Guest Post: Global Japan & the Problems With A Debt Jubilee

Tyler Durden's picture

Submitted by John Aziz of Azizonomics

Guest Post: Global Japan & the Problems With A Debt Jubilee

Bill Buckler critiques the notion of a debt jubilee:

The modern “debt jubilee” is characterised as “quantitative easing for the public”. It has been boiled down to a procedure where the central bank does not create new money by buying the sovereign debt of the government. Instead, it takes an arbitrary number, writes a check for that number, and deposits it in the bank account of every individual in the nation. Debtors must use the newly-created money to pay down or pay off debt. Those who are not in debt can use it as a free windfall to spend or “invest” as they see fit.  


The major selling feature of this “method” is that it provides the only sure means out of what is called the global “deleveraging trap”. This is the trap which is said to have ensnared Japan more than two decades ago and which has now snapped shut on the whole world. And what is a “deleveraging trap”? It is simply the obligation assumed when one becomes a debtor. This is the necessity to repay the debt. There are only three ways in which a debt can be honestly repaid. It can be repaid with new wealth which the proceeds of the debt made it possible to create. It can be repaid by an excess of production over consumption on the part of the debtor. Or it can be repaid from already existing savings. If none of those methods are feasible, the debt cannot be repaid. It can be defaulted upon or the means of “payment” can be created out of thin air, but that does not “solve” the problem, it merely makes it worse.


The “deleveraging trap”, so called, is merely a rebellion against the fact that you can’t have your cake and eat it too. So is the genesis of the entire GFC. Debt can always be extinguished by means of an arbitrarily created means of payment. But calling that process QE or a Debt Jubilee doesn’t (or shouldn’t) mask its essence, which is simple and straightforward debt repudiation.


A “debt jubilee” is the latest attempt to make a silk purse out of a sow’s ear. It is the latest pretense that we CAN print our way to prosperity, but only if we do it in the “right” way.

Well, he’s right  — it is the latest attempt to make a silk purse out of a sow’s ear. But that’s the hand we’ve been dealt. I’ve always said I would have preferred it markets had been allowed to clear in 2008, if prices had fallen of their own accord to a sustainable level, and if all the junk and bad debt had been liquidated. Painful — but then there would have been no deleveraging trap at all.  In a truly free market debts that can’t be repaid, aren’t.

Yet that’s not the world we have; we have a world where central bankers are prepared to engage in unlimited liquidity injections, quantitative easing, and twisting, pumping new money into the financial system to keep the debt serviceable.

It’s like central banks’ efforts to stabilise markets and the financial system put the wider economy into an induced coma following 2008 in order to prop up the financial sector and the huge and exotic variety of credit assets created in the boom years. With the debt load sustained by the efforts of central bankers, the wider economy is left in a deleveraging trap paying down debt that in a free market would have been repudiated long ago.

This process not only enriches the financial sector by propping up bad debt that would otherwise be liquidated, but also transfers purchasing power from the productive sectors to the financial sector via the Cantillon effect. Meanwhile unemployment remains elevated, industrial production remains subdued, the West remains fragile to trade and resource shocks, wages and salaries are at an all-time low, and total economic activity remains depressed.

So this is a painful and unsustainable juncture — truly a sow’s ear of a situation. The deleveraging trap is a catch-22; while debt remains excessive, economic activity remains subdued, and while economic activity remains subdued, generating more production than consumption to pay down debt is extremely difficult. As we have seen in Japan — where the total debt load remains above where it was 1991 — fundamentals can remain depressed for years or even generations.

Certainly, the modern debt jubilee isn’t going to cure the culture that led to the excessive debt. Certainly, it won’t wash away the vampiristic TBTF megabanks who caused the GFC and live today on bailouts and ZIRP. Certainly, it won’t fix our broken political or financial systems where whistleblowers like Assange are locked away and fraudsters like Corzine roam free to start hedge funds. And certainly it won’t wash away the huge mountain of derivatives or shadow intermediation that interconnect the economy in a way that amplifies small shocks into greater crises.

We are, I think, passing through a strange phase of history where a myriad of ill-designed and heavily-leveraged economic planning experiments are failing.

The modern debt jubilee would at least provide some temporary relief for the debt-ridden wider economy, instead of the financial sector. Instead of pumping money solely to the megabanks — and the costs of deleveraging such a huge debt bubble means that more easing is inevitable, eventually — pumping to the public would also negate the problem of transferring purchasing power to the banks via the Cantillon effect.

It’s not going to save us from the wider problems — imperial overstretch, bailout culture, deindustrialisation, job migration, financial and political corruption, etc, etc, etc — but it would still be much better than the status quo.

The biggest problem with the modern debt jubilee, though, is that Wall Street and the financial sector are greedy and will likely fiercely resist any such efforts. And the financial sector holds lots of political leverage.

The cost of the status quo is a perpetually depressed economy and global Japan. That will be painful.

But on a long enough timeline, the survival rate for everything — even reinflated debt bubbles — drops to zero. 

Could be a long wait, though.

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Mr.Kowalski's picture

"Insolvent nations, insolvent megabanks, insolvent Central Banks, unpayable CDS's written by the trillion-- this is not how to run a financial system, folks. But is it within the Wit of Man to some up with something better ? If so, how would we get from here to there ? Being rather overcaffeinated this morning and having made promise on last week's post to present my Answer To All, here we go. "

RestoreOurFuture's picture



On the topic of a debt jubilee, I know that presidential candidate Mitt Romney is seriously considering something very similar to this.  In 2008, ex-president George W Bush mailed all taxpaying families $300/$600 in an effort to help pay down debt, and it seemed to be well received by the public.  If elected, I know this is something Romney is considering, as well.

According to a budget proposal compiled by the GSA for FY13, former president Clinton will be charging US taxpayers $14,000 for postage fees in FY13.  Postage fees!  Adding everything together, he gets over $1M each year, and he hasn't been president for over a decade!  I'm quite sure that if Clinton can get $14K in postage expenses, the US citizen should be allowed another $300 to help pay down debt in the upcoming year.  Romney has also mentioned that he would consider taking LESS each year than all the former ex-presidents when he retires from the White House (we hope!... up to you!)

Midway down. Page FP-6

Romney/Ryan 2012 

DoChenRollingBearing's picture

Barron's Editor would disagree re giving away money....  He thinks it is SPENDING that muct be addressed, and very soon.  Yet he believes that fear-mongering Democrats will scare various groups (the elderly, etc.) into voting Obama back into office. Read what he has to say as well as the rest of my "Review of Barron's -- Dated 20 August":


swissbene's picture

omfg!  wow i cannot believe the answer was right there all along: romney/ryan 2012!


thanks for spreading the word -- now we can dispense with the substantive thought and discussion that previously occupied far too much time and attention here.


and so on topic!  postage stamps!  (i knew it)


we are all doing the sarcastic nitwit routine, right?  we hope?!


politicians / mindless propaganda 2012

Disenchanted's picture




Repudiate all odius public debt.


Which candidate has the cajones, or the independence from bankster contributions, to hoist the repudiate flag?


None of the above.


Odious debts, contracted and utilised for purposes which, to the lenders' knowledge, are contrary to the needs and the interests of the nation, are not binding on the nation – when it succeeds in overthrowing the government that contracted them – unless the debt is within the limits of real advantages that these debts might have afforded. The lenders have committed a hostile act against the people, they cannot expect a nation which has freed itself of a despotic regime to assume these odious debts, which are the personal debts of the ruler.[2]

SwingForce's picture

Yes, they can, as long as Interest Rates are microscopic. Which is not the case with the greedy bankster/politicians in Europe. That is the only positive thing I can say about anything Bernanke is doing. It won't work otherwise.

FieldingMellish's picture

Right, because keeping rates unnaturally low against the will of the free market will have no unintended consequences, right?

LawsofPhysics's picture

There is a real cost for creating capital, especially when you don't create anything of real value. This is common fucking sense and the rates do not reflect the real cost. Unintended consequences on steroids.

Yen Cross's picture

 The " Rational"  Eg; not blowup the neighbor-hood/kill thy neighbor ( timeline) is much shorter!  ;-(

  Japan and China discussed a direct " F/X offshore currency" agreement in June, and I laughed!  How can China maintain a currency trading band with Japan when the "¥ "is so strong against the dollar?  LMAO!

  CHINA has to allow the Yuan to strengthen, as their CPi/PPi #'s, are abysmal. The Chinese can't Q/E or they will have a revolt over food costs!

Urban Roman's picture


the 2012 Answer the Fucking Telephone Act.


midtowng's picture

Wall Street won't allow it. They'd rather the working class were slowly crushed to death than to let the debts be paid off with something other than blood.

fonzannoon's picture

Absolutely agree midtowng

Bob's picture

Anything that benefits the working class at the expense of the financial class is demagogically condemned as "class warfare."  Cue the useful idiots foaming at the mouth about welfare queens, homosexuals, muslims and communists. 

But the financial vampire they serve (knowingly or not) is no mere unfortunate accident:

Michael Hudson: The Road to Debt Deflation, Debt Peonage, and Neofeudalism

TheSilverJournal's picture

If productivity is to return, then funds need to stop being directed into unproductive areas. The only reason to print money is to shove it into unproductive areas, because if those areas actually brought the highest return, then the free market would already put the resources there.

Acet's picture

What if the areas that bring the highest return are rent-seeking, parasitism and in general extracting wealth from the rest of the Economy?

'Cause if you look around, you will notice that the Free Market has redirected a lot of resources into Finance which is pure intermediation and whose business is to "get a cut out of every transaction" and it has been a great return on investment for insiders, while very bad for the rest of the Economy.

The magic of the Free Market is not so magic at all if the negative externalities do not have to be paid by those who created those externalities. Here's an example:

- It would be a great and very profitable business to setup tol-booths in every road and even every street. Really, just private companies, setting up tol-booths anywhere they wanted to and forcing people to pay, say, using armed men as a threat. Great ROI for them, but huge negative externalities.

Finance has been pretty much in that position for the last 2 or 3 decades, only for money rather than cars, which is why so many resources went there. In fact, even without Government support they would still be doing great, except that they started killing the host ...


BigJim's picture

Your example of the problem of truly privatising 'natural monopolies' such as roads (ie, where the costs of entry are prohibitive) is, to me, one of the main arguments against anarchism.

However, the finance sector cannot begin to be conflated with the free market. Banks' depositors are effectively guaranteed by the government, thus breaking the link between depositors and the amount of risk banks take with the money 'depositors' lend them. Furthermore, banks create legal tender ex nihilo - is that a hallmark of the free market?

Clue: no.

TrainWreck1's picture

I'll never forget when Bill Buckler was unable to stop that Mookie Wilson groundball.

Tinky's picture

Yes, but he has redeemed himself by learning to understand finiancial markets a touch more deeply than Lenny Dykstra.

economicfreefall's picture

How about splitting every single bank with their hands in the cookie jar into two sections. One with bad assets, i.e. most of their assets and put rest like deposits into the "good" section. The government via the FED makes sure the deposits etc are safe, while letting the rest go up in flames. Probably not an ideal (or politically possible) solution, but don't like the whole idea that the debts to the bankers need to be paid in the first place. Could be a nice last job for the FED before dismantling it... -portfolio tracker & analysis of gold and silver stocks

Hype Alert's picture

"to keep the debt serviceable", beyond that, blah blah blah


TD posted the other day, the last thing the controllers of the FED will do is wipe out the debt.  Printing up a bunch of green paper and giving it to people to pay off the debt is what?

Neethgie's picture

After watching jon aziz on the keiser report and reading several things hes posted on here, i can simply take hes an alevel econ student who is clutching at straws.

tyler usually your own analysis is excellent, Peter tchir's too, several others are good, yet you continously let people like Also Spratch Analyst, Sovereign Man, and jon aziz to talk, when their analysis is awful and lacking info.


typical jon aziz



children grasp that, he offers nothing more than the already notable doom.

ok so i add nothing? short manu and facebook you'll make a packet? too simple? it often is.

Neethgie's picture

FYI you sounded pissed out of your head on keiser report, and you also just kept rabbiting on about "evil bankers" get a grip, and saying "thats what they want" dude you need to lay off ze bollinger?

you just sounded like an OWS kid man, i expect better, if i want to hear half drunk economics ill go to the pub? just saying!


Look ive probably been too harsh, you probably have some good stuff and just didnt present yourself well on the camera, which is understandable, it can be tough the first few times.

BigJim's picture

If you're unhappy with someone's appearance on The Keiser Report, the place to bitch about that is... The Keiser Report.

Not here, retard.

Aziz cogently dismantles Buckler's arguments against a modern Keensian jubilee in this article, but you're probably too fucking dumb to understand his refutations.

techstrategy's picture

You sound like a shill for TPTB.  Aziz outlines the only realistic/viable path to have an orderly deleveraging process.  We are still going to face a decade of declining real consumption to come back into balance, but traditional QE only amplifies the problem.

You are both wrong on FB.  I will be long at $17 (sold puts).  May go below that, but it truy does have network effects and IRS.  It could buy MWW for $1B tomorrow and take out LinkedIn within 12 months.  MWW is cash flow positive and the deal would be accretive.  it would have an enterprise SF and foothold to diversify.

It will get directly involved with transactional commerce.  Not just the Want button.  FB could really enabled Friend based crowdsourcing.  It will materially disintermediate AMZN in the longer term -- note AMZN is the valuation scam...

Aziz's picture

Well my $2-4 valuation is the level I would consider entering at. I don't actually think it will fall that low in the short term. I think there is a semi-viable potential business beneath all the hype, but they're going to have to work extremely hard and efficiently to monetise it. Right now it's on a knife-edge – could go the way of the next myspace and end up getting acquired by Microsoft at pennies on the dollar in 3 years, or could succeed on its own but at much lower numbers than was first forecasted during the float; maybe making good at $10-15 a share. $17 puts good for the short term though I guess. 

Neethgie's picture

actually im with aziz on this, althought my valuation leads to 7$ a share...

Divine Wind's picture


Japan is screwed for a variety of reasons.

The unspoken 10,000 lb gorilla in the Land of the Setting Sun is............... Fukushima.

It might take a few years, but they are finished.

There is currently no technology available to allow them to get anywhere near the melted fuel. Even heavily shielded electronics are failing.

In the meantime, they continue to contaminate the country and people and cripple different industries.

It seems that several times each month a news story appears about a shipment of something from Japan being turned away at a receiving port due to contamination.

Most recently is was a load of cars arriving in some European port. Turned away. Before that, S. Korea recently still says no to much of their seafood.


Recommendation: Copy Kyle Bass in this situation. Short the hell out of Japan. Run and do not look back. Find trades elsewhere if you are still in the market.



Ignorance is bliss's picture

Surely it won't wash away the blood on Amerika's hands because of "cheap" oil.

flacorps's picture

I read bulletin boards like,,'s forums and I happen to also be the author of "Debt Hope: Down and Dirty Survival Strategies" which is based on my own experience as a lawyer as well as lessons learned from reading the aforementioned boards (and numerous others).

Let's take just a small part of the debt universe, Advanta Bank, which specialized in business Visas. Once the 11th largest credit card bank in the country, Advanta began going under in 2009, after ratejacking their entire customer base to 37.99%. The pain was mostly felt at Deutsche Bank, which financed Advanta's receivables through trusts. Advanta's successors in interest have tried numerous collectors, including Phillips & Cohen, Sentry, Sage and Cardworks (which now calls itself Carson & Smithfield) and most of the debtors are just laughing at them and hanging up. They also get the occasional dunning letter, which goes right in the trash.

The lawsuits aren't coming. They likely never will. This is your Jubilee in action.

Germans no doubt think Americans are deadbeats by this point. Americans are concluding that whatever their other mental merits, Germans have not been so good at making lending decisions, whether at the individual level or to sovereigns...

onebir's picture

Good point, but I don't think "This is your Jubilee in action". Some of the helicopter money Aziz is talking about would go to debt-free individuals, who'd likely spend it. (Not least to front run the inflation it would probably bring - pretty rapidly in a small open economy, perhaps more slowly in the US.)

flacorps's picture

I'm suggesting that the debt destruction caused by the good ol' statute of limitations (as well as collector exhaustion) is the Jubilee.

Now if we start distributing cash to the citizenry, are we going to request a credit report so that the indebted can be required to put the cash toward their debts? The cash will likely be a drop in the bucket for many citizens, and in any case it won't be a hundred cents on the dollar for most. What are we going to do then, require the creditors to accept it in settlement, regardless of the debtors' income and asset pictures?

There are a lot of technical problems that come along with trying to be surgical...

BlackholeDivestment's picture

Wonder how many Jubilees since Adam? Oh yeah, 120 from Adam 'til 2015 on Yom Kippur? Hmmm, Jerusalem was restored to Isreal on Yom Kippur in 67, so the latest 50 year Jubilee will end also in 2015. Hmmm, wonder what a week amounts to in meaning, if at the end of the seven year Jubilee cycle a slave was given freedom or the slave agreed to be earmarked by their master and sealed as a slave for ever? Hmmm, oh yeah, a thousand years is as a day for God from our perspective, so the end of 6000 years and 120 50 year Jubilees on Yom Kippur, defining the last generation by virtue of Israel and Jerusalem restored to Israel in 67, the mark of the beast and seal of Lucifer is defined by a global borderless market whore that agrees with the new world order during the time of the new age. That new age being defined by 2012, age of Aquarius, and as in the Days of Noah so shall it be in the time of this last generation which sees the Fig Tree, Israel.  

Funny how this Jubilee Guest Post defines the same mark of contempt the prophetic image declares, and it's just like the cycle through history, back to Babylon up to our current generation, lol, but, now it's different. We have computers beyond human intelligence and instant messaging that reaches every corner of the globe in a blink of an eye, and in a blink of an eye our weapons can destroy the world. How very interesting.


Aquaman's picture

In olden times a debt jubilee meant you also killed the banker. Are we saying thats off the table or.....

gwiss's picture

I like Buckler's stuff, but with these comments he demonstrates that he is unable to combine more than one economic viewpoint in order to gain a bigger picture of the functioning of our particular economy.

Essentially, he does not understand the nature of an economy in which money supply is controlled by the level of debt.  His recommendations of a hard reset, in which prices are allowed to fall until the market clears, should be enthusiastically endorsed by all.  However, this plan is a plan to convert an economy back to a gold standard and commodity based money.  And, in order for this to work, we also have to have no restrictions whatsoever on the prices of wages or commodities, so that these in turn can fluctuate and adjust to the new level of money supply.  The economy that emerged from this paradigm shift would be turbocharged and extremely efficient.  But, it would be a brutal transformation, and many people, including all retired people, would be permanently financially ruined. 

If we attempt to make this transformation without freeing ourselves from wage and price fixing schemes, we will end up with a shrinking money supply and declining business activity, and these two will feedback into each other to produce a positive feedback downward spiral.  There is no bottom to this process, because in the end there is no commodity money at all in this country.  Not one thin dime.  And, if the prices of assets continue to fall faster than the money supply can shrink, assets never regain enough perceived value to be worth extending more credit on again, and thus the falling eagle of our economy never spreads it wings and starts to fly again, but instead augers into the ground at full speed.  That's why Fisher conceived of debt deflation, and described it as "the more you pay, the more you owe."  It is mathematically impossible to escape from this trap simply by "making good choices" or by being "punished" for being foolish enough to get yourself under a business loan 15 years ago that has a standard 30 year amortization schedule.  Silly business people -- any wise business person can of course accurately predict the course of the economy 30 years in advance, including predicting the future actions of central banks, profligate congress, and warmongering presidents....

I'm all for transitioning to commodity money, but Buckler would need to show us exactly how he proposes to do this.  I'm pretty sure the people would not cooperate, regardless of how good it would be for them to do so.  Thus, his plan of austerity is simply a plan to install a vice around this country, a vice whose handle would continuously crank more and more pressure into the people until they cry uncle and vote in a Chavez, and then our transformation to a Banana republic will be complete.

El's picture

As previously stated in another post, I vehemently disagree with the idea of bailouts or a debt jubilee, regardless of the beneficiaries. However, you said:

The biggest problem with the modern debt jubilee, though, is that Wall Street and the financial sector are greedy and will likely fiercely resist any such efforts.

Which compels me to ask just how Wall Street and the financial sector would lose out as pertains to a debt jubilee, wherein everyone receives a certain amount and is required to pay down debt if they have any. It would be one thing if we were talking about debt forgiveness, but that wasn't what Mr. Buckler was arguing for. In his scenario, Wall Street and the financial sector would not only get theirs (repayment plus interest as per the contracts entered into), but it seems to me they would also suddenly have a huge new crop of eligible victims to start the process all over again. Perhaps I don't fully grasp all of the implications, but it seems to me that the way things are going, Wall Street and the financial sector are going to run out of muppets to sheer pretty soon.

Advoc8tr's picture

 ... I think the debts (assets to the banks) are leveraged into the derivative ponzi so if the asset is destroyed the margin calls wreak havoc


ridiculous situation

xXJammingXx's picture

Even if the demographics don't kill Japan's interest rates. The fact that China is tettering on collapse will surely bring down Japan with it. Stop buying financial assets and start buying real assets. Land and gold baby.

adr's picture

Although it would be nice to get some cash to pay down debts, I'll be damned if I'm going to support giving more cash to the welfare sect.

The Bush cash was to go to only those that paid taxes, but the democrats dependent on the ghetto for election, forced the change for it to be paid to everyone.

Any debt forgiveness will benefit the scum of our society first and then fuck the working class with more inflation. No free checks for anyone on government subsidies.

Instead of a jubilee, for one month send the ghetto's checks to the people that pay for them. During the riots that erupt, send in the army to wipe the ghettos out.

Problems solved and you jut balanced the budget by eliminating more than $1 trillion in welfare spending. Also saving the country from the ghetto baby boom, threatening to triple the sub-class population by 2030.

tradewithdave's picture

Would you be willing to redeem the entire value of the United States of America in exchange for avoiding a "lost" decade?  According to the DSGE assumption in the IMF's latest jubilee circular, the answer is YES.

Dave Harrison

dwdollar's picture

"The biggest problem with the modern debt jubilee, though, is that Wall Street and the financial sector are greedy and will likely fiercely resist any such efforts."

Yep. They will fight it just as harshly as a voluntary reset. Which means any talk of a debt jubilee is futile. So... We are back to involuntary reset being the only viable option.

theTribster's picture

The biggest problem in Japan isn't the debt but the fact that they may not have a country soon. The nuclear issue at Fukishima hasn't gone away and it seem they are losing confidence it can be resolved without subtantially more damage to the enviornment. This will render an already tight nation a little tighter (or a lot depending on how bad).

The Japanese are going a little far in terms of acquiring some additonal space from China, South Korea and Russia. Japan is claiming they effectively hold dominion over three different sets of islands, each of which is disputed by the countries mentioned. The China-Japan relationship is becoming severly strained over this as is the South Korea relationships, not sure about Russia. Apparently there are Japanese on these islands already, they claim them as being theirs pre and post WW-II.

The fact that they are fighting this on three fronts is indicative os the potenial sclae of the problem, I'm not even sure these islands would be safe. Another minor natural diseaster, if there is such a thing, will topple the infrastructure that contains the spent fuel - enough to do some serious damange to Japan and the entore region extending all the way to western America.

What's more awful is its the only choice they have, otberwise a their fate is sealed to that of the nuclear power plant9s). Plan B - New Japan based on what's left of the old one and a loose conglomeration of islands.

monad's picture

Quantative stealing from the public, and the unborn.