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Comment by trsohmers | Hacker News Reader

I have been skeptical of the real "value" of cryptocurrencies (outside the technical ability to allow for value transfer, which does not necessitate the coins having value inthemselves), but assuming this is true I have a lot less faith in dollar bills and the fact that they are backed by the "full faith and credit" of the US government. If the student debt bubble really does pop, the government (and thus all of us tax payers) are going to be the ones holding the bag.

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In what sense is it a bubble? What assets are being bid up by enthusiastic investors and could suddenly collapse in value?

The fact that private lenders are incentivized to give out more and more leads to universities charging more and more. Even with all the money being spent, the same (or in some cases less) level of education is being provided. On top of that, how do you repossess someones education in the case of default? You can't, so the government can do one of three things:

1.Pay off the loan holders (by printing money, huge inflation) 2.Allowing indentured servitude 3.Debt forgiveness (now all the lenders are out of money)

Sadly, I think the 3rd option is the best one, but is by no means actually a good one.

Private lenders are tiny part of the market in student loan originations, even a smaller part in undergradatute loans.

The federal government is the overwhelmingly dominant player and they set the terms by fiat rather than any kind of market.

The “lenders” are the USG, and the cost of capital is only the imputed inflationary effect of transforming a loan into spending. Given the experience of the last decade those inflationary pressures may well be smaller than we had thought.

In the same sense that the mortgage industry was a bubble. For mortgages, the investor lent money to home buyers and expected a long-term payment schedule. The houses were being bid up.

If you assume student loans are a bubble: the long-term earnings potential of students is being bid up (and will collapse, leaving the government with lower worth/worthless assets.)

This usd has entered the economy via universities. The inflation is already out there. The issue comes when the loss is chrystalized. As in 2008 the state is filling in a hole not building a hill.

Aren't they always the ones holding the bag? Auto industry bail out, bank bail out, insurance agency bail out from Katrina. This responsibility is what stabilizes the world's currencies I suppose.

In all of those cases there was legislation passed after the crises... in this case, the US government has already guaranteed all of the loans and has no way of getting out of the without the US government defaulting. That only leaves room for printing money, which hurts all holders of US dollars.

> the US government has already guaranteed all of the loans and has no way of getting out of the without the US government defaulting. That only leaves room for printing money, which hurts all holders of US dollars

If college students are defaulting on their student loans en masse that means we’re in a recession. Recessions are deflationary. Monetising the debt would just take the place of central bank bond buying, except in a more egalitarian way.

I don't think that changes the premise of my point which is the government supports all situations where a bail out is needed.

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