Why Jubilee Works: Preventing Over-Correction

In order to understand how and why Jubilee would work, you have to understand money. Basically, money is a means to facilitate commerce. Money can, however, create perverse economic incentives, such as we are seeing now in our economy, related to the problem of debt. Money is created to meet the demands of commerce. However, a shortage of money can artificially constrict economic activity. This is noncontroversial, and our monetary policy for generations has been to run a constant inflation of the money supply in order to facilitate expanding commercial activity.

Our problem today, like many depressions and panics in the past, arises from debt speculation. Speculators use debt leverage to bid up the price of something, like land values, until prices are no longer sustainable, creating a bubble. The bubble pops, meaning all the debt money disappears. The debt money was speculative, betting on a return of investment based on nothing more than the law of supply and demand. The subsequent liquidation of assets leads to a contraction of the money supply, stifling commerce and contracting the economy. A negative feedback cycle is created, as falling prices and job cuts feed on each other to destroy further commerce in a deflationary high-debt black hole. The subsequent liquidation becomes an over-correction, wiping out real economic activity in a deflationary sell-off.

That is where Jubilee comes in. Rather than having to live through an irrational market over-correction to excise the high-debt disease, Jubilee applies an immediate cure. Jubilee means that no one has to liquidate the inventories at fire-sale prices, and no one has to close their business down because they can't pay off their debt. Boom, in one step: end of correction.