Is a Debt Jubilee the Next Big Meme? … The idea of a "debt jubilee" — that is, a wide-spread forgiveness of debt as a way to reset the US financial system — has been bouncing around for a while. But it hasn't gained mainstream traction because it seems, at first glance, to be too simplistic to be worth serious thought. It must have a fatal flaw that would jump out as soon as one looks at it, which makes looking a waste of time. But the idea keeps bubbling up, so the other day I finally decided to try to understand it. And the story, as with most apparently simple things, is more complicated and harder to dismiss than it seems at first. – John Rubino, Dollar Collapse
Dominant Social Theme: Let's return to the ancient ways.
Free-Market Analysis: The idea of a debt jubilee is gaining more and more traction, as John Rubino observes (above) in a recent article posted at Dollar Collapse.
Of course, a debt repudiation is more forceful than a "jubilee" but both offer relief to the overburdened citizen. Rubino turns to Wikipedia for a definition: "The concept of the Jubilee is a special year of remission of sins and universal pardon. In the Biblical Book of Leviticus, a Jubilee year is mentioned to occur every fiftieth year, in which slaves and prisoners would be freed, debts would be forgiven and the mercies of God would be particularly manifest."
Rubino also points out problems with the classical jubilee concept, as elucidated by Martin Hutchinson and Robert Cyran in a 2011 New York Times article:
The Downside to a Debt Jubilee … Good ends do not justify bad means. That philosophical observation applies to proposals for a big American debt jubilee that are now doing the rounds. The basic idea is to slash consumer debt, which is an admirable aim for an over-leveraged nation. Household debt is still 90 percent of gross domestic product, down only modestly from the 2008 peak of 100 percent. But even bank-haters should recognize that this cure might be worse than the disease.
To start, writing off debts would not necessarily increase economic growth. Every liability is also an asset, so while a dollar that is no longer required for debt repayment might add some cents to consumer spending, it is also a dollar cut out of a bank's capital or of an investor's net worth — subtracting from resources and confidence …
Finally, investors would rightly see a jubilee as an attack on property rights. That runs the risk of throwing markets into disarray and discouraging foreign investors from buying assets in the United States. Risk premiums on both debt and equity capital would increase.
The Times article is concerned that a debt jubilee might destabilize banks. Much better just to inflate massively, the article suggests. We are not, of course, so concerned with the banking system as the Times is, and massive inflation would simply tend to empower central banks – not an ideal solution, in our view.
Rubino's perspective is a more sophisticated one than the Times, it seems to us. He even gets around to discussing the US federal debt within the jubilee context. He writes:
As with so many financial things, the difference between traditional and "modern" is the introduction of fiat currency. In past debt jubilees, money was real, and debt could only be forgiven if the other side of the balance sheet was likewise affected. The debtor's gain was the creditor's loss, which meant no net gain in societal wealth.
But with fiat money so much of the financial system is fictitious that it opens up some new possibilities. The Fed is currently buying the majority of the debt issued by the US government, which in effect means the government is lending itself money (yes, the Fed was created as a private institution, but in recent years it has effectively merged with the Treasury and the military/industrial complex to form a single globe-spanning empire. It's all one thing now.). So what would be lost by different branches of the fiat currency monolith simply zeroing out some bookkeeping entries? Just like that, the "national debt" shrinks by a third or more. Hmmm…
Same thing with the quantitative-easing-for-individuals idea, in which dollars are created out of thin air and passed to the banks, via the banks' customers. Individual debts fall, bank loans are converted to cash, and systemic net worth increases by the amount of debt that's eliminated.
This probably won't happen, and would be profoundly immoral if it did. But because a modern electronic printing press makes such alchemy possible, it will be seductive to a desperate society that's been shaped by the idea of voting for free stuff. So expect to see the jubilee concept become a topic of mainstream debate we drift closer to Keen's debt event horizon.
We, too, expect to see the idea of a jubilee become more mainstream, along with the idea that governments ought to take over the printing of pure fiat from public/private entities such as the Federal Reserve. Unfortunately, monopoly central banking itself is simply a bad idea. India and China, for instance, run their own central banks publicly (via government control) and we would argue it makes not a whit of difference. The problem is monopoly fiat imposed by force – not just who controls it.
Holland's idea is that as nation-states collapse, their encumbrances will need shedding so all can start anew. He rightly deals with this process within a framework of nations, though we might go a step further in defining the parameters of a nation-state.
Nations as currently agglomerated are mostly the handiwork of a larger power elite that has shaped and reshaped the world over the past millennia, and even further back. As a result, the modern nation-state is often a seething pool of ethnic, religious and class resentment and even warfare.
But travel back in time: It starts to become clear that nations were actually of the outgrowth of tribal affiliations. Ancient nations tended to have clear-cut ethnic, spiritual and economic dimensions. Today's nation-state would be unrecognizable to, say, a Spartan or an Athenian, even an Egyptian.
In addition to setting up hopelessly dysfunctional modern nation-states, the power elite has more recently used its hold over central banking to create economic chaos (from what we can tell) – thus generating further divisiveness within these artificial entities. Indeed, the idea may be to create so much chaos that these entities burst asunder, giving the powers-that-be the opportunity to insert into their stead a kind of interlinked world government.
It would be our hope that the demise of the modern nation-states would create in their stead organic entities based on ethnicity, culture and a commonality of economics. Nothing, after all, would contribute to the current monetary-military machine's demise more thoroughly than the kind of functional anarchy that citizens of the New World experienced … pre-constitution (and even pre-federation).
So let the deluge arrive … and sooner rather than later. Let people's misery drive them to the Internet, where they may discover at least some of the truth via what we call the Internet Reformation. Let nation-states splinter into their just cultural and tribal components. Let debt – perhaps – erode naturally as people simply refuse to pay a corrupt and ruthless system that seeks to exploit them without compensation. Hopefully, all will happen organically and non violently.