I will confess I haven't been following the Occupy Wall Street nonsense that closely, one, because I haven't as yet had a smelly hippie shoving a sign in my face, and second, the patent absurdity of some of the things they say they "want". More on that in a moment. Today, along with the smelly hippies, I heard there was a group of United and Continental pilots down in the "occupied zone" trying to garner attention for their labor resolutions. Other unions and even Mooove On dot org are trying to run to the head of the parade and shout "Follow me!"
Most notable to me, among the things the original group said they wanted, is the call for the complete forgiveness of debts some of them were asking for. Primarily focusing on their student loans, but, as long as we're storming the Bastille, hey! let's just do away with all of them! Those rich fat cats have enough money, let's just cancel all our loans.
All I ask is that before you initiate this proposal, is give me enough time to make a few down payments on a Lamborghini and some beach front property, and then cancel away! Do away with all those nasty loans!
A couple things come to mind that these geniuses of math and finance probably never thought of. One, after all debts are forgiven, that portion of every bank's assets will evaporate. Expect a run on every single bank in the US. The lucky few at the head of each line (read bankers and their "fat cat" friends) might be made whole, but when those assets dissolve, so do the savings of thousands upon thousands of Americans. And then, better plan on paying cash for your next house, or car, or even your next latte at Starbucks, because no one in their right mind is going to loan anyone any more money if those debts could be dissolved on a whim.
Then, figure whatever relief you received by getting out of debt would be quickly wiped out by inflation. If no one in the US has a house payment, car payment, credit card or student loan payments, then millions of people would have thousands of dollars in disposable income they didn't have before. When more dollars chase the same number of goods and services, the prices those goods and services command will go up.
And just out of curiosity, when we are dissolving everyone's loan debt, does that include Uncle Sam and the states, too? Everyone with a T-bill or municipal bond in their retirement portfolio can kiss their retirement goodbye as well!
All legalities aside, even as economic fantasy, this idea clearly would never fly. Our budding anarchists should go back to school. Or get a job. Preferrably both.
Written better than I could ever write.....
Posted over at Proof Positive