1 in every 8 Americans are about to get a windfall

The White House fact sheet on the student loan forgiveness plan is interesting reading.

Most of what you’ll read today is about whether this plan is right, wrong, fair or something along those lines. I don’t care. Trading isn’t about what’s right and wrong it’s about figuring out what’s going to happen before the next guy.

What I’m thinking about right now are the economic impacts.

First — annoyingly — the White House fact sheet doesn’t have the cost. I’ve seen estimates in the $300-$500 billion range. That’s real money. The PPP business loan forgiveness plan cost $700 billion. Still, it’s not going to blow up the bond market. Just yesterday, the White House revised down the 2022 deficit forecast by $383 billion.

What is on the fact sheet is that it will:

“Provide relief to up to 43 million borrowers, including cancelling the full remaining balance for roughly 20 million borrowers.”

That’s some relief for 1-in-8 Americans and I’d guess that vast majority of them are in their prime age and prime spending years. The number of prime-age working Americans is 128 million so that’s one-in-three if they all fall in that cohort.

It’s time to think creatively about this. If you had $20,000 in student debt and now you have $10,000, does that change your spending? Do you splurge?

What about if you had $8,000 in debt and it goes down to zero?

That’s cause for celebration right?

I’m inclined to think that it gives borrowers room to buy cars and homes but I don’t want to rush to judgement. Overall, it has to drive more spending, growth and inflation. How much is certainly up for debate but I’m certainly inclined to believe it will mean higher Fed rates a year from now that we would otherwise see. But if you were in the recession camp for 2023… maybe not?

What do you think?