Student Loan And Big Bank Bailouts Won’t Help When The National Debt Crisis Comes

While Congress considers raising debt ceiling again, it must be clear that unlike the Biden administration’s rapid response to student debt crises and Silicon Valley Bank failures, American taxpayers will not get a bailout for a national debt disaster.

While politicians, journalists and government employees frequently point out the hardships people face if the federal government doesn’t make taxpayers pay their student loans or cover their bank losses, they don’t often mention the national debt that is putting increasing pressure on Americans.

Depositors ran to withdraw funds from SVB last week as the bank crashed spectacularly into insolvency. The bank is now controlled by the Federal Deposit Insurance Corporation. SVB was decimated largely by the fact that it sold low-interest government bonds it held in reserve, at a shocking loss. SVB’s collapse was the worst bank failure since 2007.

At the same time, SVB has been placed under FDIC supervision, and the debate over whether Congress should increase the debt ceiling is raging in Washington, DC.

Truth is, the roiling has been mild. The majority of members of Congress, as well as the Biden administration and the punditocracy, agree that the debt limit should and will rise. The small debate centers on how much to raise that ceiling and where to cut budget to placate deficit hawks. Few officials, representatives, and talking heads doubt whether the ceiling should ever be raised.

Our nation’s capital has budget experts who predict that it will be a disaster if the Treasury can no longer borrow money to pay for budgetary shortfalls. They forecast a global financial meltdown and the collapse of entitlement programmes. “Petro-Yuan,” This appears to be what’s happening anyway.

So-called experts insist that the debt ceiling must be lifted completely to end the panic attacks that flare up when Congress nears its borrowing limit. They assert that the nation will only be able to maintain financial and budgetary stability if Congress can take on more debt than it can bear.

While the Debt Ceiling debate progresses and SVB sits on an auction block, SVB’s legality is being considered by the Supreme Court. 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 idea behind the loan bailout is that student debtors feel too burdened and can’t service the debt.

The program is presented by the administration 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.”

The Announcement of the programBiden’s administration proudly 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 states that “no one with a federally held loan has had to pay a single dollar in payments” As an achievement. The administration is not to be celebrated when college graduates in the United States cannot repay their loans. These loans are guaranteed by the American taxpayers. After all, student loans were intended to prepare student borrowers for employment that pays enough to repay their education debts.

Here is a trope that J. Paul Getty used: “If you owe the bank $100, that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.” Getty’s $100 Million is nothing compared with the $30 trillion of national debt. The United States Treasury is the bank that has become the problem due to bad loans.

We are back at the Silicon Valley Bank failure because of U.S. Treasury’s student loans. Savvy depositors at SVB began yanking their money — large amounts of money — from the bank a few weeks ago. These withdrawals led eventually to a bank panic.

SVB did not have enough funds to meet the demands of its depositors. 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 securities of the past have seen significant declines in value due to three-fold higher returns from newer bonds.

In 2007, bundled government-guaranteed mortgages failed spectacularly and spawned the biggest market crash since 1929. The federal government intervened and helped bail out failed financial institutions, just like last Friday. The bailouts of 2008 cost. According to a Massachusetts Institute of Technology studyClose to $500 billion

The federal government proposes to forgo student loans amounting to $400 billion. The losses of SVB and its depositors will amount to billions.

All these bailouts have one commonality: American taxpayers guarantee them. Taxpayers have to pay interest on the debt, and, if financial instruments fail, they must also cover the clean-up. The federal government borrows money to cover the loans that are not paid back because the federal budget is in deficit.

It’s a circular game and not very entertaining. There is no end in sight.

The national debt exceeds $30 trillion. In 2022, $475 billion was paid by the Treasury in interest on the national debt. This number will rise as interest rates rise and national debt increases. The rate of interest rises and older debt that is now commodified will lose its value. American taxpayers will be responsible for the losses until they are no more able to pay.

Intergovernmental agencies are the largest lenders to U.S. Treasury: the Federal Reserve and the Social Security Trust Fund. They together hold $7 trillion of the nation’s debt. The remaining $25 trillion is held in China, Japan, the U.K. and other nations.

These securities could fail and cause huge financial damage. American taxpayers will be directly affected by the result.

The administration’s concern about student loan borrowers is not discussed. However, the notion that the national debt may be too burdensome for the American taxpayer is rarely brought up. Congress seems to believe that taxpayers exist to pay taxes, support whatever they consider necessary, regardless of how inefficient, redundant or wasteful. The fact that the Obama administration plans to hire 85,000 IRS agents is a sign of how determined they want to collect their dues.

The White House wants to stop student loan payments, cover SVB’s losses, and borrow trillions to fund budget shortfalls. After going through a similar situation in 2008, it’s clear that all government debt shares one thing: American taxpayers must foot the bill when financial instruments fail.

They do. Spectacularly. They happen far more often than they should.

We don’t know the true cost or what it will be.

A.F. Cronin lives in Los Angeles. He has contributed to American Thinker and other periodicals.