Monday, April 27, 2009

The Jubilee Solution to the Economic Crisis: the People’s Bailout

The worldwide economy is unraveling because of high debt. High debt is destroying the economy not only because businesses are forced to liquidate in the face of unpayable debt, but also because consumers won’t spend when their debt load gets too high. The high debt load is made worse by deflation, which makes older debt harder to pay off.

Jubilee means the forgiveness of debt, but can the principle of Jubilee debt forgiveness be applied to our current economic situation? Yes, it can. In fact, debt cancellation is the only solution to the problem, other than letting the problem run its course through a long period of economic depression, which cancels debt the slow and painful way.

The central governments of the world are currently attempting to inflate the money supply, through quantitative easing, to counter the deflation and stimulate growth. However, this approach is failing for a number of reasons. The basic disconnect is in giving the stimulus to banks, rather than directly to citizens.

Stimulation only works if the cash is spent. If the government prints a billion dollars only to bury it under the ground, obviously, no stimulus and no inflation will take place. Giving the cash to the banks is roughly equivalent to burying the new money under the ground. For one, the banks are using it to shore up their balance sheets, for two, consumers are already buried in debt and facing mass layoffs, so taking on more debt is not an option, so the money just sits in the banks.

The Jubilee economic solution would combine cash stimulus with debt cancellation. However, rather than bailing out the banks, and encouraging the people to go into greater debt, the government will give cash stimulus directly to the people. People will be targeted according to their debt, receiving cash payment equal to their debt level, payment going directly to the debt holder. In effect, everyone’s debt will be cancelled.

In order to prevent runaway inflation, the government will at the same time raise the banks’ cash reserve requirement in equal proportion to the cash stimulus. Thus, the cash will pass through the citizens, paying off their debt, and get soaked up back into the vaults of the banks.

The net effect will be a reset of the financial system, as all debts get fully paid off. Without the crushing weight of credit cards, mortgages, car payments, and student loans, people will be free to spend and invest again. The debt deflation will be totally defeated, and unemployment will quickly shrink as the business liquidation cycle ends and the economy takes off, with the desired upward effect on wages. The stage would be set for a new economic expansion as investments, inventions, and innovations are freed up to work their wealth-creating magic.

This is the Jubilee solution to our economic crisis. The beauty of the plan is that it would not require any new laws nor a Constitutional Amendment, and would not require the abrogation or violation of any contracts. Essentially, it could be done by executive action, but obviously, widespread Congressional support would be ideal as well.

What can you do to help make it happen? Spread the word however you can: tell your friends and family, blog it, forward it, provide the plan to your political representatives, run for office yourself, the possibilities are endless.

This is the Jubilee solution to our economic crisis, the people’s bailout. God bless us all.

note: by cash, I do not imply actual paper script to be printed and distributed; electronic credit money would actually work much better.


Gridlock said...

Seems to me it would just be consolidating the debt at the federal level. If the government gives out 'free' money for everyone to pay off their debts, they have to add that amount to their debt levels. Tax payers would then be stuck paying off the federal debt for years.

Justin said...

Not if the government just gives the money away. They don't have to convert it to debt. That is just a charade the play with the Fed. Government does not have to issue debt money.

insite said...

careful justin, you know what happened to the two presidents that issued debt free currency.

Justin said...

Ha, thanks, insite, good point.

Anonymous said...

Another thing...we are not just talking about debt forgiveness of one sector of the economy (a strategy that has failed in the past), we are talking about a rebooting of the ENTIRE economy, which is entirely another thing. - James Carder

wraft said...

If the treasury was to print up greenbacks (ie., without issuing bonds ala Lincoln) and send them to all the households so the households could pay off all their debts, there would be no increase in public debt.

Justin said...

The main problem with printing actual Greenbacks is the inflation that comes with physical cash. If they do it soley with credit and computer balances, the inflation can be avoided.

Anonymous said...

The problem with printing cash to pay off debt is that we are limited by the amount of wood and recyclable paper that is available. The dollar is also in competition with other nations for the same resource. The utter point is that green plants are needed to sustain life itself and without such the candle would be snuffed out on planet earth. One solution might be a conversion to digital currency, which may be our only solution in the face of an insurmountable pile of national currency running in an infinite set of negative numbers. Everyone would be issued an ATM card to buy and sell with. Prophetically, we should avoid this scenario: 666

Jaap de Goede said...

Cancelling debts would in my opinion be an excellent plan. Or, even better, cancelling inordinate interest rates on these debts, making it impossible to pay them off, and making money flow mostly one way: to those already rich.
Since we have borrowed over 15 times the gross national product of the whole world together, I don't think repaying the debts will ever happen.
However, the debts are not just a matter of the US of A internally. They are also debts with the rest of the world. And there's the rub. We must solve this internationally. Or else we will be played out against oneanother, dollar against euro against yen, etc. If we are to consider debt cancellation, we also have to consider redressing our international trade, and our cross-national debts.

Nonetheless, I very much appreciate the idea of Jubilee. There must be truth in this.
As much as there is truth that we should not take rent - on money.
(Just as much in the bible...)

Justin said...

I agree, Jaap, cancelling all interest should be a minimum first step. The good news is, if America leads, the rest of the world will follow, since the US dollar (Fed Reserve Note) is the basis of the world economy.