Bret Arends is the latest to publicly call for national Jubilee. He sells the idea as a parallel to bankruptcy, and highlights the way in which excessive debt prevents economic activity, thus actually harming the economy and making us all poorer.
His article is also very good for directly answering many of the objections to debt-cancellation. He does not, however, present a practical plan for debt cancellation, just the need to do it.
As far as I know, I am still the only one who, following an analysis of the debt-based problem, has put forth a realistic and simple plan for accomplishing it. Please help spread the word. The need for Jubilee is reaching a public-awareness critical mass. We need to transition the public mind onto the ease of doing it.
The Jubilee Solution is simplicity itself:
1) The federal government issues electronic checks to pay off all debt.
2) The banking reserve ratio is raised by a proportional amount to soak up the liquidity (trapping the extra money in the banking system).
Viola! All debts cancelled, the economy reset for takeoff.
Debt cancellation, without violation of contract, without inflation.
IT CAN BE DONE!!!!
Here is his description of how the debt overhang prevents economic activity:
We have tens of millions who cannot repay their debts. But they are all trying to. That sucks huge amounts of money out of the economy. And that means these people cannot function properly as consumers or workers. That's the reason people aren't coming into your restaurant. It's the reason people aren't taking your yoga class. It's the reason they haven't hired you to redo the kitchen.
And so tens or hundreds of millions of perfectly responsible business owners and employees are also suffering from this slump. That's the reason we have a shortage of demand. That's the reason no one is hiring.
Even worse: People who are underwater on their mortgage, but who do not want to default, cannot move to where the jobs are either. They are stuck with their home.
You want to break this logjam? Try Chapter 11 for the nation. Massive defaults. Clear the decks, clean the books.
4 comments:
Are you saying that the govt should print up money to pay off all public and private debts?
I see two problems.
First, with the public debt, the creditors haven't been asked to forgive the debt. They will have merely received printed-up money to purchase their bonds etc. They might not be happy about that.
Second, in order to pay off private debts this way it would appear that each mortgage holder, credit card holder will effectively receive a gift from the govt in the amount of their outstanding debt. There is a problem is equity. Those who are the most heavily geared win big. Those who have just gone bankrupt lose. Those without debt also miss out on any free hand outs...
I just read the referred article by Bret Arends. I quite liked it. He does have a plan. He's advising people to default on their mortgage. Walk away. Hand the keys back to the bank.
I like the plan. It's about the best I've come up with myself. One problem is that banks will become insolvent. That's ok except that the govt may bail them out with tax payer money. That would be a mistake and exchange private debt for public debt.
It'd be nice if folks didn't have to walk away from their houses though. Debt writedowns (for some) can be so corrupted as I hear about the NAMA in Ireland. In the current system, walking away seems the best option at the moment.
Thanks for the comments, Steven. Your objections are pretty simple to answer. If you don't want you debt cancelled, don't cashier it. Obviously, it would work by application, not automatically. Secondly, we could easily prevent fraud by only cashiering debts that were a certain age, say, over a year old. Thus, no one could rush out to take advantage of the coming jubilee.
The moral objection is what it is, I have addressed it in the post on that subject. No system can be perfectly equitable, but the point is to get the WHOLE economy out of trouble, which will benefit all.
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