EDITOR'S NOTE

The Dow's down about 950 points as I write this, because coronavirus is shutting down more and more of the U.S. economy and there's been too little action from Washington. 

The proposals sound promising: payroll-tax cuts (a way of getting households an extra $1000 or so of take-home pay this year), paid sick leave, emergency loans for small and medium-sized businesses, etc. And Larry Kudlow yesterday suggested that some of the measures like the emergency loans could be done quickly by the executive branch. Great!

And yet...we sit here and wait. Time is of the essence, because (a) businesses may be slower to lay people off if they know help is coming, (b) households may pull back less on spending and confidence if they'll have extra cash on hand, and (c) the Federal Reserve will slash rates to zero by next month--risking long-term damage to the financial system--if there's nothing fiscal on the way. 

Goldman was right to warn clients over the weekend that even the quickest fiscal stimulus packages typically take six months to enact. Sure enough, the interparty wrangling is already underway. Democrats are pushing for more expanded jobless benefits, and aren't supporting the payroll-tax cut. 

So here's my point: if it's going to take six months to get a big fiscal package done anyway, let's really make it worthwhile. In fact, we'll have to, because the longer we wait, the bigger the "bazooka" will have to be for the aforementioned reasons. So here's my idea: a Student Loan "TARP" (Troubled Asset Relief Program, originally used for subprime mortgages in 2008), based on the Wayne Johnson plan. 

Let's be serious: a good majority of the $1.7 trillion in student loans outstanding will never be paid back, and everybody knows it. Why continue the charade? Taxpayers are going to be on the hook for it one way or another. So let's just do it now. Johnson's plan is to forgive $50,000 of everyone's federal student-loan debt, which according to the WSJ would cost about $925 billion. For nearly 37 million (!) borrowers, that would wipe out their entire balances due. Talk about a stimulus plan. 

Johnson also advocates a $50,000 tax credit for those who already repaid student debt, in order to get broader support. (I never had debt, thanks to a scholarship, so I have no skin in this game.) His "pay-for" is a 1% tax on corporate earnings, but if we're talking about doing an unfunded stimulus plan of this size right now anyhow, you wouldn't even need to risk slowing growth by doing that. 

And here's the key to the whole thing: in return for this unprecedented bailout, the federal government gets out of the student loan business, and going forward prospective students would each simply get a $50,000 voucher for tuition at college or grad school. Let's not delve into how badly these terribly underwritten loans have messed up the higher education system and the balance sheets of millions of Americans. 

You can tweak the numbers, start at $25,000 for the whole thing, I don't really think it matters. But why not go for it? You solve multiple problems--the screwed-up federal student loan market, the debt loads that are keeping younger generations and poorer Americans in financial distress...and you'd certainly blunt the economic trauma of coronavirus. Because remember--you would also do the less costly, targeted measures to help the directly affected households and businesses. But this becomes the one economic "bazooka" left now that the Fed is basically out of bullets. 

And if Congress doesn't do it, then the Fed should. They need to expand their balance sheet by another $1 trillion or so? There's not enough bonds to buy out there. But there's plenty of student debt. 

See you at 1 p.m....

Kelly

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