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Saturday, February 7, 2009

The Bailout We Need


We are inundated everyday with news about the nation's economic crisis. The news each morning relates grim figures of falling employment, slagging consumption, failing financial institutions, home foreclosures, and growing consumer debt. Automakers are in trouble, school districts are in trouble, banks are not lending money. What's the solution? I, like many of you cruise the internet looking through money-saving blogs and articles like LifeHacker, GetRichSlowly, FrugalUnderground, and ZenHabits. I scour Coupon Mountain and Coupon Cabin before I buy anything. I have even setup budgets with Microsoft Money, Wesabe, and Mint (the best!). I have a Upromise account that pays down part of my student loans with each purchase I make. Which brings me to my solution to the economic crisis. Dear President Obama, I hope you're listening (afterall we do follow each other on Twitter).

Giving money to automakers and banks, extending benefits to the unemployed, and providing tax credits sounds all nice and flowery, but will it really impact the middle class? No. The children of middle class families (like myself) have worked their tails off early in life to earn great grades in high school while working a job so that they have the grades and savings to pursue a college education (many of who will be the first of their family to do so). What no one warns them of is the crushing debt they will carry after their hard-earned degrees are conferred. The kids graduate only to find that the slackers in high school who eschewed the college route are now earning more than they are. So it's off to grad school to further one's education and increase earning potential (and amass more debt).

So now the middle classers have a grad degree and $100,000 worth of debt as they attempt to begin a life and career. Trying to obtain the necessities like a car (which makes getting to work far easier) and housing (having a place to live increases the likelihood of obtaining gainful employment) and begin a life (like getting married since you're now 30 yrs old after finishing your education) is a daunting prospect when combined with a mountain of student loan debt. We gave money to banks, and they issued no loans in response. New liquidity in the economy = 0. So the score is depression: 1, bailout: 0. We give money to automakers, and the score becomes depression: 2, bailout: 0. Bush's tax credits did not spur consumer spending, because people used the money to pay down debt, so another round of the same will result in a score of depression: 3, bailout: 0.

Want to improve confidence, credit scores, spending, and save the ecomony with one deft move? Forgive student loans. Investments in human capital will undoubtedly aid the nation in our new economy where we must work smarter than the rest of the globe. Absolving student loan debt instantly gives the middle class the money to shop and especially to finance big ticket items like cars and homes. This makes far more sense than giving 2008 homebuyers $15,000. Moves like that will only exacerbate the situation, because it carries no relief for the poor souls who bought a home when prices were peaking. Writing off student debt enables instant liquidity and give middle class America the breathing room they need to get back on their feet and to begin chasing the American Dream debt free.


  1. "The kids graduate only to find that the slackers in high school who eschewed the college route are now earning more than they are"

    It seems these graduates made some poor career field decisions!

  2. Not necessarily. The trades pay quite well.


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