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Debts that can’t be paid won’t be
A debt jubilee is the only way to avoid a
depression.
By Michael Hudson
March 22, 2020 "Information
Clearing House" -
Even before the novel
coronavirus appeared, many American families
were falling behind on student loans, auto loans,
credit cards and other payments. America’s debt
overhead was pricing its labor and industry out of
world markets. A debt crisis was inevitable
eventually, but covid-19 has made it immediate.
Massive social distancing, with
its accompanying job losses,
stock dives and huge bailouts to
corporations, raises
the threat of a depression. But it doesn’t have
to be this way. History offers us another
alternative in such situations: a debt jubilee. This
slate-cleaning, balance-restoring step recognizes
the fundamental truth that when debts grow too large
to be paid without reducing debtors to poverty, the
way to hold society together and restore balance is
simply to cancel the bad debts.
The word “Jubilee” comes from the Hebrew word
for “trumpet” — yobel. In Mosaic Law, it
was blown every 50 years to signal the Year of
the Lord, in which personal debts were to be
canceled. The alternative,
the prophet Isaiah warned, was for
smallholders to forfeit their lands to
creditors: “Woe to you who add house to house
and join field to field till no space is left
and you live alone in the land.” When Jesus
delivered his first sermon,
the Gospel of Luke describes him as
unrolling the scroll of Isaiah and announcing
that he had come to proclaim the Year of the
Lord, the Jubilee Year.
Until recently, historians doubted that a debt
jubilee would have been possible in practice, or
that such proclamations could have been
enforced. But Assyriologists have found that
from the beginning of recorded history in the
Near East, it was normal for new rulers to
proclaim a debt amnesty upon taking the throne.
Instead of blowing a trumpet, the ruler “raised
the sacred torch” to signal the amnesty.
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It is now understood that these rulers were not
being utopian or idealistic in forgiving debts.
The alternative would have been for debtors to
fall into bondage. Kingdoms would have lost
their labor force, since so many would be
working off debts to their creditors. Many
debtors would have run away (much as
Greeks emigrated en masse after their recent
debt crisis), and communities would have been
prone to attack from without.
The parallels to the current moment are
notable. The U.S. economy
has polarized sharply since the 2008
crash. For far too many, their debts leave
little income available for consumer
spending or spending in the national
interest. In a crashing economy, any demand
that newly massive debts be paid to a
financial class that has already absorbed
most of the wealth gained since 2008 will
only split our society further.
This has happened before in recent history —
after World War I, the burden of war debts
and reparations bankrupted Germany,
contributing to the global financial
collapse of 1929-1931. Most of Germany was
insolvent, and its politics polarized
between the Nazis and communists.
We all know how that ended.
America’s 2008 bank crash offered a great
opportunity to write down the often
fraudulent junk mortgages that burdened many
lower-income families, especially
minorities. But this was not done, and
millions of American families were evicted.
The way to restore normalcy today is a debt
write-down. The debts in deepest arrears and
most likely to default are student debts,
medical debts, general consumer debts and
purely speculative debts. They block
spending on goods and services, shrinking
the “real” economy. A write-down would be
pragmatic, not merely moral sympathy with
the less affluent.
In fact, it could create what the
Germans called an “Economic Miracle” —
their own modern debt jubilee in 1948,
the currency reform administered by the
Allied Powers. When the Deutsche Mark
was introduced, replacing the Reichsmark,
90 percent of government and private
debt was wiped out. Germany emerged as
an almost debt-free country, with low
costs of production that jump-started
its modern economy.
Critics warn of a creditor collapse and
ruinous costs to government. But if the
U.S. government can finance
$4.5 trillion in quantitative
easing, it can absorb the cost of
forgoing student and other debt. And for
private lenders, only bad loans need be
wiped out. Much of what would be written
off are accruals, late charges and
penalties on loans gone bad. It actually
subsidizes bad lending to leave them in
place.
In the past, the politically powerful
financial sector has blocked a
write-down. Until now, the basic ethic
of most of us has been that debts must
be repaid. But it is time to recognize
that most debts now cannot be
paid — through no real fault of the
debtors in the face of today’s economic
disaster.
The coronavirus outbreak is serving as a
mind-expansion exercise, making hitherto
unthinkable solutions thinkable. Debts that
can’t be paid won’t be. A debt jubilee may be
the best way out.
Michael Hudson, author of “…
and forgive them their debts” and “Killing
the Host,” is president of the
Institute for the Study of Long-Term Economic
Trends and is distinguished research professor
of economics at the University of Missouri at
Kansas City. - "Source"
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