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Friday Spike - Federal Reserve Taking Student Loan and Credit Card Debt E-mail
Monday, 05 May 2008

Sometimes when political types have news they want to keep quiet they'll release the details or hold a press conference on a Friday afternoon when people are less likely to pay attention to "hard news."  It seems the U.S. Federal Reserve might be using a similar tactic with its announcement of new lending programs to the student loan and credit card companies.

Just last week, Congress and President Bush were openly debating the form that a student loan industry bailout would take - which bureaucratic departments would orchestrate the plan, how much money would be spent, how much of the risk the federal government would assume.  A public dialogue started on the newspaper websites and various blogs - and on Friday, the public debate came to a quick end.  

Fans of a central bank argue that its independent authority and financial weight allow it to act more decisively than representational and democratic institutions.  Critics complain that the same could be said of dictators.

The announcement signals another currency devaluation in my opinion.  The added risk on the Federal Reserve's balance sheet is essentially added risk on the dollar.  Even if the Fed continues to contract the M1 money supply, M3 and MZM are still growing and influencing the global investor appetite for dollars.

What strikes me about all of this is how the elected leaders of our government have essentially surrendered their legal authority  without a word just days after vocally discussing how they would excercise it.  In terms of political power and financial influence, how many governments are as significant as just the Federal Reserve?  Right now, I think small steps toward a slightly higher interest rates is the real signal that international investors need to know that the dollar is on its way back up.  The temptation to "inflate out of debt" seems strong, but the practical consequences of this would be publicly devastating for a significant number of years.  

Was it really a big danger that the student loan industry and higher education in general would completely collapse without intervention?  I guess its not up for debate anymore - the decision has already been made.

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Copyright (C) 2007 Alain Georgette / Copyright (C) 2006 Frantisek Hliva. All rights reserved.
Last Updated ( Monday, 05 May 2008 )
 
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