Guest Post: Unleashing The Future: Advancing Prosperity Through Debt Forgiveness (Part 1)

Tyler Durden's picture

Submitted by Zeus Yiamouyiannis, contributor to Of Two Minds

Unleashing The Future: Advancing Prosperity Through Debt Forgiveness (Part 1)


My last article on debt forgiveness, Endgame: When Debt is Fraud, Debt Forgiveness is the Last and Only Remedy must have struck quite a chord in discussions of the future of the economy. It was re-posted on scores of websites and received over 20,000 reads on Zero Hedge. It also resulted in a reference on the Max Keiser Report and a subsequent interview with Max Keiser. This led in turn to a popularization of a term I used, “fake assets,” to denote the true nature of “toxic assets”.

The good news is that people are talking, attempting to assess the situation in real terms, and looking for an alternative to the broken system. The bad news is that this discussion has not been turned very much toward practical directions. The main contention in my original article on debt forgiveness and subsequent interview was simply that ignoring the mathematics of debt (where debt grows exponentially and real growth is limited), especially when magnified by tens, if not hundreds, of trillions of dollars of additional fraudulent debt, is a dangerous fantasy that worsens insolvency and accelerates collapse. “Extend and pretend” cannot provide an answer but can only amplify current destructive trends and delay serious preparation of an alternative.

This series outlines some of the alternatives to the current impasse.

Principles and issues in debt forgiveness administration:

Before embarking on a mission to address the standoff between people who cannot pay their debts and international economies that have been running on massive debts for the last three decades, one must do a reality check and establish sane observations and principles.

1) Debt that cannot (vs. “will not”) be practically paid is not a debt in its classical sense. It’s a default. Whether or not people want to recognize this reality is another issue. We recognize that a law that cannot be enforced is not really a law in any practical sense, so why are we dragging our feet with debt? Greece cannot pay its debt by any rational formula. It is already in default. Extending and pretending does not materially change this fact, it only delays recognition of the stark, enduring reality.

2) Debt based in fraudulent lending is also not true debt in any meaningful sense, since the loan along with its obligations originated from something (private fiat) that had no valid authority or exchange value to begin with. Much of the current worldwide debt simply stems from lending based in fraud numbering in the hundreds of trillions of dollars by institutions who did not have adequate collateral (i.e. held insufficient capital reserves, engaged in mark-to-fantasy accounting of their assets, assigned real value to fake assets like credit default swaps, etc.). A lending body cannot give effectively nothing to someone (claiming it is something) and legitimately expect to get something real back.

3) When debt systems are flooded with fraudulent currencies and claims, it is not true that someone, either the borrower or lender, will have to pay the “false value”-backed debt. You are not legally allowed to profit from crime nor legally obligated to support crime. This precludes the payment of many of the debts currently in circulation. In committing wide-scale control fraud, major financial institutions have broken laws. The laws they have broken are enforceable; they just have yet to be enforced.

However, even with successful prosecution, bankruptcy proceedings, and nationalization/receivership of offending institutions, we are left with a practical problem: Real currency has been mixed with fake currency, real debt with fake debt. Chains of title and claims to property have been so forged, electronically registered, diced up, and distorted as to make it difficult to sort valid ownership from invalid. When real money has been high-jacked and “disappeared” as with Bernie Madoff, what can be done to address this? These will be points of discussion later in this article series.

4) The mathematics of debt, even without fraud, would require periodic forgiveness or at least abatement. There must be ways for debts to be adjusted to contingencies. Economies, like families, go through good and bad times. Debt obligations are constructed as if there are only good times. Basically, the only way to pay off a debt is to outrun it in a time of relative stability. Even in eras of surplus, debt takes a big bite out productive effort, but it quickly becomes consuming as one gets behind in payments and as more and more of the fruits of effort must go to servicing debt.

At that point, loans become chains that tie people to mediocre jobs and underwater houses and no longer engines of mobile growth. Debt forgiveness recognizes this contingency and facilitates liberty, productivity, and global quality of life as the more salient indicators of vital economies. Policies and contracts ultimately must be in the interests of people’s well-being for them to be legitimate. Conversely, when debt is ring-fenced from contingency as with student loans, it will be become inherently corrupt and unjust.

5) In any rearrangement of the debt system, productivity and stakeholdership should be rewarded and parasitism should be punished. It’s easy to forget that people used to go to a banking agent to get a loan to grow their net financial worth through productive enterprise. In such a relationship the bank gained a stake in your success, not your misfortune. If we are serious about rewarding well-applied effort, then it would make sense to peg debt and debt obligations to the productivity growth curve of an enterprise or domestic product. Lending institutions, then, would essentially buy a longer term stake in the success of enterprises it funds, exert a due diligence proportional to its interest, and both benefit from and share the burden of inevitable rises and falls in growth.

In the housing-bubble debacle the incentives were exactly opposite. Irresponsibility was rewarded precisely because banks could sell off fraudulently documented loans as quickly as they could be signed. In late capitalism, bank support for productivity has been converted into support for exploitation and victimization, using repayment shortfalls to repossess assets from borrowers even though the bank loans were drawn from “money” backed by counterfeit assets. That has to be reversed—real money for real enterprise backed by real assets.

6) Things go down and not always up. “New era” rhetoric where financial gravity is suspended is a dangerous delusion. When we realize this simple fact and combine it with rewarding productivity and stakeholdership, we realize that our revenues and values will fluctuate dependent upon demand, environmental limits, and a host of other factors, some within our control and some not. Fighting this empirical fact, on the other hand, creates damaging and unsustainable living. Why not tie notions of prosperity and economic organization to optimizing our productivity, by identifying and working within the changing conditions, not distorting those conditions by taking on debt-credit to be paid by later generations?

7) The living shall not be beholden to the dead. When an individual person dies with debts, what can be collected from their remaining assets is collected and the rest is written off. Yet the opposite occurs with generational debt. Irresponsible borrowing by past generations is foisted on succeeding generations. The sins of the forefathers are preserved with interest to gouge the quality of life of younger people who neither decided upon nor benefited from irresponsible borrowing.

Certainly, we now see scorched-earth class warfare of the 1% against everyone else, but we are ignoring an even more profound unintended warfare by an entire generation of post-WWII world citizens against the wellness and interests of its own children. How could such a destructive myopia so thoroughly pervade society and bring us this critical historical inflection point? This will be examined in the next part.

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Smiddywesson's picture

I think the masses are beginning to understand what is simple math.  ~$1.5T deficit + ~$15.1T debt = WE'RE FUCKED BIG TIME!

I think one of the most significant ZH articles ever was this weekend's article on the explosion in derivatives.  Basically, it said that the derivatives market has contracted if you believe TPTB, but when measured in terms of total volume of both sides of the contract, i.e., dollars exposed to counterparty risk, there are $707 trillion derivatives in a world with less than $70 trillion worth of GDP.  This is mass systemic risk of epic proportions and it's a global phenomenon waiting to blow.  Our reserve currency status cannot shield us from such an implosion.

Anyway, these products are a barometer for the fragility of the system.  The total number increased by 15% over the last 6 months.  That's a 30% year over year increase if, and it's a big if, the number isn't accelerating.  This is akin to panicked buying at the top of parabolic prices, and we all know what happens next.

CPL's picture

Here's a question will government income taxes be forgiven, or something as mundane as consumer debt?


If just personal, I'm going to buy a town tommorrow on credit and fail on paying for the town so the government can bail my ass out.


Debt forgiveness is a moral hazard to the infinite degree.  Wouldn't that just embolden the debt whores to whore out even more when the debts are forgiven? 


CPL's picture

With the fact, not just a theory, the banks have obtained 8 trillion dollars already. All we've seen so far is a liquidity crunch and a jerry rigged market prone to fits and breaks. 


I see exactly when you are coming from.  Slippery slope.  Animal farm sayd it best.  Some animals are more equal than others.  And like the book, the workers and makers finish off those that are more equal.

trav7777's picture

the animals that were more equal on the Farm maintained a multi-decade reign of terror

CPL's picture

Until the horse Boxer drops dead then everything goes sideways.

flattrader's picture

Embolden the debt whores???

Uh, you mean like the banks who took TARP and the off-book (secret) FED money?...Oh, yeah.

Those whores will be back for more...

Secret Fed Loans Gave Banks Undisclosed $13B Excerpt-- ‘Can We Survive?’ “The amount of pain that people, through no fault of their own, had to endure -- and the prospect of putting them through it again -- is appalling,” Kaufman says. “The public has no more appetite for bailouts. What would happen tomorrow if one of these big banks got in trouble? Can we survive that?”
slaughterer's picture

"White House says it is critical for Europe to move with force and decisiveness now to resolve its crisis"

Do you think the Europeans will heed this call of desperation?  or just ignore it?  


CPL's picture

They would first have to have the ability to organize.


You are talking about a room of people whos primary occupation up until 50 years ago was invading, raping and pillaging one another.  Take that into consideration first.

slaughterer's picture

CPL, that thought fills out the meaning of "move with force and decisiveness" very well.  

trav7777's picture

the EU will print; they have no choice.  EVERYBODY will print.

There is no other way to balance the math because net borrowing, credit creation, is negative.  The system is trying to deflate.  Deflation is fatal, almost immediately so, as a function of basic math.

The system CANNOT RUN IN REVERSE.  There is no thought, process, anything, for contraction.  This system was born in an era of growth that went unabated for 400 years.


If everone one prints(which I agree will continue to happen), isn't it the same as if nobody prints? It's default by inflation or default by deflation.  I guess it depends on who is posintioned better for either scenario. 

trav7777's picture

ROTFL...does it fucking matter?!?!

You CAN'T PRINT OIL.  Fuck all this paper bullshit and the silliness of what is tantamount to FANTASY FOOTBALL or playing poker for fun.  If they print or they don't print, it won't make a difference really in the ultimate outcome, only its pace.

Random_Robert's picture

" If they print or they don't print, it won't make a difference really in the ultimate outcome, only its pace."

That's right- they are only doing the equivalent of attaching more and more parachutes to the falling mass, while simultaneously removing more and more material from the bottom of the hole


Matt's picture

I'm getting the image from Ferris Bueller's Day Off when they put the car up on blocks and run it in reverse to try to get the odometer to go backwards.

When it fails, Cameron kicks the car and it drives backwards through the glass wall, down the cliff into the trees.

Seems like an apt representation of the current situation.

CPL's picture

Won't be the last time white flags fly over the Bastille, London burns or Constantinople/Istanbul changes it's name...


That's Europe.  Whole continent of lazy savages prone to sea piracy and theft if reviewing history.  But somehow this will all be different.  lol

trav7777's picture

the language you're speaking is 40% sourced from French

Seer's picture

"You default first!  No, YOU default!  No, I said YOU first!" ...

Geez, this is really what it's about.

And that the US with its "Super Congress," with all the powers that it has (only has to deal with the Fed, in ONE language), can't decide on a paltry $1.5 trillion (or so)?

Reminds me of all the pokes at China for its "currency manipulation."  US devalues something like 16% while China appreciates its currency and the US has the nerve to claim otherwise?

Again, who is desperate?

Anyway, I think that Germany should just default.  They've got a lot of practice.  And, they're "leaders," in which case they can best set the example :-)

sabra1's picture

actually, why not collect all benefits of the deceased? place corpse on couch, tune into DWTS, and febreeze, lots of it!

Matt's picture

Or stuff your 110 year old grandparents into a backpack to continue collecting their pension money, a la Japan: 


Seer's picture

Yeah, revert back to the "real" wage earners! Kids these days just can't deliver the necessary goods!

Demographics, demographics...  Max, Max?

GeneMarchbanks's picture

Current monetary system = debt.

Clint Liquor's picture

True! Every fiat currency is loaned into existence.

CitizenPete's picture

It (credit in the form of fiat) could be issued and backed with real products and services instead of unfunded "naked" liability.  See:

trav7777's picture


Money represents a CLAIM on the FUTURE, ok?  It is a ticket for real goods.  This is the origin of debtmoney, a way to take a vig, centralize currency, and eliminate Real Bills.

Real Bills has a problem for bankers in that sometimes they defaulted.  So debtmoney is a nebulous, generic claim on the future, lasting longer than 90 days.  An infinite time horizon, so to speak.

The future is the counterparty.  Not me or you or our kids, but everyone and everything in the future.  The compound interest component both makes bankers money WITHOUT risk (or so they thought) and requires growth.  The only risk to this system was deemed impossible by economists, a lack of growth.  They apparently seem to have assumed growth could last forever.

The future, our counterparty, is contraction.  The future cannot pay today's claims; everyone is achieving collective Point of Recognition on this now.  So the entire institution of debtmoney is in question.  We will be going back to real bills, like it or not.  The future will reemphasize things in reality, accurate risk assessment, the ZERO VALUE of things requiring "generic" growth in the aggregate, and the importance of things actually in existence NOW versus promises of them in the future.  AKA, systemic backwardation.

Seer's picture

Yup!  Pin this up on the wall.

CPL's picture

You just described all fiat currency right now Pete.

GeneMarchbanks's picture

'Whether or not people want to recognize this reality is another issue. We recognize that a law that cannot be enforced is not really a law in any practical sense, so why are we dragging our feet with debt? Greece cannot pay its debt by any rational formula.'

I respect what was written in this article. However, not all of this is about getting debts paid off necessarily. The other part of this that you're forgetting is: control. Through debt you can, by enlarge, control individuals and therefore nations. Debt is doing what used to be done by military conquest. I see no third party; no mediator to pick winners and losers among creditors/debtors globally. The Steve Keen approach from yesterdays BBC interview made him look naive. Once the moneychangers are through, the people with the guns take over if we glance back historically.

Certainly the right questions are being asked by this article. +1

Barnaby's picture

Ponzi scheme. On a family level. Kids are the next rung down on the old Amway pyramid of modern life.

Zola's picture

Nb 7 is by far the most important point. The young people of today will have to reject these preposterous intergenerational debts and default BIG time. If a crooked politican incurred debt in your name, it is your DUTY not to pay it and reward such criminal behaviour.

dark pools of soros's picture

not to the dead..   beholded to the heir of the dead

Popo's picture

On a personal level, this carries ENORMOUS moral hazard.  Those reponsible people who didn't take on debt?   They get punished.    The douchebags in McMansions get a free house.   Bad Plan.


On a national / generational level.  Yes.  Good plan.

LawsofPhysics's picture

Precisely, how about we start by simply prosecuting the fucking fraud at all levels, if you are going to "give money away" than give equal amounts to everyone.  Those in debt mustv pay off that debt while those not in debt can do whatever the fuck they want with it.

Encouraging more moral hazard will simply lead to another civil war at this point.  Totally fucking stupid.

trav7777's picture

there are more grasshoppers than ants.

You're asking for intelligence when for 6000 years one clan has understood compound interest and so few outside got it that Bartlett felt compelled to call it humanity's greatest failing?

People lack the intelligence to behave other than deer on an island.  Look around you.

LawsofPhysics's picture

I know, I know, just trying to be "positive" trav.

Personally, I welcome the collapse as I know that my employees and I deliver real goods and services that are of real value.  The only people who fear a collapse are paper-pushing fucknuts who know that their "labor" is not worth their current compensation.  And yes you are right, "interest" is quite literally money and wealth extraction for nothing.  Not sustainable, as everyone wants to be on that side of the interest trade. 


I laugh when I hear financial fucknuts talk about the interest they collect as "earned income"  They have no fucking idea.

trav7777's picture

you're out of your fucking mind then, man...sorry, but you're a fool and you talk like a fool.

There are FAR MORE grasshoppers than ants.  So what with your goods and services...LOL.  In a collapse, do you think any of that shit is gonna matter?  You will be eaten by the grasshoppers, overrun by the stray dogs that your neighbors fed and which reproduced for generations.  They are too stupid not to bite the hand that feeds.

Your best hope is to abandon what you hold dear and move somewhere like iceland, repudiate everything you think you value and do the opposite. 

Unless you are going to get on the whole "KKK" train with me and start pimping eugenics, there's no solution to the human element in this equation.

Smiddywesson's picture

You are thinking like an individual.   These problems are solved through the collective hind brain of man.  The solution is programmed into our genes.  When the population is too large, and our society is too complex, human beings turn on one another and lower the population while wiping away all the old customs and red tape.  Problem solved.  Lemmings win again.

Seer's picture

Or, we an pretend and extend until the next ice age takes care of things FOR us.

As far as the lemmings winning again, that was tongue-in-cheek, yes?

trav7777's picture

eh...I'm not real hip on that whole kill 'em all thing.  We are supposed to be smarter than that.

Some of us are...we either leave it to nature or we do it.  So bitchez need to GTFO my way and let me start pullin levers

chindit13's picture

Actually, war is vastly overrated as a means of culling the population.  The Big One (WWII) killed some 70 million at a time the world had about 2 billion, for a culling rate of about 3.5%.  The greatest killer of all time (on a relative basis) was Genghis Khan, who is estimated to have slaughtered 40 million at a time the planet barely had 400 million souls.  He wins Culler of the Millennium, hands down.

In comparison, the Black Plague may have wiped out 30% of Europe.  Nature wins.

I am not advocating either method.  Though its slower, I prefer childless-by-choice.  World don't need my gene pool nor anyone else's!  Plus, if one is in need of little humans, there are plenty of pre-fab ones out there looking for a home.

LawsofPhysics's picture

Pretty bold trav for not know what we produce, where we are located, or how well armed we are.  I'd hate to think you were some government troll now.

trav7777's picture

ok, I add delusional to the list.

Can you shoot fire, dude?  I mean, seriously, man...your hubris is astonishing.  Look at the Japan quake and the consequent tsunami - you're facing that kind of tidal wave and you're talking about how many stupid fuckin guns you have?

it doesn't matter what you produce or where you are, you are not bulletproof or noncombustible.

When faced with opposition, a sufficiently determined adversary will merely BURN EVERYTHING YOU HAVE TO THE GROUND.

That's what I would do.  I'd make a crispy example of you and pick through the remains for salvage.  I am not the only one who has a concept of medieval tactics, either.

For the life of me I cannot comprehend why people who are as smart as you intentionally put a box on your brain and do and say such astonishingly stupid things as this.  You are far too intelligent to actually have cause to believe that you can outshoot what's coming if things "collapse."  If you need some kind of psychological crutch, try stuffed animals or a security blanket.

Seer's picture

Not going to dispute anything that you wrote here (I am in concurrence), but just would like to add that things aren't static.  OK, sounds rather "duh," yes, but my point is that at some point the burning and pillaging won't be universal, that at some point people will have to tone down and get on with the business of dealing with acquiring food through their own means.  Also, things will happen at different levels of intensity and at differing times.  One could, perhaps, keep running ahead of the outflow, but this will become a bit tricky as our navigational aids that we've come do dependent upon (I'm going to miss the Internet!) are no longer available.

I suspect that humans will continue to do what they've always done, and that's to skirt the most difficult matters facing them- how to deal with insufficient resources (or, over-population).

Random_Robert's picture

True, the grasshoppers are currently swarming, but eventually they starve, and the ants feast on the grasshopper carcasses. The abundance of available carcasses yields temporary exuberance in the Ant society, while the grasshopper population craters to basic subsistence levels (only Darwin's strongest grasshoppers survive and breed) 

But soon the ants' "free lunch" is over, and the ant society begins feeling the pangs of hunger- this inspires the strongest Ants to return to their industrious roots, while the other ants (who had grown accustomed to the free grasshopper smorgasboard) slowly starve... 

The banker/financier is the grasshopper. The Rothschild is Darwin's favored grasshopper.

I am the industrious ant. One day, one of the few remaining grasshoppers will approach me with their ideas about how credit expansion equals growth and I will lop off their heads and watch with glee as the grasshopper goes extinct.

The rest of you need to choose whether you are going to be industrious ants, or lazy ants clamoring for the day that the banker/financier/grasshopper smorgasboard opens for business...

The fucking bugs understand our nature better than we do, for Christ's sake.


NotApplicable's picture

I'd say the intelligence is there, but what is missing is the desire for wisdom. Why bother if you don't have to? Let someone else do the heavy lifting. That's why we have experts, after all.

It's just another apathetic, false-belief system that works, until it doesn't.

Did I mention a century of government 'schooling?' Or that the upcoming election, IS THE MOST IMPORTANT, EVAH!

LawsofPhysics's picture

Every election, especially local ones, moving forward will be more and more important as economies become more and more local due to the real decrease in access to energy and general availability of resources for all sorts of manufacturing that we will all be experiencing.

Everyone on the planet wants to use the resources for their manufacturing operations to sell to everyone else when fucking everyone is broke.  Sorry, the growth model stopped working in real terms long ago and thanks to mark-to-fantasy accounting has been "magically" support by an exponential increase in shadow banking and debt.  Good luck.

trav7777's picture

it's been a 400 year run of growth, man.

Imagine Easter Island...mad scramble for the last trees, I gotsta gits mine before someone else comes up on it.  See Haiti.

Only a cohesive population can survive this, where people have self-restraint in the aggregate.  Gonna take generations to undo any kind of growth mentality and along the way there will be infinite scammers who "gonna pay fo mah gayus, gonna pay mah mortgage"

trav7777's picture

I would contest your assertion.  I don't suffer from the Downing Effect; I both know my own intelligence and can, unlike other smart people, accurately assess how stupid the people around me generally are.

People CANNOT GRASP exponential functions.  I can, maybe you's easy for me.  But then I was national merit scholar yadda yadda...I'm not in the fat part of the IQ bell curve.

Normal people - this is a psychological fact, empirically proven - use a linear extrapolation when faced with a growth curve.  Maybe 1 in 100 can answer when is the bottle half full in a simple doubling problem.  My dad is a smart man and said 6 o'clock.  My accountant who DOES MATH for a living said 6 o'clock.  I have met nobody other than my eldest son who got 1 minute to midnight correct.  And even he off the cuff said 6, then thought and said wait, no, it's 1159.  Hell, I have enough trouble getting people to understand the difference between reserves and rate of production, between work and power, that I have effectively given up and resorted to abusing them verbally.  There's simply NO POINT in attempting to teach my dog english or a chimp to fly an aircraft.

normal people think ok, the balance is 1000 now and 1100 next year, ergo, it'll be 1200, then 1300, then 1400.  They end up so far off from reality that it's asinine.  This is PRECISELY what the jews knew and understood and how their clan got rich and how it took a fucking RELIGIOUS prohibition from Jesus and the Church to stop people from both borrowing and lending into debt.  It's because ordinary people cannot make "informed consent" to use a legal term, to compound interest.  It has been fatal so many times and led to so much ruin over the millennia that two major religions banned it and frequently the people commonly known for it.