Some people have asked why the government can afford to spend $1.5 trillion to bailout banks and big business but not pay off student loans.
Whether such an action was right isn’t the point of this post. Correcting misconceptions is.
1. The Federal Reserve is not the government.
The Federal Reserve is a system authorized by Congress that acts independently of any branch of government. The president appoints the national board, but the board acts without needing approval from any branch of government. This is why Trump complains so loudly about them – it’s the only power he has over the Federal Reserve.
Injecting money into the economy is something the Federal Reserve can do by convincing it’s board – only seven people. They have the authority to manage the money supply and the mandate to control inflation.
Paying off student loans or other similar actions would require passing a bill through Congress – hundreds of people with differing ideologies. Then it requires the president to sign off.
Some action might be possible via executive order, but that is limited to what Congress and the Constitution allow the president to do already. Forgiving all student loan debt probably doesn’t fall under that power.
2. The Fed didn’t just hand out money.
The Fed is essentially offering short terms loans to banks. This is a far cry from forgiving $1.5 trillion in student debt. I make no judgement here on the economic value of either action, just pointing out that giving someone a loan and forgiving a loan are not the same thing.
3. The Fed’s role is to prevent a panic.
The Federal Reserve was created to help prevent bank runs. While the leadup to the great depression is the most famous (think Bailey Savings and Loans), bank runs were far more common before the creation of the Federal Reserve. Now the Federal Reserve and the Treasury Depsrtment guarantee deposits in banks – meaning George Bailey doesn’t have to convince his neighbors to only take out what they need.
4. This isn’t about the stock market, it’s about money supply.
Our economy works because we deposit money at banks and take loans from banks. No farmer could afford the seed to plant a profitable crop, no tech startup could afford it’s rent or employees without loans. Don’t vilify banks. They allow local businesses and entrepreneurs to thrive.
The Federal Reserve is acting to help those banks keep making loans to those businesses, which is critical right now.
Should things be different? Sure there are changes that we could and probably should make. But before you call for those, make sure you have your facts straight.