Is The Federal Reserve Looking At Monetizing Student Loan Debt?

From the Main Street website:

Rising student loan debt is a probable risk that might slow down a strong economic recovery, New York Federal Reserve Bank President William Dudley said Wednesday.

“It’s a prospective risk that we need to analyze further,” Dudley told reporters at a press conference at the New York Fed. “The fact is that the student loan burden is climbing pretty sharply, and the fact is that it cannot be discharged.”

Real wages have been sluggish to rise, increasing the burden of paying back student loans for college borrowers…

“One thing you see in aggregate debt data is a very rapid rise in student loan debt over the last few years, and this is something that potentially has real implications for economic performance going forward.” Dudley said.

Everyone knew this because we see the government promoting it. We’ve warned that we may be headed for a trillion-dollar bailout. So it is interesting that a Federal Reserve official is claiming to have noticed a problem with student debt.

I have always assumed that the talk of a “taper” on the part of the Federal Reserve is just propaganda and misdirection. The Stock Market and “recovery” in Real Estate are one hundred percent dependent on Quantitative Easing. No one in the government or the Federal Reserve is willing to take the heroin away. The junkie would put them in too much pain, and she’s lining their pockets the way she is now.

But “Tyler Durden” at Zero Hedge argues that the taper isn’t just talk; it is actually something the Federal Reserve might be forced to do.

Bear in mind that the “taper” is all about economic cover for a forced move the Fed has to make, because:

1. Deficits are shrinking and the Fed has less and less room for its buying

2. Under the surface, various non-mainstream technicalities are breaking in the markets due to the size of the Fed’s position (repo markets, bond specialness, and fail-to-delivers among them).

3. Sentiment is critical; if the public starts to believe (as Kyle Bass warned) that the central bank is monetizing the government’s debt (which it clearly is), then the game accelerates away from them very quickly – and we suspect they fear we are close to that tipping point

4. The rest of the world is not happy. As Canada just noted, the US monetary policy will be discussed at the G-20

Simply put, they are cornered and need to Taper…

Durden argues that the Federal Reserve needs a source of debt in order to continue to flood Wall Street with new cheap money. Thus, Dudley’s words may be a sign of how they will avoid a slowing the new money creation while tapering their bond buying. “Bill Dudley just, perhaps inadvertently, dropped a hint of the next ‘market/scapegoat’ for monetization – Student loans.

1. A perfect bubble (forget about who created it) that needs to be popped by a responsible overseer

2. Lots of debt to monetize (keep the “flow” flowing)

3. A perfect excuse to slow Treasury buying (economy stabilizing, jobs stabilizing, stocks doing well)

4. A voter-friendly way of “helping” those in need that does nothing but enable more flow.

Durden also reviews the severity of the student loan bubble, and how it was produced by government action. If the Federal Reserve “helps” it would be proof of Harry Browne’s point that the government “knows how to break your legs, and then hand you a crutch and say:

See if it weren’t for the government, you wouldn’t be able to walk.’”