruptcy attorney with 1000 BKs under my belt, I can tell you many do not. As someone who did 1000 house refinances, I can also tell you everyone who got lower payments or refinanced debt already had plans to accumulate more as well. It's human nature.

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mel ladi's avatar

Many/most people donтАЩt plan their finances. Yeah, thatтАЩs all IтАЩm gonna say about that.

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knowltok's avatar

While true, it is also selection bias. You aren't encountering as many people who manage their money well in your line of work.

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Donny from Queens's avatar

Yes. But the sheer quantity of them is more than I would have thought prior to this.

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knowltok's avatar

Sheer quantity of what, people needing bankruptcy help that a bankruptcy attorney runs into?

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Donny from Queens's avatar

It's more than you would think by volume.

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Aug 25, 2022
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Lewis Grotelueschen's avatar

I was just trying to make a very narrow point here. Purposely sidestepping the more important questions as to whether this is a good idea either as policy or politically.

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Aug 25, 2022
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Lewis Grotelueschen's avatar

Largely. Both Team "conservative" isn't conservative, right? Not a real big team apparently.

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