Rogoff understands this objection, and doesn't dispute that what he's proposing is on some level unfair. But ultimately, he argues, this contraction is dragging us all down together, and even those lenders and savers will be better off if America's debt overhang is taken care of swiftly. Once that happens, and the economy starts to recover properly, we'll be able to focus on designing better policies that will make us less vulnerable to financial crisis in the future. "One way or another," said Rogoff, "we're going to be doing things we would not dream we would ever do before this is over."
Now the irony of Rogoff's statement is that he really isn't proposing anything "we would not dream we would ever do". After all, cranking up a little bit of inflation is hardly world-shaking. The Jubilee solution is a true example of something that most people have never dreamed.
The Jubilee Solution
The Jubilee solution is radical in the sense of "creative" and "out-of-the-box", but it actually avoids most of the objections he is facing.
--For example, the Jubilee solution does not defraud any creditors or violate any contracts. In fact, it is based on the idea of honoring all of them and paying them off.
--Nor would the Jubilee solution cause any inflation, as raising reserve ratios would soak up the potential extra liquidity, trapping it within the banking system.
Again quoting from the Boston.com article, we see that Rogoff shares the same analysis as myself (and other fringe economists like Steve Keen) of our current economic problem:
It's an argument that Rogoff himself admits is "radical," and one he says he'd rather not be making. But as he sees it, what's holding the country back from recovery is not just a lack of consumer confidence or suppressed demand, as in a normal recession, but an immense overhang of debt: thanks to the collapse of the real-estate bubble, millions of American families owe so much to banks that they're focusing all their energy on paying down their debts instead of spending their money on new investments. There will be no recovery until the painful process of working through that debt is behind us, Rogoff argues.
Jubilee Solution Summarized
Federal government issues electronic checks to pay off all debt. Simulaneously raising banking reserve requirements by a proportionate amount to soak up the money.
Viola. All debts paid, economy reset and primed to soar again.
It is really that simple.
The only thing lacking is general knowledge of the plan and the political will.
[The people in charge of the gov't now, who are the rentier/creditor class, don't care at all about anything but personal enrichment, which the current debt deflation is accomplishing marvelously by liquidating the assets of the masses into the hands of the creditors and cash-holders, i.e. themselves.]