Saturday, February 4, 2012

Neither a Borrower nor a Lender Be ?

The federal government is deep in debt and its policies encourage personal indebtedness.

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The upward march of federal government debt over the last 20 years now stands at $15 trillion. But did you know that in a single year, the federal budget contains over $1 trillion in direct loans and loan guarantees to individuals and businesses?

Here are a few items from the President's 2012 budget:
    • $185 billion in Federal Direct Student Loans and loan acquisitions
    • $24 billion in guaranteed loans by Small Business Administration
    • $35 billion in direct loans and guarantees by Department of Agriculture
    • $58 billion in veteran home loans
    • $623 billion in guaranteed loan commitments by Federal Housing Administration and Government National Mortgage Association
      The effect? Indebtedness. Students begin their working life in debt. Small businesses become more leveraged. Farm product prices are "supported", causing higher prices for consumers. Veteran and other homeowners are encouraged to "invest" in a house that concentrates – rather than diversifies – their personal savings in a single immobile, illiquid asset.

      The risk?  Default.  Bad credit for borrowers.  A loss for taxpayers.  Asset bubbles that burst.  Savings that vaporize.

      My proposed change? Grants – rather than loans – to deserving students that need financial assistance. Equal treatment for all businesses without regard to size. An end to all subsidies and price supports. An end to the overemphasis on homeownership, instead ensuring "well housed" veterans and citizens.

      The focus on total government debt rightly emphasizes the risk posed to long-term government finance and the nation's future prosperity. By ending direct loans and loan guarantees, Congress can bring into focus the risk that debt promotion and subsidies impose on all of us today.