A theory on how to fix the Student Loan Situation or the Debt Burden without direct-taxes. The Federal Reserve: What the elites, banks, corporations, and stock market don’t want us to think about by Quinton Mitchell

I could be wrong but a guy can dream or theorize.

Print money. Force banks to credit it into peoples accounts. People will pay down their debt or blow that money buying things or invest in themselves. Or, print money and directly pay the student loan companies. The Treasury and IRS on the preceding year’s tax return will have a section where people declare their actual debts, and then the Treasury calculates their “credit” based on debt-to-income ratio, the Cost of Living Adjustments for the area they live, number of dependents, and even special perks such as veteran, disabled veterans, etc., statuses. Everyone will pay higher prices over time through inflation, collectively. For an ad hoc analogy, would you rather pay 2.25 for a simple candy bar and be debt free now, or still be debt ridden and pay for a candy bar that’s around the same price today at 1.99? Whenever an “old timer” uses that “back in my day” analogy, what they don’t mention is they do notice the price increase, sure, but the relative price of everything went up, so they don’t really notice.

Whenever the Democrat candidates talk about free education or cancelling student loan debt, I’m down for that, but the issue is they’re talking about taxation and new entitlement programs. This is fine and general polling suggests that people are for this, but wants and reality, especially regarding our still massive lobbying industry is the issue. Sure, we can definitely pay for these, such as for example, by cutting and capping the Defense Budget, yet, the Military Industrial Complex is an ecosystem, not explicitly a few major prime contractors. The M.I.C. is small businesses, medium businesses, independent contractors, suppliers, the works. From uniforms made in a factory in Vermont, to IT services, to food vendors at every cafeteria on every base for enlisted troops, to barbers, office supplies, extension campuses of universities that provide education to troops, major construction firms and their smaller subs, all the apartments and houses near bases, etc. As far as the pricing structure of college as is, it was largely the government that helped drive up prices by subsidizing it, but also pure waste and greed by administrators, not to mention poor inefficiencies in how colleges operate, such as having small private expensive schools not merging into comprehensive university systems and/or running efficient endowment portfolios. Not to mention the fact that private business gets an easy ride when it comes to labor since they have no overhead in the game. Candidates are forced by hiring criteria to go to school, just to complete in a competitive global, yes, global economy. Unlike the Mike Rowe psy-op, not everyone can simply got trade skills, and I have a theory (jokingly) is that the reason why people have some many tattoos, is because so many people didn’t go to college and because tattoo artists, or we have so many “funky” hairdos is because everyone is a hair stylist (these are cool professions – not hating). Lowering hiring criteria by companies; merging smaller schools; increasing the quality of a high school diplomas so it’s an equivalent to an associates degree, etc., would help. YET… we have a trillion dollars of existing student loans with no bailout protection. We can either 1) Tax the rich or 2) Print Money and charge everyone inflation – the rich included – over time.

Regardless, this bailout of the people, a peoples’ QE (Quantitative Easing) already should’ve happened, because if the US economy ever hits recession again (with some saying we’re beyond the 9 year average, so we’re due), then the Federal Reserve won’t have many tools to use (despite, negative interest rates as is the case in the EU, and/or, continuing to hold onto Treasury bonds), and of course big business will get bailed out (it’s basically in the US Auto Industry’s soul to do this). The people will get boned, still pay taxes, still pay inflation, conservatives will blame immigrants, liberals will blame rich people, but everyone will suffer from increased unemployment (all in a nation Since banks will see a loss as people pay off credit card, auto loan, mortgages, student loans, medical loans, etc., the banks can be recouped by a future interest rate hike and/or higher taxes on the rich and corporations, i.e., the banks make money eventually, but the “Free Money” theory would help clean the slate so we can all move forward. Banks might lose out on long term low interest loans, but they’ll gain in the future from higher interest long rate loans, but the slate will be clear for the people, and a higher interest rates improves savings (you get more interest on personal deposits).

The Austrian, Jeffersonian, Rand or Ron or Ren or Stimpy whatever Paul crowd, is right but wrong on the Fed (I don’ that hate Ron Paul). Yes, it is weird. However, if it truly worked for the people it would be great. If the government charter’s the bank, then don’t revoke it, just make them help actual Americans. The problem is that it serves as a private bank for elite industrialist and banks, with people coming in last – just happy to have a job in an economy with built in business-cycle busts from inevitable declines in aggregate demand and consumption, that we justify as being “natural forces”.

My mind is a little fuzzy on the schematics of how it all works, but the general ideas is what I’m aiming for. To get to the point, the Federal Reserve has been pumping billions upon billions into the financial system while the general public goes on about their daily lives… Dancing With the Stars, Netflix show-binges, drooling over Instagram models, and countless hours to letting Joe Rogan keep us entertained. I believe we’re currently in QE4 or Quantitative Easing Round Four, meaning that since the 2008 Financial Crisis causing the Great Recession, that the Federal Reserve and US Treasury have infused billions upon billions of dollars into the Financial System and thus the Corporate and Wall Street Sector.

The general public got none of that directly. Can the people get at least one round of direct QE to themselves and directly into their own pockets? Quantitative Easing is a monetary management policy by the Fed that came during the Recession under Ben Bernanke. The Fed bought large volumes of potentially worthless bonds from the Treasury when the floor fell out from under us as the Subprime Mortgage bubble busted, and by holding those bonds, they vouched for the US economy, but used their “tool set” of “knob adjustments” to help, such as lowering the benchmark interest rate, adjusting reserve requirements, etc. This helped with to help stimulate growth in an anemic economy and there wasn’t much Obama really could do but act cool and entertain or inspire us in bits as the economy recovered. Taxes were already low. The Fed was involved… We were in a bad spot. Trump got the good end of it as the economy was rebounding upward in the last years of Obama, but Trump injected adrenaline and cocaine directly into the heart. The Fed and Treasury bailed out the economy and the elites and nothing came of it…no major arrests, and slap on the wrist fines. The sad truth is…the rich wanted the economy to tank, the same way Black Friday shoppers hope they can go crazy at a liquidation sale.

To add insult to injury, relating to my reference of QE4 is that the Fed pumped in billions to help the financial system. According to McCormick and Harris (2019), ” In its first direct injection of cash to the banking sector since the financial crisis, it laid out as much as $75 billion a day in temporary cash over four days to quell the funding crunch and push the effective fed funds rate down. In what are known as overnight system repos, the Fed lent cash to primary dealers against Treasury securities or other collateral. ” Further, McCormick and Harris (2019), adds, “In the week of Sept. 16, a lot of cash flowed out of the repo pipes just as more securities were flowing in — meaning that suddenly there wasn’t enough cash for those who needed it. That mismatch drove overnight repo rates to 10% on Sept. 17, from about 2% the week before. More alarming for the Fed was the way volatility in the repo market pushed the effective federal funds rate to 2.30%, above the 2.25% upper limit of the Fed’s target range — just as the Fed was preparing to drop that ceiling to 2%. “

The banks can get billions of dollars pumped into their reserves or portfolios, but that “created money”, is being charged to the general public over time through inflation, then…why can the Federal Reserve, give the public their own round of Quantitative Easing? Seriously, the Federal Reserve could pump money into the banks, force the banks to credit that money into people’s accounts, and people could pay down their debt, but pay “inflation tax” over time as prices gradually increase as the supply of dollars balances out with the aggregate demand of the overall economy. Essentially, we’ll pay inflation gradually over time, and with the public paying down debt, with their actual earnings from their labor, they will use that money to stimulate the overall economy through consumerism and consumption.

This is how the Financial System works in my head. I call it the “Financial Trinity”. The Treasury issues IOUs, i.e., bonds, notes, bills, coupons, etc., but then sells them to the public, with the majority going to average citizens, mutual funds, foreign banks or foreign national trusts (such as the Japanese Pension program), corporations, etc. Yet, the Federal Reserve buys the vast majority of these IOUs which it holds on its portfolio. The Federal Reserve holds this debt as collateral to vouch for the government, but also more importantly to vouch for the dollar. By holding this collateral the Federal Reserve triggers the mints (though people say the “Fed doesn’t print money”) to print cash, drive them to banks, deposit them in vaults, then those dollars are lent at interest rates to the general public, and the bank takes their cut. Banks then put a level of reserves with the Fed as collateral and banks and/or the Fed often make special interest rate loans between themselves in the overnight lending window and commercial paper or repo markets. When bonds mature, the Treasury pays its bond holders (largely from tax revenues taxed from the overall economy which is linked to the banking system), but remember, the largest one is the Federal Reserve. It’s a cycle.

(1) Treasury issues IOUs (2) Federal Reserve “buys” those and holds them as collateral (3) Mints print money and that money goes to banks (4) banks lend out the money, collect interests, and people use money in the productive economy. Banks also have a special market or “repo” market (think pawn shop as stated by McCormick & Harris, 2019) when they borrow money to meet payroll, etc. (5) Treasury collects taxes and then as bonds mature they pay bond holders, with one of the largest being the Federal Reserve, and the Fed can either hold on to those bonds or they let them expire from their portfolio. Inflation occurs as the volume of supply of dollars adjust to the demand for those dollars. “Dollars” don’t simply disappear, but since they’re accounted for, if there’s an excess their value absorbs into prices and prices rise over time. Dollars in a fiat based or Keynesian system serves as a stimulus, away from fixed assets like gold which tend to be horded by gold-holders, but that stimulus has to be used correctly and rarely does the actual cash get directly infused into the peoples’ pockets. It goes to banks who lend that cash out to high-dollar real estate projects, which is one reason why real-estate is so vital to the economy (jobs, mortgages, people double-dipping on their mortgages, middle men doing paperwork, appraisers, realtors, property taxes which typically goes to funding school systems, etc).

One major issue is that corporations take out large low-interest loans either directly or by borrowing against their market equity, i.e., their stock. They hold that cheap credit cash on their books, and some use tricky double-accounting methods to classify that debt as an asset, or they use that cheap credit for capital upgrades to facilities, buying assets such as real-estate or land (which can go underwater if real-estate prices goes down), CEO compensation packages, capital for mergers & acquisitions, etc. The stock market in part is doing so good, not entirely because of fundamentals such as steady quarterly earnings, but rather the stocks are bloats from abundant cheap credit made by the Fed and used by opportunistic corporations. It’s honestly a good thing we have somewhat low rates… 2%-3% as a benchmark rate because the market is uncertain regarding Trump’s trade tariff deadlines. The more uncertainty in the market, the more investors start digging into books to see if businesses are truly vital as they claim to be, not to mention, increased prices through supply-chains which can result in decreased earnings.

Some corporations are clever and efficient at playing this “live off your credit card” “faking it to you make it” game, but others are “zombie companies”, which are companies that should’ve failed, have been bought out or liquidated, but keep swiping their credit card to stay open. Corporations go even further by issuing their own bonds, i.e., corporate bonds, but by being so over-leveraged they ranks as junk bonds. I’m sure the stock market is “healthy” but a lot of it seems like credit based bloated stocks, mixed with the upward bidding wars of floor trading, and even algorithmic “nano-second” buying, selling, and shorting such as done by Jim Simmons with his theory of quantitative investing through his hedge-fund Renaissance Technologies.

I call the idea the Free Cash Theory. I see why not. It should only happen every couple of decades, if not at the beginning of each century, or at least when wealth disparity and ownership of the means of the production (Marxist accusations in 5…4…3…2..) gets out of control. If the Fed can afford 75 Billion for four days straight, or whatever the amount actually came out to, the fact that the Fed has been subsidizing Wall Street with cheap credit to bloat stock prices and drive speculation, simply means they can afford to help the people. With real balls or ovaries of steel from Congressional leadership and the White House, and act of humanity by the Fed, then we can truly help to wipe the slate clean for average Americans and move into the future. It’s not too late to save 3rd Way Democratic Capitalism, but the system needs to turned upside down to benefit an era of small-to-medium businesses, families, entrepreneurs, inventors, farmers, etc.

Sources:

https://www.washingtonpost.com/business/the-repo-markets-a-mess-whats-the-repo-market/2019/12/10/ed4488ae-1b58-11ea-977a-15a6710ed6da_story.html

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