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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chindit13's picture

I know what you mean about chimps and flying.  Actually it’s not so much the operation of the aircraft---they absolutely love practicing stalls---it’s the push-to-talk radio.  Lack of an opposable thumb just makes it impossible.  Sad to watch.  One's heart just aches.  They simply have no business in anything above Class D airspace, truth be known.  And IFR?  Forget it.  Let them stick with LSAs.

Sorry trav, it's late here.

CrazyCooter's picture

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

Well said. This is going in the repertoire.



Seer's picture

I've seen deer swiming off of an island (and to other islands): AND, I myself, have actually been to and have left several islands! :-)  Any points for this? :-)

Normalcy Bias's picture

Exactly. Provision has already been made for those who truly are in bad enough need. It's called the U.S. Bankruptcy Code.

Seer's picture

Excellent!  I think that someone needs to inform the US govt of it!

Confused's picture

Sorry to say this, but essentially zero interest rates, would suggest you are already getting punished. Factor in inflation, as a product of .Gov's meddling, and you are getting doubly screwed.


I do, for the record, agree.

trav7777's picture

wtf future is out there that you think can pay you this magic interest you think you're entitled to?

EVERYTHING you believe is wrong...all that you know is at an end.

Seer's picture

So much for learning from childhood, from games such as "Musical Chairs!"

Idiocracy's picture

Douchebags who get 50% of their mortgage cancelled can assign 50% of the ownership stake in their house to the US taxpayers.  That's how it ought to be IMO.

LawsofPhysics's picture

Bullshit, and precisely what good will that "ownership" do everyone?  How much of AIG or GM does the taxpayer still own?

Robert-Paulson's picture



Can someone help me understand this chart?


It's the DXY....I can't figure it out....Says the last trade was at 919.80 when it's really at 79ish


Thanks in advance



Bam_Man's picture

There will only be debt forgiveness once the Fed has given up (or is forced to stop) trying to "inflate the debt away".

And we ain't there yet.

Seer's picture

My Black Swan call was the the Fed was the Black Hole that would swallow all the shit up and then go Super Nova.  Hey, it's NOT the US govt!  ALWAYS maintain proper buffers!  The "thieves" (thieves of fiat?) are protected behind corporate walls.  See, these fuckers AREN'T stupid!

TeamDepends's picture

There's a new game in Vegas:  Debt-Roulette!  First you borrow as many chips as the house will give you.  Then you lose them all as spectacularly as you can.  When your losses have reached the level of "ridiculous", you shout "Default!" and sprint for the door.  When the bouncers drag you back into "the office" you put on your saddest face, tell them a sob story and they give you twice as many chips as you started with.  Repeat.

Seer's picture

The rubicon of moral hazard was reached a long time ago.  It worked for the banks...

flattrader's picture

No joke.  So, what's good for the goose is good for the gander.

So all the people arguing against any kind of debt forgiveness/restructuring are just resigned to let the ponzi much as the scream about fraud prosecution etc...because it's immoral, not "fair" etc...

Gee, I guess CHS is rethinking the "we're all too blame/kleotocracy" bullshit he spouted earlier this year now that it is pretty damn clear a lot of people just got plain "fucked" by lying, cheating mortgage cos. and then then the entire global population when bankers who repackaged and misrepresented this crap as AAA+ and sold it worldwide but got thier asses bailed out.

Gotta admire Iceland who just said "Fuck You.  We ain't payin'," and shut the door in the banksters faces.

Seer's picture

Don't be so gleeful about Iceland, it's still afloat because the rest of the world hasn't sunk yet.

I don't advocate anything other than logic and truth: anything else can't be trusted.  Not seeing that Mother Nature is in control and abdicating any "treaty" that we think we have with her is a BIG mistake.

I'd like to believe that punishing the "wrong-doers" would SOLVE our problems, but I'm not thinking that we'll be able to make any clear delineation between where "they" end and "we" begin.  We ALL bought into the Ponzi Scheme of growth.  I ain't going to lie and say that I didn't "profit:" I cloaked my knowledge of the impending collapse as "timing the market."  Not that I made any "killing" (such as bragged by all the hotshot market folks out there), but in comparison to the "wealth" capacity of the 2/3 of the world's population out there I sure as hell AM wealthy.  Since I view hypocrites as being lower than whale shit I have made it a mission in my life (such that I have left) to educate others (sure is hard!) and to produce as much food as possible (and to pass this along to the next generation).

When the plunderers are plundered...

Grinder74's picture

I've said it before and I'll say it again.  If the government "owes" me 47,000 in Treasury debt, and I owe the government 34,000 in SLMA loans, why can't the two be offset?  This could be a huge, actual stimulus for folks if implemented correctly for those who have been paying consistently on-time for a certain number of years.

Barnaby's picture

Where does war come into play? It seems like such profitable business.

Seer's picture

Politics IS war, but by different means.  War has been on-going: that's how we've historically obtained the resources for which we demand (plunders are getting leaner- at some point they won't be able to off-set the war costs [remember with Rumsfeld et al stated that the Iraq war would pay for itself?]).

Milestones's picture

A profoundly interesting post with vast implications. I await the next installment so the whole can be viewed and digested.   Milestones

DogSlime's picture

No!  Damnit I'm not going to have my hopes dashed again!

All through the late '70s and early '80s I drooled at the prospect of iminent nuclear war and was denied!

We're heading for WWIII and no-one should be trying to mess that up with sensible suggestions about solving these economic problems.

For Heaven's sake, people, we're on the way to global depression followed by an almost inevitable resource war followed by world war and most likely a proper nuclear apocalypse and you guys are trying to mess the whole thing up with all your talk of sound money and debt jubilees.


Too many articles like this and people might wake up to the fact that there is a workable solution and then the firework display will be called off AGAIN!

You'll ruin everything :(

CPL's picture

Someone needs a hug...




It's okay bud, here's a bottle of whiskey, grab a deck chair and we'll watch it burn together.  Hookers, bud and blow will show up later.

Smiddywesson's picture

There won't be widespread strategic nuke exchanges.  Almost 90% of the Earth's population lives on just 4% of the surface area.  Drop a few EMPs over them, and they all starve. 

This consumer message was brought to you by Electro Magnetic Pulse weapons and the commercial farming lobby.

Seer's picture

Ah, but the commerical farming sector is HIGHLY dependent upon electronics!

partimer1's picture

if you look at the economic books, they dont even talk about the debt.  they talk extensively about the interest rate,   The only way out of this is massive default.  we get our shit together after default.  everyone suffers. there is no better way.

fbrothers's picture

Sooner or later, we will have to start over. Every country on earth. First the 1% will be handled as they have in the past. The people will take everything they have, destroy it and kill them. Like the French or Russian revolution. It always ends that way.


Barnaby's picture

OR the people will rise up in their own way, occupy elected offices, fire unnecessary staff, strip down the rules and regs and get us back to a constitutional republic of sovereign states as envisioned by a majority of our founders, as sold to us by our horrible institutionalized education and forced down our throats by the crippled and fear-driven media. Simultaneously, the people of a community will work toward solutions to the problems once solved by The State or The Feds, to fill the voids with commerce, to employ the stragglers, to empower a People!

... or we can gay sex ourselves into oblivion.

CPL's picture

You mean anal?  Or sex as a classification?


Please describe in great and unnecessary detail.

Seer's picture

There ain't no going back.  But, in a ironic way, it's kind of looking like that, the return of blatant slavery and all.

There isn't the physical resources to bootstrap growth.

When will people get it, that the REAL forces creating this squeeze are due to diminishing resources?  Doesn't anyone read/understand REAL history? (wars are ALWAYS over resources)

Don't get me wrong, I DO believe that there will be less govt.  As a matter of fact, I believe that there will be NO govt.  Now, let's see how your desire to outlaw gay sex will be enforced then.

Homophobes and xenophobes.  Your big mistake is in believing that the OTHER folks aren't capable of operating firearms.

Barnaby's picture

No, no, no, I hear gay sex is fun, kind of like a realllly good shit but in reverse. Why would I want to outlaw something so simple that provides so much joy?

You did miss the spirit of my post. I was simply ripping off South Park, when they were at war with the future. How humanity will always take the easiest, most pleasurable route.

Seer's picture

Sorry, didn't spot the "humor."  But, that shouldn't merit red arrows, unless those were from actual homophobes and xenophobes.

pvzh's picture

Do you seriously think that new "Wild West" will be PC paradise? For some weird reason old "Wild West" was full of homophobes and xenophobes. I wonder why.

trav7777's picture

bbbbut...bbbbut....the old west TV shows have strong black men in them who often manhandle white women.  You don't mean to imply that this is factually inaccurate do you, that black men with relatively light skin weren't cowboys?

I also wonder why there is a black person in every white group on TV but never a white person in every black group.

Random_Robert's picture

"I also wonder why there is a black person in every white group on TV but never a white person in every black group."

That's a question I could pontificate on for at least one second...

There, done.

Black people are next in line to rule the world. 

Sorry Trav- it's been demonstrated over and over that as average IQ's increase, populations decline... therefore the stupid always outnumber the intellectual. Entropy's a bitch.


trav7777's picture

they were unable to rule their own countries or come up with the wheel.  Hell, they didn't even have countries.  These boundaries are whitey's.

They outnumbered the whites in Rhodesia and RSA and were conquered.  Stable, prosperous societies arose. 

Only an artificial effort, a white tax if you will, keeps them above african standards here, and they destroy everything they come into contact with as surely as crime follows section 8 placement.

if/when the parasitic drag of the white tax becomes a matter of your kids eat or some mfin lazy black gibs me dat eats, you will see the dismantlement of the entire edifice of race tribute.  Now, the operators behind apparent black ascendancy in the USA and popular media, aka the SPLC and NAACP backers, may not like this, but what cannot self-fund will eventually go broke

Seer's picture

" 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."

Unicorns and Skittles...  BIG corporations have their arms wrapped around (read "control") the natural/physical resources.  Economies of scale allow them to maintain this grasp.  Reading this article keeps the same old -if you're honest and work hard enough [for the elites] you'll jump to the top of the heap [never mind that not everyone can be there]- meme going.  Small business WON'T be anything other than cannon fodder to/of the BIG businesses, as long as the current debt-style system is in place (and not until the BIGs have been disassembled for good).

Rise and fall in growth.  Hm... at some point there can NOT be any more growth.  People are still refusing to face this FACT.  What if that time is now, and what if we keep trying to force growth to happen when it cannot?

Nice 10,000' view, but, unfortunately, it's 10,000' BELOW the surface!

rambler6421's picture

Ya.  Debt forgiveness is the way.

Greenhead's picture

The bankers/conomists/fed are so afraid of deflation because it is a form of jubilee.  As asset values crash, people default, as do states and countries and the lenders are wiped out.  They will do anything and everything to maintain the status quo so people keep paying, and paying, and paying...

flacorps's picture

Wikipedia says Leviticus was written more than 2,400 years ago, and it prescribes jubilee every 50 years. Kondratiev discovered economic cycles of approximately 50 years that validate the ancient concept.

Nobody is going to declare a debt jubilee. But individuals fighting for their own economic rights by whatever means they have (including "weapons of the weak") will have the same effect because as the article's author notes, the debt simply can't be paid.

I wrote my book "Debt Hope: Down and Dirty Survival Strategies" for just such people. The moralizing in the book is over rather quickly in the introduction. The rest is the practical stuff you need to know.

It's available on Amazon and makes a great Christmas gift:

flattrader's picture

 >>>Nobody is going to declare a debt jubilee. But individuals fighting for their own economic rights by whatever means they have (including "weapons of the weak") will have the same effect because as the article's author notes, the debt simply can't be paid.<<<

Amen, Brother.

Debtors, keep squating in those McMansion.

Jingle mail, jingle mail, jingle all the way.

Go Iceland on the motherfuckers.

trav7777's picture

that is because the moneygrubbers were violating that whole "don't lend at interest to your brother" commandment.  Jubilee and Leviticus is *not* interpreted by Rabbinical process to include Gentiles.  In fact, while usury to a fellow joo is prohibited by the Torah, it is an affirmative commandment to do so to gentiles.  Go read jewfaq if you're skeptical.

earnulf's picture

Debt forgiveness may have it's place.    However what about those who didn't buy more than they could afford, who lived within their means, who live day in and day out as citizens beholden to no debt yoke?     The Debt Problem has been compounded by giving even more to those who were irresponsible, taking those funds from the hard work of the producers and taxpayers for the benefit of a chosen few.   

Trickle down has given the masses nothing more than the waste stream from the rich.    And despite thier protestations to the contrary, shit does not make us grow.     It is our labor that allows them their delusion that they alone can create jobs, improve the economy and leap tall building in a single black helicopter!

770 billion dollars for TARP and all we got was more moral hazard.    There are 152 million working americans (give or take a few million.)    Give each of those taxpayers (who actually filed) a $3,000 check and it would have cost about two thirds of TARP and given our economy the kind of boost you just can't get from trickle down.

Debt forgiveness is not the answer to the vast majority of the debt.    People incurred the debt and enjoyed the fruits of that debt.    Let them be held responsible for working off that debt.    Another 3 hours a night, digging ditches, cleaning roads, social services, building houses, infrastructure or feeding the homeless.   Most folks could find their way out of debt in a few years.     No, I don't have all the answers or even some, but I worked my way out of my debt and didn't take bankruptcy.    That's what my fathers generation did.   It's called pulling yourself up by your bootstraps and doing the hard work that needs to be done to take care of you and yours.

Oh there are simplier ways, drug dealing, crime, etc if you have the soul for that.    I'm not perfect, but I do what I can to live by the golden rules.    Debt forgivenss is another way of saying forgive me for living high on the hog while the rest of you peasants lived within your means.


Seer's picture

"Debt forgiveness may have it's place.    However what about those who didn't buy more than they could afford, who lived within their means, who live day in and day out as citizens beholden to no debt yoke?"

My wonderful wife regularly reminds me of the "entitlement mentality" that's prevalent in North America.  I'm sad to say that yours is little different than those who you chastise.  What is it that makes you feel owed?

Listen, we ALL engaged in this Ponzi Scheme.  If people didn't play it well then they whine.  Really!

I'd think that people such as yourself need to realize that you've pre-primed yourselves with something that's more valuable than all the bauble and fiat our there- an ability to live within one's means, something that will be an absolute requirement from now and (forever) into the future.

Again, people need to stop playing the victim.  There's no one out there that's going to answer you ([here on earth] you'll have to take it up with a higher power).

If you want to come out "ahead" (until your head is removed) then become a politician or banker.

earnulf's picture

It's not an "entitlement mentality" but rather a sense of fair play.   When one dog gets a treat for no apparent reason and the other a kick, the fields not level.    Entitlement indicates an expectation of getting something for nothing and your chicks for free.    I just hate seeing good fiat thrown after bad fiat.   I hate seeing my country in debt that is higher than the yearly GDP because a bunch of politicans can't get it through their heads that spending CUTS even to social programs and higher TAXES on everyone, especially those who can afford it, are needed.    Whatever happen to noble obligation?

How many folks have you lent money to at 23% interest?   No, we all don't play the PONZI scheme.   And what kind of "people such as yourself" am I?     Is it too much to ask that the folks who are "pre-primed" have an equal chance to save the economy as a TBTF bank?

152 million people pumping 3 grand each into the economy, buying things, contributes a hell of a lot more to the salvation of the economy, not to mention the GDP, than 133% more going to bail out banks that made piss poor decisions.


Devore's picture

So I'll forgive your debt, if you forgive my rent?

Seer's picture

Couldn't be a more eloquent statement.

Follow me said the blind man to the deaf man.

Devore's picture

I don't understand the debt favoritism. As long as we're forgiving <i>obligations</i>, lets forgive all obligations equitably.

But what do I know, I'm just a stupid fucking white man.