Ahead of US Midterm Elections, Biden Pumps Money Again...Fueling Inflation?

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Ahead of the midterm elections this November, U.S. President Joe Biden has launched a massive spending initiative targeting young voters. He announced the forgiveness of student loan debt up to $20,000 (approximately 27 million KRW) per person. The number of beneficiaries is about 43 million, and the total amount reaches 400 trillion KRW, an unprecedented measure. However, there are growing criticisms that this move raises fairness issues and could fuel inflation.

On the 24th (local time), President Biden announced the student loan forgiveness plan in a White House speech, saying, "This means that people can finally start to break free from the mountain of debt."

Accordingly, those with an annual income below $125,000 will have $10,000 of their debt forgiven, and those who received the federal government’s low-income scholarship, the Pell Grant, will have up to $20,000 forgiven. The repayment moratorium, which expires on the 31st, will also be extended until the end of the year. The repayment collection rate has also been lowered from 10% to 5% of discretionary income.

The number of beneficiaries under this measure is about 43 million. President Biden predicted that 20 million of them will be completely relieved from the burden of student loan repayment. Furthermore, he expected that about 90% of the forgiven amount will benefit those earning less than $75,000 annually. President Biden pushed this measure through by executive order, bypassing congressional legislation.

The Wall Street Journal (WSJ) reported that the cost of this measure will exceed approximately $300 billion (about 402 trillion KRW) over ten years. Economic media CNBC, citing experts, estimated that total federal government spending could reach $364 billion. The Washington Post (WP) also estimated that the cost of forgiving $10,000 per person alone would exceed $230 billion.

Opinions in the U.S. are divided. While some criticize it as a populist policy aimed at the midterm elections that undermines fairness with those who have diligently repaid their loans, others argue that the repayment burden should be significantly reduced to address structural inequality. The scale of this forgiveness falls far short of the $50,000 per person originally advocated by the Democratic Party.

There are also growing concerns that this will further fuel soaring inflation. Even progressive scholars such as Harvard Professor Jason Furman, who was in charge of economic policy in former President Barack Obama’s camp, and former Treasury Secretary Larry Summers warn that this measure could lead to tax increases and inflation.

However, the White House drew a line, stating that the impact of this measure on the Consumer Price Index (CPI) would be minimal. The U.S. CPI is currently showing an 8% increase, the highest in 40 years.

Recently, signs of a peak have been detected, such as a decline in expected inflation. International oil prices have fallen to the $90 per barrel range, levels seen before Russia’s invasion of Ukraine, and prices of wheat and corn have also returned to early-year levels.

U.S. housing prices, which had been soaring, have also declined. According to Black Knight, last month U.S. home prices fell 0.77% compared to June, marking the first monthly decline in three years. This is analyzed as a cooling of real estate demand due to factors such as rising mortgage rates since the beginning of the year.

This content was produced with the assistance of AI translation services.