Monday, January 26, 2009

Types of Objections

The objections to Jubilee, though they take many forms, in various degrees of eloquence, can be classified into a small number of essential points:

It is unnecessary
It would destroy the economy
It has failed in the past
It would reward the wicked and punish the good
It would not be legal

In snippets below are various real comments made concerning a modern Jubilee:

Dangerous (Would destroy all Money and the Economy):
Money theory -- ALL money is debt, and vice versa. My money in the bank is a debt to whoever they loaned it to. So absolve the mortgage holder of his debt, and the savings account holder loses also. There would be no money left. We would end up in a Mad max style post monetary system. Only gold and real assets would have value.

Savings will see them canceled too? There are far more savers than borrowers.

If all debts were cancelled then all savings deposited with lenders like banks and building societies would also have to be cancelled. Not just eroded in internal value through negative real interest rates, or reduced in external value through the depreciation of sterling, but completely cancelled.

So, I've done "the right thing" over many years by carefully paying off all my debts and building up savings to safeguard my future; and yet eg Nationwide would tell me that as almost all of its assets - all the mortgage loans on its books - have been wiped out by order of the government, so most of its liabilities - including all the savings that I deposited with them - must also be wiped out by order of the government.

The problem with a debt jubilee is that everybody with a bank account (or just holding paper money under the mattress) is a creditor of the system.

Unless you are a shareholder? Such an easy phrase for a champagne socialist to write - but untold misery for thousands of honest, hard-working people who tried to put a little money aside for their old age.

Please explain this to me. You put some money into the bank, and they lend it to X, Y and Z. The debts of X, Y and Z are then canceled in the Jubilee. How do you get your money back?

Right now, companies don't have the capacity to forgive dept. It would cause a massive loss of income and resultant bankruptcy or closure.

In addition to cancelling the debt, you would also have to shut down all of the existing banks and insurance policies, the car companies and anyone else whose balance sheet means they hold lots of debt. In addition to cancelling debt, we would also cancel all pensions, retirement plans and obligations such as annuities that are held by individuals.

Please explain how a unilateral elimination of debt would not cause a complete collapse of our financial markets and ergo our economy.

The supply of money (M-1) is largely comprised of debt securities. This is to say that the same dollar is frequently recycled through the economy through the process of lending. For example, a worker deposits his payroll in a bank, which lends his deposit (after reserve requirements) to a business, which spends it on inventory or payroll, and the spent money is redeposited with another bank etc. The electronic deposits of a bank are liabilities, are not covered by their reserve requirements, and certainly not covered by the greenbacks in circulation. Additionally, the Treasury creates money by borrowing from investors through the sale of treasury securities. Cancelling all these debts would result in a catastrophic collapse of the financial markets. With out a liquid medium of exchange, the entire economy would also collapse.

Moral Hazard (punishing the good, rewarding the bad):
But if it is ever going to be done I hope that I pick up early warnings about it, so that I have time to borrow up to the hilt and buy tangible assets. That's what has happened in the past when governments have decided to cancel debts - eg under Solon in ancient Athens:

You know, punish the types who don't
succeed, give everything to those who are the winners. So why should we
cancel debt (using those terms). The honest lenders will lose big time.

Makes me feel a right idiot now. All I had to do is take on all the debt the finance crooks were prepared to throw at me - and then sit tight for the "Day of Debt Jubilee" instead of the respectable poverty I've forced myself and my family to live in. Never mind - lesson well learned for the next big credit crunch - if not in time for me, then at least for my children and grandchildren.

I agree, on condition that there is a simultaneous asset jubilee: all the spivs who overborrowed and snapped up properties can have their debts annulled, and simultaneously have their properties move into state ownership, without any recompense. The state can then sell them to help minimize the enormous bill to the taxpayer. Those who were prudent should be the only ones able to put down a deposit, and should therefore receive their belated reward for living within their means, i.e. not stealing from others.

I'm serious. Nobody who has contributed to the fiasco of the last ten years should be rewarded with any concrete assets. I am sick to death of seeing parasites profit from their greed, having other people do all the real work.

Failed in past:
Well first of all it isn't her idea and it has been done already. John Maynard Keynes repeatedly called for a general cancellation of the war debts and reparations arising from WWI. Although it was not called a jubilee, debt cancellation occurred after 1931, beginning with President Herbert Hoover's one-year moratorium on both war debts and reparations.

Solon in ancient Athens…

Revolutionary Russia…

It would not be legal:
No, an act of congress would not do. Debts are contracts which are governed by state laws. Article I Section 10 of the U.S. Constitution specifically prohibits state governments from interfering with contractual obligations.

A relatively small fraction of total debts - maybe five, or at most ten, per cent - are such bad debts that there will be no alternative to writing them off. That will be sufficiently damaging in itself, without extending the idea to all debts.

1 comment:

Anonymous said...

The idea behind a jubillee is not only to eliminate debt, but also to create a level playing field between lenders and borrowers and create and pave the way for a pay-as-you-go society in America.

James Carder