The Modern Debt Jubilee

Tyler Durden's picture




 

From Bill Buckler, author of The Privateer

The Modern 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. This, it is said, is the only way left to restart economic “growth” and finally get the spectre of unending financial crisis out of the headlines. It is the latest of a long string of “print to cover” remedies.

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.

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Sun, 08/19/2012 - 12:02 | 2718070 Stackers
Stackers's picture

I wonder what the moral hazards are of writing every person in the country a check to pay off over indebtedness ......hmmmm

Sun, 08/19/2012 - 12:03 | 2718071 bugs_
bugs_'s picture

they won't use it to pay down debt.

Sun, 08/19/2012 - 12:13 | 2718091 JPM Hater001
JPM Hater001's picture

Remember the inflation Bush's checks caused?  $140 barrel oil will seem quaint...

Sun, 08/19/2012 - 12:19 | 2718102 malikai
malikai's picture

That inflation was just the blow-off top of the commodities bubble combined with the crushing of the Bear. The checks' contribution was minimal at best. Of course, it was debt financed, not the 'tax rebate' they called it, so it was inflationary. But not meaningfully, IMO.

Sun, 08/19/2012 - 13:11 | 2718234 Doña K
Doña K's picture

I saw a nice sailboat for sale. When do I get my check?

Sun, 08/19/2012 - 17:08 | 2718839 AGuy
AGuy's picture

"I saw a nice sailboat for sale. When do I get my check?"

"As a sailboat sales man, I regret to inform you that because of the financial conditions we are forced to triple our prices immediately. Be sure to make a purchase soon because we can't gaurentee that our prices will remain at this discounted level (+300% of yesterday's price) beyond a few days."

"As a Visa\Mastercard servicer, we regretfully inform you that your your credit card interest rate has risen to 250%. We understand that this is a difficult issue, however, we are subject to market pricing and are forced to make adjustments."

"Dear Taxpayer, We have recently revised our mill rates to reflect recent economic changes. Your new effective tax payment will be increased by...."

You get the picture. Bottom line: No free Lunch Served!

 

 

Sun, 08/19/2012 - 21:06 | 2719301 3rdgrader
3rdgrader's picture

A minor increase of the M3, distributed equally (by amount) to all, without repayment required, would only slow the increasing rate of the transfer of wealth from the poor to the rich.

A major increase of the M3, if large enough, would actually only temporarily halt the transfer of wealth.

 I wouldn't hold my breath if I was you.

Sun, 08/19/2012 - 17:27 | 2718867 GMadScientist
GMadScientist's picture

When you get your Somali butt on-board and manage to sell it for salvage.

Sun, 08/19/2012 - 12:20 | 2718104 vast-dom
vast-dom's picture

been saying for over year that QE for public was the final true real QE that would work, until we need QE(p)2, 3, 4....infinity....and the analogue to TWIST will be ObamaCare....we are so fucked!

Sun, 08/19/2012 - 13:46 | 2718365 Poor Grogman
Poor Grogman's picture

Cash for clunkers...

Now cash for stackers....

Still its less subject to wind drift and cheaper than a heli drop I suppose

Sun, 08/19/2012 - 15:36 | 2718654 Don Keot
Don Keot's picture

This is what I think I am going to do.  Buy a load of gold and silver on my credit card, so I will have debt, and then when I get my check, I can pay off my debt, as required, and thereby beat the PM todamoon rush. All I need to know is, what is the estimated size of the check.

Sun, 08/19/2012 - 19:47 | 2719145 Papasmurf
Papasmurf's picture

The Bush check was what, $500.  Don't stack too high.

Sun, 08/19/2012 - 12:22 | 2718106 Stackers
Stackers's picture

Well technically as long as "most" of the money is used to pay off debt created through fractional reserve banking, then the new money will just disappear back into the vacuum it was created from in the first place, less the interest due of course, which means most of it will just end up balancing bank balance sheets and allowing them to pocket the interest they would not have collected if the debt was simply written off making them insolvent and bankrupt. It's not a bad plan and is very non-inflationary, but it is neck deep in moral hazard.

Sun, 08/19/2012 - 12:24 | 2718113 vast-dom
vast-dom's picture

after QE(p) more debt will be incurred by public necessitating QE(p)2 and so on and so forth. No jobs. No structural reform. Ergo no solution. Just staggering out the CRASH which is desperately needed in order to reset this ponzi scam back to functioning FREE markets.

Sun, 08/19/2012 - 12:26 | 2718121 Stackers
Stackers's picture

exactly, the moral hazard is that now everyone will be expecting it in the future and it will just accelerate piss poor financial planning we already have.

Sun, 08/19/2012 - 12:47 | 2718164 vast-dom
vast-dom's picture

precisely. sit back dribbling sputum with your hand out waiting for QE(p). You can buy crack, beer, junk food, toxic soda, candy and you will OD on that and your next easy infusion. managed expectations for self-entitled entitlements. the zombies are being groomed. 

Sun, 08/19/2012 - 13:11 | 2718232 laozi
laozi's picture

I prefer the new debt jubilee to bank bailouts. If the public is forced to pay down debt with their money, the banker will lose. In a perfect world, interest would be pushed up, to the level where people still in debt would suffer still, while the debt-free man consumes, and gives the finger to the debtor.

Instead of letting the banks reap the harvest of money creation (inflation), this will be given to the common man. Bankers lose.

Moral hazard, yeah, but at least it is fair to the non-debt slave (not so much to the saver).

Sun, 08/19/2012 - 13:51 | 2718380 Things that go bump
Things that go bump's picture

I don't think they can raise interest rates.  Government can't pay the interest on its borrowing if they go any higher.  

Sun, 08/19/2012 - 15:38 | 2718658 Curt W
Curt W's picture

If you must use it to pay debt, it is a bailout for the banks, they will get paid instead of people defaulting.

Mon, 08/20/2012 - 08:43 | 2720164 laozi
laozi's picture

No, everyone will pay off debt. Not just debtors on the verge of default. It will shrink the size of banks, make them less powerful. Think about it, if all debt was repaid, the bank would be out of business.

Sun, 08/19/2012 - 12:48 | 2718165 Mad Mad Woman
Mad Mad Woman's picture

Neck deep in moral hazard?  Let me get this straight, by bailing out the people there is moral hazard, but bailing out the banks is not then?  

At some point in time, preferably sooner than later, the people will need debt repudiation. If govt would've helped Main Street to begin with maybe we wouldn't have these problems now. Instead govt gave away tons of money to Wall Street and the banksters with no strings attached. That's good & bailing out Main Street isn't. Twisted logic by a lot of commenters here at ZH. 

Main Street & TRUE small business was left to twist in the wind with absolutely no help at all. WTF??

Some of you say it's too bad for the people, they racked up record debt so it's time to pay the piper. Isn't that also what the banksters & Wall Street did too? And Wall Street & banksters have more debt now than they ever did (all the derivitives & associated horse trading tricks). Trillions in debt. It's time to let those banksters fail. They'll probably take us all down with them but, that's the way it goes. The people are tired of bailing out the banksters & Wall Street. Time to let them fail.

Sun, 08/19/2012 - 12:54 | 2718181 vast-dom
vast-dom's picture

nanotechnology will turn lead into gold and build bridges instantly from nothing but their very own particles. so no one will need to work. in fact the word work will dissapear from the lexicon. people will live wherever they want and have unlimited monies. mansions for all in tiny high-tech coffin-sized spaces where you can be anyone do anything.

 

QE x QE(p) to the Nth.

Sun, 08/19/2012 - 13:34 | 2718320 francis_sawyer
francis_sawyer's picture

You'll shoot your eye out kid!

Sun, 08/19/2012 - 14:51 | 2718560 Freewheelin Franklin
Freewheelin Franklin's picture

POST-SCARCITY OR BUST!!!

I got a slightly used 3-D printer you can have.

Sun, 08/19/2012 - 16:30 | 2718750 Anusocracy
Anusocracy's picture

One era's technology is another era's magic.

The future is so bright I gotta get a bigger brain.

Sun, 08/19/2012 - 13:27 | 2718287 Acet
Acet's picture

Actually, on the subject of Moral Hazard, this is not so much a problem as long as everybody gets the same amount and those who have debts are forced to use the money first to pay those debts and then (only of there is any money left from paying the debts) they can spend it.

This is because those with more debt won't have much or any money left over after paying up their debts while those with little or no debts will have a bonanza that they can enjoy to the fullest if they so wish.

Sun, 08/19/2012 - 13:38 | 2718333 nmewn
nmewn's picture

That amount of money, in real circulation (instead of stacked on digitized pallets...bank ledgers) I think, would be immediately hyper-inflationary. The ten thousand dollar boat just went to twenty thousand.

Its got to be debt wipe out, not printing to pay off debt...IMHO.

Sun, 08/19/2012 - 14:17 | 2718478 michael_engineer
michael_engineer's picture

Not much chance of the various international flavors of debt holders and stuckees agreeing on any jubilee and reallocation of resources and liabilities and honoring agreements in place that were expecting the status quo instead of caveat emptor.

Sun, 08/19/2012 - 15:24 | 2718631 nmewn
nmewn's picture

I'm quite sure they will be very disappointed one way or the other, eventually.

I guess its all in how one looks at it. Perspectives.

Our government could say to the Euro-zone (for example) look, we spent over a half century on your soil after you destroyed the place during two world wars, thus allowing you the luxury to "experiment" in all sorts of grand society schemes without having the burden of taxing your populace for a military per se.

This is the price, its non-negotiable and we're sorry past leaders on both sides didn't see far enough into the future to account for it. If its good enough for our GM bond holders its good enough for you. Surely you can see the fairness of law means it must be applied equally.

And by the way we're closing our bases as a cost saving measure...have a nice day and give von Rumpoy our regards ;-)

Sun, 08/19/2012 - 16:28 | 2718742 Ghordius
Ghordius's picture

LOL - you do have a quite interesting opinion on why the US is the senior partner of NATO

Sun, 08/19/2012 - 17:35 | 2718892 zhandax
zhandax's picture

What is proposed here is not a genuine debt jubilee.  This is a keynesian perversion of a debt jubilee.  In the real thing, the creditors write off all the debt and the system is cleansed.  In the perversion proposed here, the fed simply swaps one pile of debt for another, accomplishing nothing.  Oh, and just in case anyone forgot fiat econ 101, if a genuine debt jubilee did occur, there wouldn't be any dollars when it was completed.  All our FRNs are debt.

Sun, 08/19/2012 - 17:54 | 2718926 nmewn
nmewn's picture

Well, we've all got our opinions Ghordius...ranging from the conspiratorial to the practical to the absurd.

As a practical matter NATO, was the counter weight to the Warsaw Pact and the Soviet Union, which is no more. I think you guys are big enough to handle the big bad bear now and all your internecine across the border backyard squabbles. And the Italian, British and French navy should be more than enough to protect your trade routes.

Good luck ;-)

Mon, 08/20/2012 - 05:35 | 2719963 Disenchanted
Disenchanted's picture

 

 

Why does NATO still exist?

 

For Americans, how much of our FICA taxes have been spent on things like NATO?

 

“Everyone needs to understand who NATO is: NATO’s military is funded — at least 25 percent — by the United States, and so when you look at the Obama administration saying it’s passing it off to NATO, it’s still going to be run out of Washington, it’ll still be U.S. tax dollars that are helping to run the operation. ~ Congressman Dennis Kucinich

Mon, 08/20/2012 - 08:32 | 2720142 nmewn
nmewn's picture

Thats what I'm telling Ghordius below...but my reasons may be different from yours ;-)

Still, its pull the plug time.

Mon, 08/20/2012 - 06:02 | 2719972 Ghordius
Ghordius's picture

how about this little fact: France and Britain would have been perfectly happy to continue to "take care" of their imperial interests, and were happily landing in a joint operation (with their ally Israel) on the shores of Egypt, 1956, until Uncle Sam called them back. It's called the Suez Crisis.

Another fact: Germany was utterly disarmed after WWI. How long took them to rearm? Do you think the european industry (BMW and Mercedes Benz come to mind) could not be able to mass produce drones and the future generations of robotic light tanks? Particularly if the Russians have a stake in the rearming process, like they did with Germany in the 30's?

NATO still is the armed branch of the current commercial empire, led by the US. Don't underestimate the current equilibrium.

Mon, 08/20/2012 - 08:27 | 2720133 nmewn
nmewn's picture

"France and Britain would have been perfectly happy to continue to "take care" of their imperial interests..."

Which is a by product of what I'm advocating...among other things.

"Another fact: Germany...Russia..." etc.

Not our problem.

"NATO still is the armed branch of the current commercial empire, led by the US. Don't underestimate the current equilibrium."

Well aware of it...I thought I was clear about America ending its involvement with NATO.

You see, its like this. America can (militarily) project itself across the world. If Europeans wants to or needs to do the same...they will need to pay for it themselves...all of it. 

As I said, its my opnion that Europe has gotten a free ride to conduct their little social experiments in a vacuum without having the real expense of providing national security for its individual citizens. That is a real cost that is borne by my taxation and lately Bernanke's printing press.

Its very easy to sit smuggly by (not you Ghordius but Euro-socialist trash in general) sipping coffee and commenting on Anerican affairs, how fucking stupid we Americans are, how fat we are, how Europe has it all figured out with their "health care"...vacations...blah blah blue blooded, hoity toity, pinky finger extended nonsense...while I pick up the tab for their national security.

The European lifestyle would be very different without our presence. Its my desire for it to change. The shops, restaurants, bars etc. in the towns around the bases as well would be different without the "stupid Americans" there. The left there will say good riddance and I will say good luck.

We will always have our fraternal-cousin bonds...but its time to pull the plug on this special arrangement.

Mon, 08/20/2012 - 08:38 | 2720145 Disenchanted
Disenchanted's picture

 

 

"while I pick up the tab for their national security."

 

Speaking of "special arrangements..."

 

I'm tired of picking up the tab for Israel's security as well. You?

Mon, 08/20/2012 - 09:11 | 2720237 nmewn
nmewn's picture

And Egypts 2.2 billion as well I trust?

Mon, 08/20/2012 - 14:23 | 2721171 Disenchanted
Disenchanted's picture

 

 

and Saudis and Pakistan and on and on...

 

We are borrowing to give away goodies globally('aid' 'loans' etc., etc).

 

I am in the camp that thinks if the goodies are going to be passed out, it should first happen here at home.* Isn't that why this govt. was formed, to look after the real interests of it's citizens primarily?

 

Don't answer that, because something tells me that's another one of those things I'm finding out was a lie all along.

 

* I know I know...we can't afford that either. Because we are fucking broke and have been for quite some time. Some say our 'brokeness' as a nation goes back to 1933.

Mon, 08/20/2012 - 16:55 | 2721668 nmewn
nmewn's picture

Well, tis is oin to be interestin and somewat embarrassin, I ave two keys side by side tat aren't workin...no, I'm not kiddin...lol...comes out lookin like a bad lisp.

I'll just use underscore_.

It was formed to make everyone equal under t_e rule of law. 2/3 rule aside and citizens only. T_ey started (very early) to circumvent t_e law and it continues to t_is day. It was done for t_e very best intentions but it was wron_.

Its not t_at conservatives & libertarians are _eartless, we are not. We just look on a lon_er timeline at t_e dama_e t_at can be done wit_ flawed policies.

An article on wat I'm tryin to say...(I've really ot to blow out my keyboard)...lol.

http://www.lewrockwell.com/orig4/ellis1.html

Pay careful attention to te last few sentences from link...

Tue, 08/21/2012 - 05:41 | 2722989 Disenchanted
Disenchanted's picture

 

 

Well this tradition has certainly expanded(from your link):

 

Money with them is nothing but trash when it is to come out of the people. But it is the one great thing for which most of them are striving, and many of them sacrifice honor, integrity, and justice to obtain it."

 

Nowadays instead of "most of them" it could read all of them, and not be far from the truth.

Tue, 08/21/2012 - 06:42 | 2723024 nmewn
nmewn's picture

Very few t_in_s public s_ould be compelled to fund precisely because of t_at...its very easy to _ive away candy w_en its someone elses candy.

My keyboard is fried...we'll talk at len_t_ some ot_er time.

Seeya ;-)

Mon, 08/20/2012 - 09:20 | 2720259 Ghordius
Ghordius's picture

Yes. But a quite common non-US view is that all the goods sent to the US in exchange for "the full faith of the US Treasury" are only a modern form of tribute... And that Europe has subsidized the US lifestyle for over twenty years, and then China is doing it since ten years.
China owns two trillion USD from this.

Mon, 08/20/2012 - 09:43 | 2720315 nmewn
nmewn's picture

I'm all for cutting off the "tribute".

And communist China can take a ride on a dragon for all I care.

If I were so inclined, which I'm not usually...but as an exercise (let me try on my "central planning hat")...they will have to deal with their own under utilized labor force. We have able bodied unemployed and welfare recipients here too. If they want a check from the state we have unused factories that can be converted to making i-shit right here.

Boy, this central planning stuff is easy...lol.

It ain't getting paid back, the government is broke Ghordius.

Mon, 08/20/2012 - 11:24 | 2720573 Ghordius
Ghordius's picture

+1 "central planning is easy" !!! LOL don't make a habit out of wearing that hat, otherwise you'll start wondering what jobs you would have to find for the returning legions!

nevertheless, one little thing: the US government is broke - in gold terms - since it defaulted in 1971. So as you can see, some things can run on faith for a while...

Mon, 08/20/2012 - 17:01 | 2721691 nmewn
nmewn's picture

Yes, but woo come bejind will not be impressed by wat we ave done.

Lookin for keyboard cleaner now...see above for explaination ;-)

Sun, 08/19/2012 - 17:49 | 2718916 Stoploss
Stoploss's picture

Bingo.

Technically there is no word in existence to properly describe the type of inflation that will occur as a result of debt jubilee.

I submit:  Warp drive inflation. (Hyper inflation assumes you will stay in your own galaxy), we're way past that now.

Sun, 08/19/2012 - 15:14 | 2718611 Anusocracy
Anusocracy's picture

Debt jubilee is a completely asinine idea.

You are rewarding the useless idiots that voted for the alpha-male useless idiots that caused all this.

 

Sun, 08/19/2012 - 15:27 | 2718636 TIMBEEER
TIMBEEER's picture

Idiocracy. There is a whole movie dedicated to it. We're on a good way there, just keep on the good work with the food stamps and helicopter money.

Sun, 08/19/2012 - 16:22 | 2718729 Anusocracy
Anusocracy's picture

Government: anti-civilization, anti-evolution.

All that a moron could desire.

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