Showing posts with label Jubilee Year. Show all posts
Showing posts with label Jubilee Year. Show all posts

Tuesday, January 3, 2012

Steve Keen calls for Jubilee

Amazingly, he proposes my Jubilee Year solution of a People's Bailout. He changes only one aspect: he would give people without any debt a cash stimulus.

Read it, within his Manifesto

Bravo to you, Steve!

Wednesday, November 2, 2011

Salon calls for Jubilee Year

The first element in Salon's proposed policy agenda (called a New Declaration of Independence, here is a Jubilee Year of debt forgiveness, especially focused on student loan debt. Couldn't agree more.

The biggest problem with Salon's proposal is the way it gets sidetracked with a Leftist cultural agenda, especially its calls for "Takle Climate Change", "End the Drug War" and "Full Equality for the Queer Community".

In order for massive and structural systemic change to progress, a broad-base coalition will need to be built, based on the principles of economic Populism. Populists can form a majority coalition against the elite, IF they leave "cultural" issues off the table.

Throwing in "Leftist" cultural issues that have nothing to do with economic reform are only going to ALIENATE conservative Populists, and keep the movement from growing.

Tuesday, November 1, 2011

Cris Sheridan calls for the Jubilee Cycle

Writing in Financial Sense, Mr. Sheridan points out the end result of the massive overhang of debt in America: "The Inevitable Jubilee" (

It is amusing to read him quote the CEO of Goldman Sachs, Lloyd Blankfein, claiming they are doing "God's work" by putting everyone in debt: “We help companies to grow by helping them to raise capital. Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. It’s a virtuous cycle.”

The truth about the "virtuous cycle"

In fact, bank lending has nothing to do with a virtuous cycle. The expansion of credit into any market drives up prices. The banks, which enable this spike in prices, then profit even more by skimming their parasitic profit off the top of the credit-inflated transaction, making it even more expensive.

The healthiest, most affordable, and least distorted markets are those which are devoid of credit, as they are immune to speculation and "investment bubbles". There are far better ways to coordinate capital creation and accumulation than investment banking.

An excellent read, quoting Sheridan:

National debt is a cancer. It starts out small and then multiplies. Eventually, it reaches a point where it can’t be ignored, spreading itself through every layer of the economy until it threatens the life of its host.


In light of the similarities between then and now, some prominent names are beginning to warn that the only cure for our troubling situation is some form of massive debt relief, or Jubilee—a biblical commandment given to Israel to wipe away all debt every 50 years and start with a clean slate.


Unfortunately, what most people seem to miss, is that the original notion of a Jubilee was never intended to be applied after society has been enslaved by debt. It was meant to prevent such a scenario from ever occurring in the first place. Regardless, whether a society chooses to voluntarily rebalance its scales or not, eventually the invisible hand of the market will step in and balance them for us. Perhaps politicians should be wary of that point and take the necessary steps while certain options still exist. Let's not forget, there is already rioting in the streets.

Monday, August 30, 2010

David Knox Barker Recommends Jubilee Cycle

Boxer has a nice consideration of the macro-economic effects of Jubilee (here). He correctly points out that a regular Jubilee cycle would eliminate the long wave Depression cycle, by preventing a toxic build up of debt. As he puts it:

"The Jubilee law was actually crafted astutely to prevent the buildup of excessive debt levels in the economy, and not primarily to justify its cancellation. Debts were only forgiven if banks violated the Jubilee law that prevented the buildup of excessive debt. The Jubilee was not a bank bailout or stick taxpayers with others bad debts. Consider the passage from Leviticus 25: 8-19. This ancient text provides remarkable insight into the current global financial crisis, which is at its heart a global debt crisis."

Barker rightly condemns any attempt to transfer the debts of some, such as mortgage owners, onto the public purse, as some form of dishonest debt forgiveness program.

A Jubilee Year, correctly done today by the federal government, would not violate any contracts, because it would pay all debts in full. The federal government would simply write checks on behalf of private citizens to pay off their debts.

The creditors would be paid, the contracts would be honored, and the end result would be the cancellation of all debt, the resetting of the financial system, and the freeing of the productive economy. As Barker describes the renewal process: "The only way to address a debt problem is to reduce the amount of outstanding debt and create conditions for a booming economy and new long wave spring season..."

Tuesday, October 13, 2009

Jubilee as Protection against Fractional Reserve Banking

Imagine you had a $100 in your account, and your family needed some money. They all promise to pay you back, so you write a check for $400 to mom, $300 to dad, $200 to bro, and $100 to sis.

Inconceivable, right? Not if you call yourself a bank! Then it is perfectly legitimate. Welcome to the world of fractional reserve banking.

Fractional banking means that private parties can create money from scratch, then loan it out. Oh, yeah, AND require repayment on interest. On money they never had in the first place!

The money is made-up, but the debt is quite real! If you can't pay back their made-up money, with interest, they might just have the right to garnish your wages.

When looking at the big picture, the entire edifice of modern banking is a huge exploitation machine, run by the parasitic banking classes. Their method of operations is to create as much loan money as possible, because that means more profit for them. Thus, as you can see, it is the banks who are the primary drivers of unsustainable consumerism, perpetually encouraging and enabling debt burdens.

There is literally no end point, no natural limit to the amount of debt that banks will foist upon the commoners. The logic of competitive capitalism dictates the cut-throat competition to spread loan growth. The banking industry, just like biological parasites, will grow out of control until their host is destroyed. This is what Greenspan was referring to when he famously said his faith in capitalism was shaken: he naively assumed banks would regulate themselves to avoid self-destructive loan growth. The problem is, individual banks might want to restrict their own growth, but the banking system as a whole cannot. Banks who issue more debt simply crowd out and take over banks who issue less, thus ensuring out-of-control debt growth for the whole system.

The Jubilee cycle is like a regular innoculation and treatment, killing off the parasitic infestation of debt parasites. When bankers know that debt will automatically be forgiven, they will control their own debt-issuance. Why would they give out loans when they know the debt will be erased? At the beginning of the Jubilee cycle, long term loans, up to 50 years, are possible. As time gets closer to the Jubilee Year, loan terms are shortened. Naturally, banks would be far less likely to provide loans at all, as the risk of total loss is great if the debtor strings repayment out.

Under the fractional reserve system, banks are able to hoard wealth and power in a naked power grab. Jubilee offers protection against that power.

Now, some might suggest that we regulate banks, perhaps even eliminate fractional reserve banking altogether. Here is the problem:

As we know from history, money holders will attempt fractional reserve lending, getting away with it as much as they can. The proposal to regulate banks on that scale involves a massive state regulatory apparatus. As we know, bankers are expert at corrupting regulators, so even with the expense of a full regulatory regime, we cannot expect to ever truly eliminate fractional banking.

The Jubilee cycle would accomplish the best of all worlds: minimal government establishment, while leading banks to restrain themselves in accordinance with their own self-interests.

Thursday, October 8, 2009

The Necessity of the Jubilee Cycle in the Modern Economy

As detailed in my last article, the modern economic condition of primarily credit money creates a new economic dynamic:

Under traditional paper money schemes, the excessive issuance of money results in hyperinflation.

Under modern credit money schemes, the excessive issuance of money results in Minski moments of economic collapse because of unsustainable debt levels.

The ancient Jubilee cycle, extinguishing all debt every 50 years, is perfectly suited to this new modern condition. The Jubilee cycle would be the perfect restrictor and regulator of the Minski debt-collapse cycle, and is thus a necessity for economic stability in the modern world.

Many monetary theorists and reformers are looking backwards, and recommending that we reign in the Minski cycle by eliminating the fractional reserve banking system. However correct this proposal is on the theoretical level, it is impractical because time and knowledge cannot be undone. A similar critique faces those who would return us to the gold standard: it was tried, and abandoned, time has moved on. As much as we would like to return to a Constitutional system of limited government, Pandora's box has already been opened.

A debt-cancellation Jubilee is the best solution to our current economic situation, which was caused by excessive debt. The Jubilee system of periodic debt cancellation is the only way to keep it from happening again and again. The Jubilee cycle would be the bedrock of sustainable economic development, which is yet another long-range necessity which must be faced by forward-looking economic leaders.

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.

Thursday, April 16, 2009

Jubilee without Theft or Inflation

I believe that Jubilee could be accomplished without the complaints of theft or inflation that typically arise. Here is how it would work:

The government would issue checks to everyone to pay off their debts.

While doing so, the government would raise bank reserve requirements by the corresponding amount.

Thus, a huge new pool of money would come into existence to pay off people's debts, but then it would get sunk in the banks, never to recirculate to cause inflation.

No contracts would be violated, no cases could be dragged to court, no extra laws would have to be passed.

Viola! Rejoice in the Jubilee Year!

Tuesday, March 10, 2009

Jubilee Political Movement

Obviously, in order to implement Jubilee, a political movement is necessary.

The financial oligarchs currently control government policy, and have largely brainwashed the masses into accepting their version of economic theory.

The Jubilee movement must educate people on the reality of new economic system, while gathering a political movement to demand debt forgiveness.

The time has come, populist outrage is rising every day, setting the stage of Jubilee.

Take action in your local community to get organized, and coordinate with other Jubilee organizers to form up the national movement.

Thursday, March 5, 2009

Legal Aspects of Mortgage Jubilee

A debt jubilee could occur with a simple act of Congress. The law would simply have to declare forgiveness of debt, and include a clause to prevent lawsuits. It is that simple. As the following article indicates, the threat of lawsuit by investors is keeping many mortgage servicers from modifying notes. Unless they have legal protections from lawsuits, people are not going to put themselves at risk. A Jubilee Proclamation would have to contain language preventing lawsuits.

WASHINGTON -(Dow Jones)- The success of the Obama administration's plan to cut mortgage payments for millions of at-risk homeowners hinges on congressional action to shield mortgage servicers against lawsuits from investors, a top mortgage industry official said.

The plan, which the administration kicked off Wednesday, is heavy on incentives for mortgage servicers and borrowers, but provides no protection for servicers against lawsuits from mortgage investors who might become angry about the modifications.

Roughly 60% of seriously delinquent U.S. mortgage loans are concentrated in " private label" mortgage-backed securities, or MBS, which are not issued by Fannie Mae (FNM) and Freddie Mac (FRE).

Such mortgages "probably won't be modified until there's a safe harbor," David G. Kittle, the chairman of the Mortgage Bankers Association, said. "The incentives are not enough to protect anyone from a lawsuit."

Under the program, the government would pay mortgage servicers a $1,000 one- time fee to reduce borrowers' mortgage payments to 38% of their income for five years. The government would then match the cost of further interest rate reductions or other measures intended to bring mortgage payments down to 31% of borrowers' income.

The government would make generous annual payments to servicers and borrowers if the loan stays current. The only incentive for mortgage investors is a $1,500 payment for modifying loans that are not yet delinquent.

The program does nothing to address what has been one of the biggest impediments to loan modifications during the housing crisis - the misalignment of the interests of mortgage servicers and mortgage investors in private-label securities.

Companies servicing pools of mortgages packaged as private-label securities are bound by contracts with investors in the securities. The contracts vary, but typically require servicers to act in the best interest of the investors. That is often not a simple calculation. For example, a loss modification action by a servicer could potentially benefit some investors of the pool at the expense of others.

Mortgage investors have mounted lawsuits against servicers who have performed loan modifications they deemed against their interest.

Under the administration's program, participating mortgage servicers are required to "use reasonable efforts" to waive the contracts where they bar modification. However, the program does not override the contracts.

The administration, which estimates its program could help as many as 3-4 million people obtain more affordable mortgage payments, supports legislation pending in the U.S. House that would give mortgage servicers a safe harbor against investor lawsuits. "We would expect the legislation process to continue, " a senior White House official told reporters during a background briefing Wednesday.

Some housing experts said the program is likely to reach its targets despite the lack of a safe harbor because the payments to servicers are so generous they will tip the scales in favor of modifying a loan.

"They need the servicers to cooperate. They've sweetened the pot enough that that's going to happen to a large degree," National Community Reinvestment Coalition President John Taylor said. He called the lawsuit issue an " exaggerated problem."

Thomas Lawler, a housing economist from Leesburg, Va., said the incentives would spur mortgage servicers to modify loans by giving them the funds to staff up. Servicers haven't been aggressive "because they haven't been adequately staffed and they haven't been incentivized to do so" in a tanking housing market, he argued.

A feature of the program that would institute a "net present value" test could also help spur more loan modifications by giving mortgage servicers some cover from investors, Taylor said.

Participating servicers must run all loans that are at least 60 days delinquent or deemed at risk of imminent default through the test. They are required to modify loans where the net present value of the cash flows under a modification scenario exceed the net present value of the cash flows in the absence of modification.

The mortgage industry offered praise for the plan. Officials have exhorted borrowers to be patient with lenders as they cope with an expected deluge of modification requests.

"The plan appropriately balances the interest of homeowners, mortgage servicers and investors," Jamie Dimon, chief executive of JPMorgan Chase & Co. ( JPM), one of the largest servicers, said in a statement.

Sunday, March 1, 2009

A Third of Baby Boomers Underwater on Mortgages

Aside from all the specific meta-economic problems that are at the root of our current Depression, there is a profound philosophical one: shift responsibility. Specifically, the idea that you can shift responsibility onto future generations.

Savings, for retirement living and health care, are a basic necessity of life, yet our government has promised that it will take care of it. The bigger government has gotten, the more confident people feel in the promises of government, and the less likely, and less able, they became to save on their own.

But what does it mean to rely on government for retirement and health care, especially when financed by debt? What that really means is that they will impose it on the people to come, the future tax-paying citizens.

But what if the future people don't want to pay it?

It is morally wrong to sell your children into slavery. Yet by building up all this debt, and all these unfunded mandates (like social security) that is exactly what they have done. They have promised the wealth and labor of future generations for their own benefits today. It is outrageous, when you realize what they are really doing.

I got news for ya. The future generation is here, now, and we aren't going to settle for it.

The baby boom generation, which had so much to do with the expansion of the liberal socialist state, is now seeing their lifetime accumulated capital disappear, like a puff of smoke. Their investments disintegrating, now, even their home values negative. And their main response is to take out more debt, i.e., pile it up higher on the back of their own offspring.

With almost a third of them now underwater on their mortgages, maybe they will be more open to thinking about some economics truths, which their socialist politics have been in denial of for so long. Let's not forget, these numbers are going to get a lot worse in the coming year.

The unthinkable of yesteryear is the inevitable of today. More and more shall welcome the good news of Jubilee. Just like in religion, only those who hit rock bottom, who have been fully convicted of their sins, are open to the best of all good news. And the first step towards recovery is always the same: take personal responsibility.

Wednesday, February 25, 2009

Popular Support for Mortgage Jubilee

A suspension of foreclosures is the leading edge of Jubilee, since it is an affirmation of the idea that people should be allowed to stay in their homes, even if they can't pay. As you can see from the survey results, it is very popular.

Fifty-six percent (56%) of Americans favor a plan forcing banks to stop all mortgage foreclosures for the next six months, according to a new Rasmussen Reports national telephone survey.

Thirty percent (30%) oppose such a plan, while 13% are not sure if it's a good idea or not.

Among homeowners, 54% favor a six-month moratorium on all mortgage foreclosures, while 34% oppose the idea.

According to a Fox News report, 52 million Americans have home mortgages, and more than 2.3 million homeowners faced foreclosure in 2008, last year, up 81% from the year before.

Seventy-one percent (71%) of Democrats support a plan forcing banks to stop foreclosures for six months, and a majority of unaffiliated adults (51%) agree. Forty-two percent (42%) of Republicans support a moratorium on foreclosures, but 46% are opposed.

Forty-nine percent (49%) of investors like the idea, along with 65% of non-investors.

(Want a free daily e-mail update? Sign up now. If it's in the news, it's in our polls.) Rasmussen Reports updates also available on Twitter.

California has initiated a 90-day moratorium on foreclosures, and Ohio is considering a temporary halt to foreclosures for up to six months. Several banks, among them Bank of America, Citigroup and Wells Fargo, have taken similar steps. Also, a number of law enforcement officials around the country have temporarily stopped enforcing foreclosures.

Rep. Barney Frank, the chairman of the House Financial Services Committee, has said he supports legislation for a government-imposed moratorium on some foreclosures.

Seventy-five percent (75%) of African-Americans favor a six-month moratorium on foreclosures, as do 51% of whites. Fifty-two percent (52%) of married Americans support a temporary halt on foreclosures, compared to 63% who are not married.

The findings follow President Obama's announcement last week of a $275-billion federal government program to help up to nine million homeowners who are most at risk of being foreclosed on. The plan includes subsidizing their mortgage payments, an idea which most Americans think helps people who bought more house than they could afford and thus rewards bad behavior.

Forty-five percent (45%) oppose the federal government subsidizing mortgage payments for financially troubled homeowners.

Please sign up for the Rasmussen Reports daily e-mail update (it's free)รข€¦ let us keep you up to date with the latest public opinion news.

This telephone survey of 1,000 Adults was conducted by Rasmussen Reports February 21-22, 2009. The margin of sampling error for the survey is +/-3 percentage points with a 95% level of confidence (see methodology).

Rasmussen Reports is an electronic publishing firm specializing in the collection, publication, and distribution of public opinion polling information.

Thursday, February 19, 2009

Legal Aspects of Jubilee

Clearly, debt write-off is the only economic solution to debt deflation, but some question under what legal authority it would be done. Basically, it is as simple as nationalization of banks. Once banks are controlled by the government, Jubilee can occur by simple decree.

Or, instead of Jubilee of debt cancellation through nationalization of banks, we could alternatively have a Jubilee of full-payment. In short, our government could simply write checks to help everyone pay their debt off. Consider it a form of mass bailout, rather than mass default. The federal government already has the ability to print and give away money, so there we go. The US federal government can simply write a check to each individual citizen in America for the amount of their debt.

It is the exact same concept as canceling the debt, except it would involve inflation rather than deflation. Everyone seems to be much more comfortable with the idea of inflation and more money, than with the idea of deflation and less money. Well, whatever. Jubilee, all debts shall be forgiven! Who can complain, since everyone would get their money?

Wednesday, February 18, 2009

Michael Hudson calls for Debt Write Offs to End Debt Deflation

One would think that politicians would be willing to do the math and realize that debts that can’t be paid, won’t be. But the debts are being kept on the books, continuing to extract interest to pay the creditors that have made the bad loans. The resulting debt deflation threatens to keep the economy in depression until a radical shift in policy occurs – a shift to save the “real” economy, not just the financial sector and the wealthiest 10 per cent of American families.

There is no sign that Mr. Obama’s economic advisors, Treasury officials and heads of the relevant Congressional committees recognize the need for a write-down. After all, they have been placed in their positions precisely because they do not understand that debt leveraging is a form of economic overhead, not real “wealth creation.” But their tunnel vision is what makes them “reliable” to Wall Street, which doesn’t like surprises. And the entire character of today’s financial crisis continues to be labeled “surprising” and “unexpected” by the press as each new surprisingly pessimistic statistic hits the news. It’s safe to be surprised; suspicious to have expected bad news and being a “premature doomsayer.” One must have faith in the system above all. And the system was the Greenspan Bubble.

The Obama-Geithner plan to restart the Bubble Economy’s debt growth so as to inflate asset prices by enough to pay off the debt overhang out of new “capital gains” cannot possibly work. But that is the only trick these ponies know. We have entered an era of asset-price deflation, not inflation. Economic data charts throughout the world have hit a wall and every trend has been plunging vertically downward since last autumn. U.S. consumer prices experienced their fastest plunge since the Great Depression of the 1930s, along with consumer “confidence,” international shipping, real estate and stock market prices, oil and the exchange rate for British sterling. The global economy is falling into depression, and cannot recover until debts are written down.

Instead of doing this, the government is doing just the opposite. It is proposing to take bad debts onto the public-sector balance sheet, printing new Treasury bonds give the banks – bonds whose interest charges will have to be paid by taxing labor and industry.

As in Third World austerity programs, the effect of keeping the debts in place at the “real” economy’s expense will be to shrink the domestic U.S. market – while providing opportunities for hedge funds to pick up depreciated assets cheaply as the federal government, states and cities sell them off. This is called letting the banks “earn their way out of debt.” It’s strangling the “real” economy, because not a dollar of the government’s response has been devoted to reducing the overall debt volume.

Take the much-vaunted $50 billion program designed to renegotiate mortgages downward for “troubled homeowners.” Upon closer examination it turns out that the real beneficiaries are the giant leading banks such as Citibank and Bank of America that have made the bad loans. The Treasury will take on the bad debt that banks are stuck with, and will permit mortgagees to renegotiate their monthly payment down to 38 per cent of their income. But rather than the banks taking the loss as they should do for over-lending, the Treasury itself will make up the difference – and pay it to the banks so that they will be able to get what they hoped to get. The hapless mortgage-burdened family stuck in their negative-equity home turns out to be merely a passive vehicle for the Treasury to pass debt relief on to the commercial banks.

Few news stories have made this clear, but the Financial Times spelled the details buried in small print. It added that the Treasury has not yet decided whether to write down the debt principal for the estimated 15 million families with negative equity (and perhaps 30 million by this time next year as property prices continue to plunge). No doubt a similar deal will be made: For every $100,000 of write-down in debt owed by over-mortgaged homeowners, the bank will receive $100,000 from the Treasury. Government debt will rise by $100,000, and the process will continue until the Treasury has transferred $50,000,000 to the banks that made the reckless loans.

There is enough for just 500,000 of these renegotiations of $100,000 each. It may seem like a big amount, but it’s only about 1/30th of the properties underwater. Hardly enough to make much of a dent, but the principle has been put in place for many further bailouts. It will take almost an infinity of them, as long as the Treasury tries to support the fiction that “the miracle of compound interest” can be sustained for long. The economy may be dead by the time saner economic understanding penetrates the public consciousness.

In the mean time, bad private-sector debt will be shifted onto the government’s balance sheet. Interest and amortization currently owed to the banks will be replaced by obligations to the U.S. Treasury. Taxes will be levied to make up the bad debts with which the government is stuck. The “real” economy will pay Wall Street – and will be paying for decades!

Calling the $12 trillion giveaway to bankers a “subprime crisis” makes it appear that bleeding-heart liberals got Fannie Mae and Freddie Mac into trouble by insisting that these public-private institutions make irresponsible loans to the poor. The party line is, “Blame the victim.” But we know this is false. The bulk of bad loans are concentrated in the largest banks. It was Countrywide and other banksters that led the irresponsible lending and brought heavy-handed pressure on Fannie Mae. Most of the nation’s smaller, local banks didn’t make such reckless loans. The big mortgage shops didn’t care about loan quality, because they were run by salesmen. The Treasury is paying off the gamblers and billionaires by supporting the value of bank loans, investments and derivative gambles, leaving the Treasury in debt.

Let’s first dispose of the “foundation myth” of the idea still guiding the United States and Europe. Free-market economists pretend that prices can be brought into line most efficiently with technologically necessary costs of production under capitalism, and indeed, under finance capitalism. The banks and stock market are supposed to allocate resources most efficiency. That at least is the dream of self-regulating markets. But today it looks like only a myth, public relations patter talk to get a generation of increasingly indebted voters not to act in their own self-interest.

Industrial capitalism always has been a hybrid, a symbiosis with its feudal legacy of absentee property ownership, oligarchic finance and public debts rather than the government acting as net creditor. The essence of feudalism was extractive, not productive.

Today it is easier to see that the Western economies cannot go on the way they have been. They have reached the point where the debts exceed the ability to pay. Instead of recognizing this fact and scaling debts back into line with the ability to pay, the Obama-Geithner plan is to bail out the big banks and hedge funds, keeping the volume of debt in place and indeed, growing once again through the “magic of compound interest.” The result can only be an increasingly extractive economy, until households, real estate and industrial companies, states and cities, and the national government itself is driven into debt peonage.

The alternative is a century and a half old, and emerged out of the ideals of the classical economic doctrines of Adam Smith, David Ricardo, John Stuart Mill, and the last great classical economist, Marx. Their common denominator was to view rent and interest are extractive, not productive. Classical political economy and its successor Progressive Era socialism sought to nationalize the land (or at least to fully tax its rent as the fiscal base). Governments were to create their own credit, not leave this function to wealthy elites via a bank monopoly on credit creation. So today’s neoliberalism paints a false picture of what the classical economists envisioned as free markets. They were markets free of economic rent and interest (and taxes to support an aristocracy or oligarchy). Socialism was to free economies from these overhead charges. Today’s Obama-Geithner rescue plan is just the reverse.

Monday, February 16, 2009

Boris Sobolev recommends Mortgage debt forgiveness

Another financial analysis pointing out the obvious necessity of debt write-downs:

One of the main problems with this crisis is that the majority of the debt bubble is related to residential real estate, which does not produce cash flow, but only seems to eat it up. As home prices decline and unemployment rises, debt serviceability is worsening dramatically.

In order to avoid social unrest and to maintain popularity, the Democratic majority will face two realistic options which could begin to address the economic disaster:

Forgive portions of mortgage debt which cannot be serviced. But who will pay for the losses – clearly not the weak banks. Uncle Sam would pick up the tab by printing more currency.
Print new dollars to increase the nominal income of the indebted population through tax cuts, job creation, jobless benefits and various social spending.
There is no other politically possible way out of this mess other than to run the printing press. The way of the free market via bankruptcies is not popular so there is no sense to even discuss it.

Sunday, February 8, 2009

Richard Cook calls for Write-Off of all Debt

His analysis of the abuse of the banking power, and his proposal for legal and monetary reform to prevent such abuse, is spot on.

Bailout for the People

The amount of debt the economy is carrying is staggering. If we count individual, household, business, and government debt, that figure now exceeds $40 trillion, including the recent bailouts. What the General Accounting Office calls “unfunded liabilities” of the federal government, due to future costs of entitlement programs like Social Security and Medicare, adds another $60 trillion. These estimates don't include outstanding debt for derivatives, most of it bank-leveraged, which, according to the Bank for International Settlements, may amount to $1.28 quadrillion worldwide.

Growth in debt through 2006—understated, compared to figures derived by independent analysts—is shown by the following chart based on Federal Reserve figures. Note that virtually all of the debt has been incurred since removal of the gold peg and that its growth is exponential.

The commentators who write for newspapers like the Washington Post or give advice to the Federal Reserve have come up with solutions like slashing Social Security and Medicare benefits, a prescription President Obama will likely follow, or selling more U.S. assets to creditor nations like China. But they are proposing solutions in the interest of the financiers, not the nation.

They refuse to propose the obvious, which is that the debt must be written off as soon as possible and the monetary system changed to prevent further debt from being accumulated. Nationalization of the banks is not the answer; it still would be a debt-based system where the banks would rule from within the government rather than outside.

Bailouts financed by the government must be repaid with interest by the taxpayers. But the taxpayers are already overburdened by debt. Because the bankers are so untrustworthy and motivated by self-interest, they must be removed from power. This requires a political revolution that may already have begun.

In the late 1960s, an aberrant socio-economic phase emerged: the usurious state, in which the control over money, rather than the ownership of machinery, is the most important lever of economic and social power. Investment in debt, and the speculative buying and selling of paper assets, are the most significant means of accumulating personal wealth.

Hunter provides the following list of characteristics of usurious systems, features that are agonizingly familiar:

  • “Crushing debt;
  • “A widening gap between rich and poor;
  • “Share markets subject to collapse;
  • “Currency meltdowns;
  • “Mounting social distress;
  • “A pervading belief that the free market should be allowed free reign;
  • “Banks driven by profit but holding tremendous power through their ability to create and extinguish the national currency, that is, money.”
Hunter's analysis is light-years ahead of U.S. economists, who, even when playing the role of an “official” opposition, really only enable the international financial elite to continue their dominance unabated. Of course industrial society is at the mercy of this financial tyranny, because huge quantities of money are needed for a modern economy to function.

This system is not free enterprise, and it is not capitalism. It is the cancer that is destroying the world.

The American Monetary Act became part of Kucinich's platform during his 2008 congressional campaign after he had dropped out of the run for the presidency.

This plan would eliminate public debt for federal government expenditures by returning to a Greenback-type system of direct government purchasing like we had during and after the Civil War. Public expenditures would focus on the creation of infrastructure assets as the basis for the monetary system. The Act would eliminate fractional reserve banking by requiring the banks to borrow money they lent from the government.

These measures would address the errors made by all Western governments by which, according to Canadian professor of economics John H. Hotson, they have violated “four common sense rules regarding their fiscal and monetary policies.” Hotson was professor emeritus of economics at the University of Waterloo and executive director of the Committee on Monetary and Economic Reform (COMER), when he identified these rules in 1996 as:

“1. No sovereign government should ever, under any circumstances, give over democratic control of its money supply to bankers.
“2. No sovereign government should ever, under any circumstances, borrow any money from any private bank.
“3. No national, provincial, or local government should borrow foreign money to increase purchases abroad when there is excessive domestic unemployment.
“4. Governments, like businesses, should distinguish between ‘capital' and ‘current' expenditures, and when it is prudent to do so, finance capital improvements with money the government has created for itself.”

The violations would be corrected by the reforms contained in the American Monetary Act. This would go a long way toward returning banking to its proper role of providing working capital for the economy but would displace the banking system as the focal point of national economic and political dominance. But these reforms by themselves still would not meet the need for a direct infusion of purchasing power into the hands of individuals.

Saturday, February 7, 2009

Michael Hudson explains the necessity of Jubilee

Thinking the Unthinkable: A Debt Write Down, and Jubilee Year Clean Slate

The power to indebt others to oneself can be achieved by free credit creation. However, the resulting mushrooming exponential growth in indebtedness must collapse at the point where its interest and other carrying charges (now augmented by exorbitant late fees, bounced-check fees, credit-card costs and other penalties) absorb the entire economic surplus.

This is the point that has been reached – and passed – today. It has been developing for many decades. But there is a great reluctance to accept the fact that debts cannot be paid. “The poor are honest,” as one banker explained to me, and believe that “a debt is a debt” and must be paid. (This is not what Donald Trump, Bear Stearns or A.I.G. believe, but they are at the top of the economic pyramid, not its base.)

No economy can grow at steady exponential rates; only debts can multiply in this way. That is why Mr. Paulson’s $700 billion giveaway to his Wall Street colleagues cannot work.

What it can do is provide a one-time transfer of wealth to insiders who already have been playing the debt-credit system and siphoning off its predatory financial proceeds to themselves. The Wall Street bankers, brokers and fund managers to whom I’ve been speaking for many decades all know this. That is why they pay themselves such large annual bonuses and large salaries each year. The idea is to take as much as you can. As the saying goes: “You only have to make a fortune once in a lifetime.” They have been salting away their fortunes year after year, mainly in hard assets: real estate (free of mortgages), fine furniture, boats and trophy art.

Their plan now is for icing on the cake – to take Mr. Paulson’s $700 billion and run. It’s not a “bailout of the financial system.” It’s as giveaway – to insiders, to sell out all their bad bets. Companies across the board will get rid of their bad mortgages, and also their bad car loans, furniture time payments, credit-card loans, student loans – all the debts that any competent actuary could have told them never could have been paid in the first place.

It is necessary, even inevitable, for the volume of debt to come down – not up – to restore equilibrium.

Rick Williams calls for Jubilee

His call is heard on Break-the-Matrix, a libertarian leaning freedom outpost:

Jubilee Discussion on Democratic Underground

The need for Jubilee is really gaining traction, because of its immediate and obvious appeal as the solution to our problems. Here is a discussion introduced this January:

Larry Wilson: We Need Jubilee

Larry Wilson, pastor of First Baptist Church in Biscoe, N.C., joins the chorus calling for a modern Jubilee. His writing is stirring and beautiful. Thank you, brother Larry.

If we get what we deserve, we will surely enter a long and hard depression. Grace has been offered to banks that deserve to be closed because they have run an industry that demands great care in handling the finances of our nation like a drunken sailor. The car companies have wasted great wealth on foolishness and now promise to be wise if they can get grace undeserved.

Congress and the administration that is charged with looking after the country’s wealth have allowed our national debt to reach $11 trillion—an amount no one can comprehend. They may lecture the car companies, but their sin is at least as great. They need grace, for they have burdened our children with paying for their foolishness.

We all believed we could have everything without sacrifice; we listened to empty political promises of lower taxes while our infrastructure is falling apart and debt threatens our ability to react to crises economic and otherwise. We all need the grace we don’t deserve because we were too foolish to pay proper attention to the duties of living in a democracy.

We as a nation believed we could put our personal finance on credit cards and that maybe the value of our houses would pay it off in the end. Drunken sailors all. Contriteness will not save us—only grace. We need the year of Jubilee in the worst way.

The cure for our broken world is radical grace. It is called for, even outside the religious community, by Paul Krugman, Nobel Prize winner for economics: “We are … well into the realm of what I call depression economics. By that I mean a state of affairs like that of the 1930s in which the usual tools of economic policy—above all, the Federal Reserve’s ability to pump up the economy by cutting interest rates—have lost all traction. When depression economics prevails, the usual rules of economic policy no longer apply: virtue becomes vice, caution is risky and prudence is folly.”

The car companies must be given funds, the banks must be refinanced, insurances companies must not be allowed to fail, we must have national health care (for doctors and General Motors need it as badly as the middle class). People must be given grace on their loans, and people’s electric bills must be forgiven—not because they deserve it, but because we are all in the boat together.

Most of us have bowed to the god of greed, and now that it has proven itself once again false, we must treat it radically with the tool that Jesus demonstrated and taught.

A lesson our nation must learn is that we are a part of each other, and to seek punishment for our brother or sister for their folly is to punish ourselves. Grace knows what James Dunn spoke of in For Whom the Bells Tolls: "Send not to know, for whom the bell tolls, it tolls for thee."

We must remember and care for our fellow travelers on this beautiful planet and treat them not as competitors, but as if they were Jesus who said that he could be found among the little ones. Proclaiming with Jesus the year of Jubilee is our only hope for restoration.