Brad DeLong reports that banks may be scaling down their student loan lending in response to the massive writedowns happening in the financial markets due to the subprime mortgage securitization. A bill was passed in the last couple of days, sponsored by Kennedy (Kennedy's been impressive during all this), that would effectively make, wait for it, the Department of Education (!) the lender of last resort. Wow.
I didn't see that coming, but yes of course. This is a credit crunch. And now we see not just cyclical pressure on output through aggregate demand - falling housing prices and falling stock prices due to the massive writedowns representing a shock to autonomous spending and a leftward shift in aggregate demand - but now even a potential blow to potential output as well via a reduction in the capital stock accumulation (both human capital and other forms) caused by the break down in these financial intermediaries. Good grief. I just taught my students about Japan's "Lost Decade" yesterday, which bears remarkable similarities to our problems. Surely we're not embarking on one ourselves, are we?
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment