I genuinely don’t get it. My brain says if people don’t have this looming debt they have to pay into, they’ll have more money to feed into the economy via goods and services.
ETA: I only have this question because of what Biden is saying. I have a gut feeling it’s misdirection to avoid cancelling student loans, but figured I check.
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I’m assuming you’re talking about federal student loans, which are essentially loans from the government. Lack of collection on student loans could potentially be seen as a weakness with tangential effects towards other government obligations, all while increasing balance sheet (debt). Either lack of ability or lack of will to collect on debts is not generally viewed as a good thing.
Imagine a typical movie scenario where a crime boss (Joe) collects debts by playing hardball and not letting anything slide without punishment. Everyone abides by the rules Joe goes by, either out of respect or fear. Now imagine if he goes: “Johnny (customer) doesn’t need to pay me back I’ll let it slide.” From an optics standpoint this looks terribly weak. Next thing you know, his other customers Giovanni, George, and Greg all start thinking “hmm maybe Joe isn’t so tough after all, since he let Johnny slide last week. Seems like he’s getting soft, so I might ask to renegotiate fees or terms, etc.”
Now translate that analogy onto a global scale. Joe is the US issuing sovereign debt and forgives Johnny’s student loans. US sovereign debt holders (other countries) will see this as a sign of weakness in terms of commitment to the USD. Treasuries then adjust accordingly, along with FX and eventually into equities and real output.
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