Biden cuts student loans. The rich panic — and the right-wing lies about it.

Any service the federal government provides to help the average people runs into two major objections from the right:

  1. COST: The cost is unaffordable; it will cause inflation; it will burden taxpayers.
  2. FAIRNESS: It’s unfair to those  people who pay or have paid for the service

Objection #1, “Cost,” consists entirely of economic ignorance.

First, the federal government, being Monetarily Sovereign, never can run short of its own sovereign currency, the U.S. dollar. It can create infinite dollars at the touch of a computer key.

Former Fed Chairman, Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”

Former Fed Chairman, Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

Thus, no federal expenditure or federal debt is “unaffordable,” an cost never should be an issue. The only issue should be, will the project benefit the American people?

Second, inflation always is caused by shortages of key goods and services, most often energy and/or food, never by federal spending.

There is no historical relationship between federal deficit spending (red) and inflations (blue).

Third, federal finances are different from state/local government, business, and personal finances. Uniquely, the federal government does not rely on any form of income when paying its obligations. State/local governments, etc., are monetarily non-sovereign, and so, can run short of dollars.

In fact, all federal tax dollars are destroyed upon receipt by the Treasury. Taxes are paid from checking accounts, the contents of which are part of the M1 money supply measure.

Upon reaching the Treasury, they become part of no money supply measure, effectively disappearing.

The federal government has the infinite ability to create dollars. There is no answer to the question, “How much money does the federal government have? Effectively, it has infinite dollars. Adding tax dollars to infinity does not change infinity.

Objection #2, “Fairness,” when taken to its illogical conclusion means the federal government never should initiate any new spending, because earlier, some people did not receive that aid, and today, some people will not receive that aid.

It’s the “If-I-didn’t-get-it,-they-shouldn’t-get-it” proposition, an appeal to selfishness and envy, but not to logical economics.

Here begins the explanation of right-wing logic from Reason.com:

Forgiving Student Debt Without Abolishing the Federal Loan Program Is Morally Wrong
Biden’s debt forgiveness will do absolutely nothing to change the incentive system that created this doom spiral in the first place.
Robby Soave | 8.24.2022 

President Biden formally unveiled his student loan debt forgiveness plan on Wednesday, and will use his executive authority to cancel up to $20,000 of debt for borrowers who make less than $125,000 per year.

“When I campaigned for president, I made a commitment that I would provide student debt relief,” said Biden. “I am honoring that commitment today.”

Biden will cancel $10,000 of federally held student loan debt for all borrowers who make less than $125,000 a year, and $20,000 for recipients of Pell Grants, which are need-based.

Biden’s action is nothing more than what government was formed to do, and has been doing, since its inception: Financially supporting people.

Social Security is based on that concept. So is every form of poverty aid. So is Medicare. So is free elementary and high school.

For example, Medicare first was signed into law in 1965, so the right-wing could claim it is  “unfair” to all those people who were sick before 1965.

Also, most of those dollars help people who have reached a certain age, so according to right-wing logic, it is “unfair” to those who are younger. The dollars also aid people who have certain medical conditions, so if you don’t have those conditions, Medicare suppoedly is “unfair” to you.

The policy will impact up to 43 million people and cost the government at least $300 billion (in all likelihood, it will cost much more than that).

Ultimately, U.S. taxpayers—many of whom did not take out loans to pay for school—will be on the hook for the money. A very conservative estimate of the cost per taxpayer is $2,100.

That is a statement of the Big Lie that federal taxes fund federal spending. The reality is that not one tax dollar you ever have paid, or ever will pay, funds any federal expenditure. Not one.

The federal government creates new dollars, ad hoc, to pay all its financial obligations. Federal taxes have only three   purposes:

    • To help the government control the economy by taxing what it doesn’t like and by giving tax breaks to what it wishes to encourage.
    • To assure demand for the U.S. dollar by requiring taxes to be paid in dollars.
    • To make you believe federal spending is funded by taxes, so you won’t ask for benefits.

This last purpose is an invention of the very rich, who can grow richer only by widening the income/wealth/power Gap.

“An entire generation is now saddled with unsustainable debt in exchange for an attempt, at least, at a college degree,” said Biden.

“The burden is so heavy that even if you graduate, you may not have access to the middle-class life that the college degree once provided.”

Millions of students cannot contribute to America’s strength because they are hamstrung by excessive debt. Millions more won’t even attend college for fear of falling into debt.

The problem for all of us is that America does not benefit from the brainpower of so many millions of our young people.

What is the right-wing solution? It has none other than to stop helping students. It is the same right-wing solution to all federal spending. Stop helping those who need help. Raise taxes on the poor. Reduce benefits for the poor.

In short, the conservative solution to the non-existent “problem” of federal spending is to stop helping the poor and middle classes (but to continue to give the rich tax breaks).

This is quite an indictment of the federal student loan program, so one might have expected that Biden’s generous debt forgiveness plan would be accompanied by serious reforms to the underlying system that produced such inequities.

After all, the government is conceding that its loan program has scammed millions of desperate people. Their situation is so dire, their prospects of repayment so dim, that Biden is requiring everyone else to pitch in and help them.

“Serious reforms” never are explained. But when you begin with the premise that the federal government can’t afford to help, combined with the reality that many people can’t afford college, no “serious reforms” are possible.

In essence, right-wing has created its version of an impossible perpetual motion machine and then challenges the left-wing to create one.

And no, not a single taxpayer will be “required to pitch in.” Federal spending costs federal taxpayers nothing.

Biden’s debt forgiveness plan will do nothing—absolutely nothing—to fundamentally change the incentive system that created the doom spiral in the first place.

Degree-seekers will continue to borrow large amounts of money to buy useless educations; indeed, they might feel even more to do so now that this precedent has been set.

The term “useless educations” tells you all you need to know about the right-wing attitude toward a college education which is: Rich kids should get them; the poor shouldn’t.

It is true that paying off student debts disincentivizes universities from financial efficiency. But there is a solution, and ironically, it is already in use.

I call it the “Medicare solution.” Medicare and its supplements pay doctors. So one might claim that doctors would raise rates to take advantage. But they don’t for a very simple reason. Medicare won’t let them. Medicare sets limits.

Have these limits hurt medical care? Well, yes, to some degree, mostly because the limits are too low, which is why we now have concierge doctors — doctors who charge a fixed, annual payment in addition to what they receive from Medicare.

And yes, these doctors are able, by dint of having fewer patients, to offer better, more personal care. But no one is left without healthcare, so long as they qualify for Medicare.

And therein lies the problem. Younger people generally don’t qualify. There is no reason why the federal government cannot fund Medicare for every man, woman, and child in America.

Similarly, there is no reason why the federal government cannot fund a college education for everyone who wants one.

Meanwhile, colleges and universities will have even less incentive to lower costs.

Economic researchers have often found that the government’s subsidized student loans cause educational institutions to jack up their prices for obvious reasons: If the feds cover the cost on the front end, no matter what it is, universities have every incentive to raise the sticker price.

Forgiving student loan debt exacerbates this problem since it encourages more reckless borrowing. Indeed, the Committee for a Responsible Federal Budget estimates the cumulative student debt level will return to current levels in just a few years.

Doctors and hospitals also have no incentive to lower cost other than the fact that Medicare won’t pay them if they try to raise prices.

A “College For All Who Want It” program could operate in the same way. Federal dollars could go only to those colleges that charge a federally agreed-upon tuition.

There are structural incentives that push students to borrow money that they can never hope to pay back, and the fact that so many people have fallen into crippling debt is a compelling reason to change these incentives.

No rule says the federal government must lure people down a path that leads to financial ruin with some frequency. Congress can sharply limit, or even end, this practice.

Right, Congress could eliminate student debt by paying for colleges, rather than lending money to students. There is not a single financial reason why the federal government lends to anyone. It does not need repayment of the dollars it has the infinite ability to create.

A one-off cancelation of some level of debt held by borrowers who happen to be in dire straits at this specific moment does nothing to fix the underlying problems; on the contrary, it exacerbates them. It is a slap in the face to everyone who either paid down their college debt or made different educational choices to avoid accruing it.

A one-off cancelation of some level of debt helps borrowers. It is easier to service a smaller debt than a larger one.

But it is true that it doesn’t fix the underlying problem which is: The federal government never should lend. It only should give.

And now, Mr. Soave finishes with one final statement of The Big Lie:

If Biden wanted to make the strongest conceivable case for forgiving some college debt, this course of action needed to be paired with serious changes to the entire higher education system. Otherwise, he is simply engaged in a vast transfer of wealth, taking hard-earned money from those who did not fall prey to the federal government’s scam and awarding it to those who did.

There is no transfer of wealth; there is no transfer of money from those who did not receive student loans. The money comes from the federal government which created it out of thin air.

As Ben Bernanke told Scott Pelley on 60 Minutes: “It’s not tax money… We simply use the computer to mark up the size of the account.”

ROBBY SOAVE is a senior editor at Reason.

Pitiful that while a “senior editor” does not understand basic economics, he writes about economics. No wonder the public is confused.

Rodger Malcolm Mitchell
Monetary Sovereignty

Twitter: @rodgermitchell Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

What you pay for ignorance of federal financing. Part II

Let’s quickly review the facts:

  1. The U.S. federal government is Monetarily Sovereign. Even if all federal tax collections fell to $0, and expenses tripled, the government would not unintentionally run short of dollars.
  2. The government unnecessarily charges you for such services as Social Security and Medicare.
  3. Socialism is ownership and control, not spending.

Here are excerpts from an article that ran online today, 1/129/2022: Medicare Isn’t Free

Contrary to popular opinion, Medicare isn’t entirely free.

In a video interview, Dana Anspach, the founder and president of Sensible Money, explained the components of Medicare and the costs associated with Part B and Part D.

Medicare Part A, often referred to as hospital insurance, is free if you worked enough years in the U.S. to qualify. “Typically, if you’re eligible for Social Security benefits, you’re also eligible for Medicare Part A at no cost,” said Anspach.

This would be true if the federal government hadn’t socked you and your employer for FICA taxes, which purportedly fund Medicare and Social Security.

In reality, these taxes fund nothing. The federal government creates new dollars ad hoc, every time it pays an invoice.

Quote from Ben Bernanke when, as Fed chief, he was on 60 Minutes:
Scott Pelley: Is that tax money that the Fed is spending?
Ben Bernanke: It’s not tax money… We simply use the computer to mark up the size of the account.

Medicare Part B covers other services and supplies, and it has a monthly cost that varies depending on your income.

The money deducted for Part B, like all other payments to the federal government, pay for nothing. All dollars received by the federal government are destroyed upon receipt.

When you pay federal taxes, dollars come out of your checking account. These dollars come from an money-supply measuren called “M1.”

When the Treasury receives your M1 dollars, they cease to be part of any money-supply measure. The reason: It is impossible to measure the amount of money the Treasury “has,” given that the government has the infinite ability to create its own sovereign currency, the U.S. dollar.

So those M1 dollars effectively are destroyed upon receipt.

And there is Part D, for prescriptions, and it is free if your income is low enough, but it has a cost once your income exceeds various threshold amounts.

The following chart outlines the payments — the unnecessary payments — you are forced to make in order to receive medical benefits from the federal government.

The Four Parts of Medicare

You have been brainwashed into believing the federal government, which created the U.S. dollar from thin air, now somehow can short of the dollars it created.

So, you are led to believe it financially is necessary for the federal government to receive your dollars, to pay for services.

It isn’t. The federal government has neither the need nor the use for your dollars. It has the infinite ability to create new dollars.

That is how it is able to sustain a debt of $25 trillion with no worries at all.

You are swayed by reasonable-sounding complexity:

“Like so many things associated with retirement, it’s more complicated than you may think

“First, the Social Security office references your tax return data from two years prior to determine your premium level, so if 2022 is your first year enrolling in Medicare, they will use data from your 2020 tax return.”

“Let’s assume you are turning 65 in 2022, and your MAGI from 2020 is below $91,000 if single/$182,000 if married filing jointly; in this case, your Part B premiums are $170 per month and Part D will be free. (Your MAGI is calculated by adding back any tax-exempt interest income to your adjusted gross income (AGI).)

‘Now, if your MAGI exceeds additional threshold amounts, your premiums will be higher. ‘This is referred to as means testing and is technically called the IRMAA. You are notified of your premium amounts via a letter from the Social Security office called your Initial Determination Letter, said Anspach.

The largest premiums of $578 for Part B and $78 for Part D apply to MAGI greater than $500,000 for singles and $750,000 for marrieds.

Now if you are not yet enrolled in Social Security, you will receive a quarterly invoice for these premiums, said Anspach. But if you are enrolled in Social Security, the premiums are deducted from your monthly Social Security payment.

So many caveats; so many details. And it’s all a lie. The federal government destroys your FICA dollars and deductions from Social Security the moment they are received.

The federal government easily could and should pay for Medicare Part A, Part B, and Part D without charging you anything.

So why does the government force you to send it dollars that it destroys?

The following chart, from the aforementioned article, contains a hidden clue:

Part B premiums

Did you see the clue?

Look at the last line. There is a ceiling on payments above a certain amount of income. That is, the person who makes a half million, or a million, or a  hundred million dollars a year pays the same.

The increases in payments stop at a certain level.

This is the same trick the government uses when calculating FICA payments. In 2021, employees pay a 6.2% Social Security tax (with their employer matching that payment) on income up to $142,800. Any earnings above that amount are not subject to FICA tax. 

The very rich are never satisfied. They always want to be richer.

“Rich” is a comparative. There are two ways to become richer: Obtain more for yourself or widen the income/wealth/power Gap between you and those below you by forcing them to receive less.

Because the very rich control the U.S. government, Congress and the President are only too happy to oblige by setting a ceiling on payments to the government.

As a share of disposable income, the rich pay far less than do you.

This effectively widens the Gap, thus making the rich richer.

2. It collects an unnecessary and huge FICA tax from salaried employees and their employers, not from dollars earned in non-salaried remunerations — more representative of the rich.
3. Employers count the FICA they pay as being part of salaries, thus reducing paid salaries.
4. Despite the fact that Social Security is quasi-insurance, ostensibly paid for by FICA, the government collects proportionately more taxes from lower-income people.
5. Lower-income people generally work for salaries that are taxed at the highest rates. Other forms of income, more usual for the rich, are taxed at lower rates or not taxed at all.
6. Wealth generally is not taxed.
7. Tax loopholes available primarily to the rich.
7. Tax complexity is intentional. It allows the rich, who can afford expensive tax accountants and lawyers, to take advantage of arcane tax laws, not understood by the general public.
8. Student loans. The rich can pay tuition. The not-rich are burdened by loans.
Keep in mind that all of the above taxation and fees, together with limits on federal benefits, are unnecessary. The federal government neither needs nor uses tax dollars, and its spending is not financially limited.
The rich want you to believe that federal finances, which are Monetarily Sovereign, are the same as state/local government finances, which are monetarily non-sovereign.
The fundamental difference is that the spending by state and local governments is limited by income from tax receipts and borrowing. Federal spending is not limited by any form of income.
The Federal government doesn’t need your hard-earned dollars. Ignorance is expensive.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

……………………………………………………………………..

THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.

The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. Social Security for all
  4. Free education (including post-grad) for everyone
  5. Salary for attending school
  6. Eliminate federal taxes on business
  7. Increase the standard income tax deduction, annually. 
  8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
  9. Federal ownership of all banks
  10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.

MONETARY SOVEREIGNTY

Student loans: Another screwing of the middle classes

Let’s be clear. Every time the government pays a creditor, it creates new dollars, ad hoc.
In fact, paying creditors is the method by which the government creates dollars.

Thus, the U.S. federal government cannot unintentionally run short of its own sovereign currency.

Let’s be clearer. The U.S. federal government has absolute control over the value of the U.S. dollar (aka “inflation.”) Not only does the government control interest rates (which affect the value of the dollar) but the government arbitrarily can and has changed the value of the dollar many times.

Coinage Act of 1792
Coinage Act  of 1834
Coinage Act of 1853
Coinage Act of 1857
The Mint Act of 1873
Coinage Act of 1965
Nixon “Shock” of 1971

With the unlimited ability to create dollars, and the unlimited ability to control inflation, the federal government has no need to ask anyone for U.S. dollars.

It already has infinite dollars.Facepalm - Wikipedia

In fact, all U.S. tax dollars sent to the federal government are destroyed upon receipt.

These dollars, formerly part of the M1 money-supply measure, cease to exist in any money-supply measure after arriving at the U.S. Treasury.

Thus, federal taxes are not collected to provide the federal government with spending money.

The sole purpose and effect of federal taxation is to control the economy by rewarding what the government wants to encourage and by penalizing what the government wishes to discourage.

Thus, the government never should lend dollars, because lending requires repayment of dollars, which the federal government doesn’t use.

The government should give dollars when it believes dollars are needed. Giving, rather than lending, adds growth dollars to the economy.

One goal of the federal government should be to ease the ability of middle- and lower-income students, to attend college if they wish to.

Unfortunately, to achieve that goal, the government provides colleges students with dollars, via lending.

The above facts are what make the following article so infuriating.

Predatory student loans
Servicing company required to cancel $1.7B in debts for 66,000 borrowers
By Stacy Cowley The New York Times

Navient, once one of the country’s largest student loan servicing companies, reached a $1.85 billion deal with 39 states to settle claims that it had made predatory student loans that saddled millions of borrowers with billions of dollars in debt that they were highly unlikely to repay.

The deal, announced Thursday, requires Navient to cancel $1.7 billion in private student loan debts for nearly 66,000 borrowers and pay $95 million in restitution.

The private loans were crucial to Navient’s ability to make a large volume of lucrative federal loans, prosecutors said.

“Navient repeatedly and deliberately put profits ahead of its borrowers,” said Josh Shapiro, the attorney general of Pennsylvania, one of several states that had sued Navient.

Most of those who took out the private loans attended for-profit schools, often ones with low graduation rates and poor job-placement records.

The private loans Navient made were — in the company’s own words, according to legal filings — a “baited hook” that the lender used to reel in more federally guaranteed loans.

At some schools, it anticipated that more than 90% of the loans would default.

Rather than helping lower- and middle-income students succeed, and narrow the Gap between the rich and the rest, student loans do exactly the opposite.

Student loans doom students to lifetimes of debt and low credit ratings.

Imagine lending money when you know 90% of the borrowers would be forced into default. It is yet another clever scam by the rich (who control the U.S. government), to widen that Gap, while not-so-incidentally, putting dollars in their own pockets.

Navient, which did not admit any fault in the settlement, said it did not act illegally.

“The company’s decision to resolve these matters, which were based on unfounded claims, allows us to avoid the additional burden, expense, time and distraction to prevail in court,” said Mark Heleen, Navient’s chief legal officer.

Oh sure. All innocent companies settle lawsuits for $1.7 billion + $95 million.

Several state attorneys general also filed state lawsuits claiming that Sallie Mae — Navient’s predecessor company, from which it split off in 2014 — made private, subprime loans to borrowers it knew were likely to default.

Under Education Department rules, no more than 90% of a school’s tuition payments can come from federal funding. The private loans were intended, according to court filings, to fill that gap and lure in students, who would then take out the lucrative federal loans that the schools — and Navient — relied on.

The settlement calls for payments of around $260 per person to be distributed to 350,000 federal loan borrowers.

That $260 is a pittance compared to what the students owe or have paid.

To maintain America’s competitiveness in the world, a college education has become more necessary for America’s young people. To increase America’s wealth and to decrease poverty, the Gap between the rich and the rest should be narrowed.

If the government truly wished to encourage America’s competitiveness, and to narrow the Gap, rather than merely feeding the rich, it would fund free education for all.

Consider that the states, counties, and cities, none of which have unlimited dollars, already fund free K-12, and you can see what a scam the federal student loan system is.

The federal government should adopt Step 4, Free education for everyone, and Step  5, Salary for attending school  of the Ten Steps to Prosperity (below).

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

……………………………………………………………………..

THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.

The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. Social Security for all
  4. Free education (including post-grad) for everyone
  5. Salary for attending school
  6. Eliminate federal taxes on business
  7. Increase the standard income tax deduction, annually. 
  8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
  9. Federal ownership of all banks
  10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.

MONETARY SOVEREIGNTY