Swamponomics: GAO Warns Student Loans a Disaster for Taxpayers

Government-backed student loans have been a disaster for the US economy, borrowers, and taxpayers. While the initial campaign might have hoped for the best possible outcomes, the last 30 years prove that the road is hell is paved with good intentions. Young people are begging President Joe Biden to cancel the $1.5 trillion in student loan debt, money they ostensibly think would be absorbed by a black hole discovered by the James Webb Space Telescope. Indeed, this effort would undoubtedly affect US households that fund these educational endeavors, but it turns out that there is no return on investment for those coercively shipping their income to the state.

Student Loans a Negative ROI

A new report by the Government Accountability Office (GAO) found that taxpayers will lose $197 billion on student loans completed over the last 25 years. The government watchdog's estimate is a far cry from the Department of Education's projection that these lending apparatuses would net taxpayers $114 billion.

GAO study authors noted that pandemic relief, including the suspension of payments, interest accrual, and forced collections, was the main contributor to the loss. In total, the pause, which the 2020 CARES Act started, cost Americans $102 billion – and counting.

Biden has yet to decide what he intends to do over student debt. He pledged to cancel at least $10 of student debt, but progressives, including Sen. Elizabeth Warren (D-MA), have advocated for up to $50,000. The president was scheduled to meet with student loan cancellation activists, but the White House canceled the powwow.

Over the years, Liberty Nation has combed through the plethora of unintended consequences of the wealth redistribution scheme. The most recent revelation is that student loan debt relief is regressive, meaning that high-income families are more likely to borrow and receive a greater amount of funds than low-income households. In addition, it would add to inflationary pressures since putting more dollars into goods and services would exacerbate the nation's demand problem.

Meanwhile, student loans have exacerbated inflation in higher education, primarily tuition costs. Since colleges and universities are receiving government-guaranteed funds, these institutions can spend more money on staff focusing on diversity, luxurious dorm rooms, and events that celebrate some progressive cause du jour.

Inflation is Zero?

Despite the Biden administration proclaiming that the US has 0% inflation, the American people certainly do not think the consumer price index (CPI) is zero. The University of Michigan's five-year inflation expectations surprisingly edged up to 3% in August, up from 2.9% in July. This is higher than the market estimate of 2.8%. In addition, the one-year horizon remained elevated at 5%, and the five to 10-year expectations jumped to 4%.

Indeed, the headline numbers of the monthly UMich survey results were terrific and welcomed relief after a prolonged period of never-ending bad news. The Consumer Sentiment Index (CSI) surged to 55.1, and the Consumer Expectations Index (CES) advanced to 54.9. But the Current Conditions Index (CCI) worsened to 55.5.

Like many recent reports, the UMich print figure was strong, but the underlying aspects were troubling. For example, buying conditions for most costly purchases, such as durable goods and automobiles, remained near all-time lows amid 40-year high inflation. “High income consumers, who generate a disproportionate share of spending, registered large declines in both their current personal finances as well as buying conditions for durables,” the report stated.

Biden Sends Saudis to China

A new agreement between the Saudi Arabian Oil Company and China Petroleum & Chemical Corporation (Sinopec) was signed in what should be dominating market headlines everywhere. It further secured Beijing's goal of making Riyadh a client state, enhancing the Chinese-led Belt and Road Initiative (BRI) that coincides with the Kingdom's Vision 2030 initiative.

The multi-pronged memorandum is significant, consisting of a broad and vast relationship between the two states. The pact would increase a more significant partnership involving oilfield services, construction, carbon capture, hydrogen processes, engineering, refining, and petrochemical integration.

The deal was not surprising. China has been looking to Russia and the Middle East for energy, while Crown Prince Mohammed bin Salman (MbS) is looking toward Asia as its central customer. Russia also plays an essential role since the Saudis, China, and the Organization of the Petroleum Exporting Countries (OPEC) desire more stability in international energy markets.

This comes a couple of months after it was reported that China and Saudi Arabia are considering settling oil transactions in yuan rather than the US dollar. This would be a seismic shift in worldwide energy markets and perhaps the global economy. As US-China tensions escalate over Taiwan, Beijing might be attempting to speed up its decoupling. Chinese holdings of US Treasurys recently declined below $1 trillion, the Chinese Communist Party (CCP) has delisted more domestic companies from the New York Stock Exchange, and China continues to bolster its relationship with Russia. While about one-fifth of the nation's GDP depends on foreign trade, it is unlikely that the international marketplace would ever abandon the East Asian powerhouse as it did in Moscow earlier this year.

Advantage: China.