Picks for 2012

[Vanraw]

I agree the student loan issue is massive, but I dont think a bubble that would shake the foundations if it popped. Estimates are between 500 and 750 billion in student loans across the country. As I understand it, most of this is held by and or guaranteed by the federal government. Here is why I dont think its a risk tot he economy.

1. A bubble pop would not directly impact employment as the housing or internet bubble did.
2. A pop would not create any sort of massive inventory glut like most bubble pops do.
3. Banks have little risk. in 2009 most of the risk was pulled into the federal government.
4. I doubt we would have a pop, because there will be no coordinated / synchronized crash. Meaning everyone witha student loan will not all of a sudden say "Im not paying"
5. When people decide to not pay a student loan, there is no collateral loss, such as losing your home....



If there was going to be any sort of a coordinated or massive default on student loans, I think it would have happened after the 2008 crash. If there was a huge default across the board, it would be a like a tax cut tot he fed, meaning its only realy impact would be in yearly revenue. Keep in mind that the 500 to 750 billion outstanding is to be paid over like a 20 year period. So if we average to 600 billion debt across 20 years its a 30 billion a year impact to revenue (this is back of the napkin crap calculations but you get the point). 30 billion in our economy, even at current levels isn't anything that will shake the foundation.

I will however add this, and it might force this topic to the political forums...... If the federal government wanted to stimulate the economy directly, one way they could do this is to simply forgive all 750 billion. This would in effect be a large tax cut to young people who want and would spend the money into the economy.