Dear John: It would actually be much better if the Federal Reserve dropped cash from a helicopter because of the propensity to spend among regular people. W.K.
Dear W.K Sure, until bread reached $10 a loaf and Twizzlers — the product by which I measure all others — get to $20 a bag.
Or they could just give people money through so-called “tax rebates” as they’ve tried in the past. The only problem is, Americans have suddenly adopted the religion of saving and put a lot of that rebate money into the bank or paying down debt.
Plus, rebates added to the national debt — which, you’ve probably heard, is a bad thing.
So instead, the Fed created what is essentially a separate electronic currency that does nothing but buy bonds that nobody else wants. That did bring interest rates down, which has hurt people who have saved their money and now rely on interest income.
It has helped people refinance mortgages and buy homes — to some extent. But that benefit hasn’t been enough to get the economy rolling again.
And besides, dropping money from helicopters wouldn’t be very eco-friendly.
Dear John: I’ve been reading your column for what seems like forever.
Aside from ethics, what is the downside if the Fed were to burn the student debt, which now totals $1 trillion and is 90 percent owed to the government?
They would lose the interest income, but would that be offset by the increase in spending by the current and past students? I suspect I am missing something. Joe in NM
Dear Joe in NM What you are suggesting is really nothing more than the government has asked banks to do with mortgages — reduce the amount owed by homeowners whose mortgages are now higher than the value of their homes.
If Washington wants, I’ll strike the match that incinerates student debt.
But that debt has been bundled into securities, which have been bought by investors. Who pays the investors? And if you say, “Screw the investors,” then those investors will have less spendable income.
So the students (and their parents) would benefit from the bonfire, but investors would lose. The net effect on the overall economy would be a wash.
Plus, you’ve destroyed the ability to securitize the student debt. And that will make lending money to students in the future impossible.
But really, crazier things have been proposed. So good for you for thinking of something new.
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