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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Disenchanted's picture

 

 

 

"repudiation"

 

Lets make this word much more popular. I'll guarantee banksters hate it...

 

Repudiate all odius (public) debt!

 

 

The Concept of Odious Debt

 

Odious debt is an established legal principle. Legally, debt is to be considered odious if the government used the money for personal purposes or to oppress the people. Moreover, in cases where borrowed money was used in ways contrary to the people’s interest, with the knowledge of the creditors, the creditors may be said to have committed a hostile act against the people. Creditors cannot legitimately expect repayment of such debts.

 

The United States set the first precedent of odious debt when it seized control of Cuba from Spain. Spain insisted that Cuba repay the loans made to them by Spain. The U.S. repudiated (refused to pay) that debt, arguing that the debt was imposed on Cuba by force of arms and served Spain’s interest rather than Cuba’s, and that the debt therefore ought not be repaid. This precedent was upheld by international law in Great Britain v. Costa Rica (1923) when money was put to use for illegitimate purposes with full knowledge of the lending institution; the resulting debt was annulled.

 

"Odious debt" is a narrow legal term that refers only to a very specific category of debt. However, some debt that is not odious may nevertheless be illegitimate.


 

I'd prefer repudiation over jubilee. To me accepting the form of jubilee in this article implies that the (public)debt was legitimate.

Private debt is another story...

KnowIDontKnow's picture

+1

The only way out of this crisis is for the total debt/income level (including private debt) to return to something closer to 100% from its current 250%.  It will happen, that much is certain.  The question is whether it will occur through a chaotic collapse or some sort of orchestrated process.  A debt jubilee where everyone gets the same benefit is way more fair than a collapse in which insiders get the information first and trade on it.

Things that go bump's picture

I don't see how this fixes the problem of a massive, intrusive, federal government that has become dangerous and can no longer be funded.  This will permit it to continue its trend of growing even larger and more intrusive.   

MillionDollarBoner_'s picture

"moral hazard"...wots that, then?

I thought that was a quaint and "barbaric" concept...

Silver Bug's picture

Debt jubilee's used to be standard practice. This is of course until the banksters took over.

 

http://ericsprott.blogspot.ca/

midtowng's picture

I wonder how they would force people to repay debts? I assume it is possible, I just don't know how.

Debts that can't be repaid won't be repaid. It's either this or massive defaults strung out over a very long period of time.

GMadScientist's picture

Liens. Stupid debtors won't ever actually see a dime.

analyzer_66's picture

it will never ever happen, Obongo does not understand anything related to economics and the monied interests would sooner take option B where we are all shooting each other in the streets over the last loaf of bread, gallon of milk or gas etc.  Besides this, Obongo is already taking care of all his bruthas with the EBT cards, so what if a brutha has 6 false identities so he can collect 6 times his share of welfare bennies in 6 different cities AND collect 6 income tax refunds..

once a violent civil uprising starts on US soil, the DHS has all the ammo they need to quell it

 

anonnn's picture

I deliberately interrupt to caution:

The Tyler-sponsor  and the author of this post seems to badly misunderstand the concept of "Debt Jubilee". It is an ancient term for a wise practice that enforces fairness on both the debtor and lender.

Please seek and learn the history/definition of Debt Jubilee.

Clinteastwood's picture

Yes, you have it right.  The borrower is the servant to the lender until the debt jubilee. What happens after that is........usually..........the borrowerer again becomes servant to the lender for seven more years.    Rinse, repeat.

Peter Pan's picture

The debt jubilee should not be through writing every person a check but by confiscating the close to 20 trillion dollars stacked away in secret bank accounts and havens across the planet.

malikai's picture

Bill, you should have also explained the other side of the Debt Jubilee. The side of the creditor.

mikla's picture

Agree, and +1 to you.

However, there *are* *no* creditors.  All creditors everywhere are insolvent, and will remain so after this "debt-jubiliee".

Pensions, Munis, banks, central banks, governments -- they are all insolvent.  Half of the S&P500 will still go-to-zero.

This will be the mechansim by which the "little-guy" exits the system -- although he'll exit anyway (through default, or after the "debt-jubilee", through future non-participation because all faith in the system is lost).

The issue is collateralization and leverage -- there is no scenario by which even this "jubilee" will de-lever the banks (it's a math problem).

Fundamentally, the banks are not accounting for loans-in-default.  They are still "booked" as "money-good", including the future revenue streams.  Even if the loan-today is paid-in-full, the problem is that the account is "settled" and that leveraged-future-revenue-stream does not happen, but the bank cannot pretend it will happen (because the account was settled).  The result:  Massive de-leveraging, as the banks must NOW acknowledge the future-debt-service-revenue will not happen.  (It won't happen anyway because the account is in default; but, the banks are not being forced to account for that default.)

So, the *worst* thing for the banks is for consumers to pay-off-their-loans, because it would trigger massive bank de-leveraging (they would have to perform mark-to-market now), as opposed to the current issue that all banks are leveraged-beyond-no-return, and lying about it.

Summary:  Loan paybacks means MASSIVE deleveraging.  The nominal amount "paid-back" is insignificant, because the current-accounting assumes future exponential debt servicing.

Humans have a hard time understanding exponential equations.

Mad Mad Woman's picture

FUCK THE BANKS!!

If they would've done proper accounting in the first place they wouldn't have to worry so much about de-leveraging. That's the banksters problems, not Main Street's problems. It's high time that Wall Street and the banksters pay for their mistakes. The chickens are coming home to roost bitchez!!

FUCK THE BANKS!!

mikla's picture

Agree on your first and last statements.

However, that's going to happen either way, and that's A Good Thing(TM).

The only issue is the mechanism by which Main Street "disconnects" from the banking system, which is something that will occur either-way.

centerline's picture

Likewise, the era of having your cake and eating too is going to end.  The real questions revolve around how it all goes down and what the best position will be to take (depending on circumstances).

financial apocalyptic contagion's picture

yea wtf

half-baked article left out the fact that most big players are debtors and creditors 10 times over

laozi's picture

Sorry, but I do not understand how that matters. Every person gets $10,000. If you have debt, you have to pay it off. If you are also a creditor you will receive money from a lot of people (paying off their debt). So?

Pool Shark's picture

 

 

Sounds brilliant; only one little problem:

money!=wealth

Printing and handing out $10,000 to every person does not create a single extra barrel of oil, ounce of gold, bushel of wheat, yard of concrete or spark plug.

Wealth is finite. All the infinite printing of "money" won't affect that. All it will do is dilute the value of "money" already in circulation and ultimately punish the responsible savers who didn't binge on credit. 

 

GMadScientist's picture

But it would extinguish the main reason that people are not out in the streets buying gold, wheat, oil, and spark plugs.

Debt is anti-wealth and needs to be handled one way or another. You can choose the "fair" way and accept the tears and bloodshed, or you can accept this way and continue to make nominal gains off selling to debtors.

The smart savers will choose a real store of value, some will choose the allure of the Ess and Pee, and others will spend it on increasinly expensive crap.

mikla's picture

His point is the leverage:  Creditors will receive $10K, but still owe $100M.  So, what they receive is insignificant.

Further, this "settling-of-accounts" will force creditors to "mark-to-market" their accounts-as-they-are-settled, and that will force their insolvancy, because their "$10K/$100M" will be forcibly reported.  (They only exist today because they do not perform this accounting.) <for more info, see comment above>

bank guy in Brussels's picture

And then there is God's side of the debt jubilee:

« And the Lord spake unto Moses in mount Sinai, saying ...

 And ye shall hallow the fiftieth year, and proclaim liberty throughout all the land unto all the inhabitants thereof: it shall be a jubilee unto you; and ye shall return every man unto his possession, and ye shall return every man unto his family. ...

And if thy brother be waxen poor, and fallen in decay with thee; then thou shalt relieve him: yea, though he be a stranger, or a sojourner; that he may live with thee.

Take thou no usury of him, or increase: but fear thy God; that thy brother may live with thee. »

- The Bible, on the jubilee every 50th year, with forgiveness of all debts, and liberation of all slaves, Leviticus 25

boogerbently's picture

IF giving out TRILLIONS of dollars, to inject into the system is the cure, then I am MORE in favor of sending checks to taxpayers, than to the bankers that caused the problem in the first place, and HAVEN'T "shared the wealth" with the LAST 2 "easings".

FreedomGuy's picture

I agree. Actually, nothing should be done in an ideal system, but all the world is government run and centrally planned now. This is what you get with academics who suppose themselves gods. This will never end until people believe in themselves again.

Given that we are in a never ending break-misdiagnose-fix-repeat system I'd rather have the direct injections than Goldman Sachs and JPM. However, those two like to get their hands on the fake money first. The reason is, whoever gets the fake money first spends it the closest to the real money value. It's like being in a game of Monopoly and stealing $5k from the bank when no one is looking. The money makes its way into the game and property prices go up but whoever got it first buys at the original prices. In essence, you steal a march on your economic competitors.

So, if we are going to be economically stupid, then send it to the average citizen...I suggest actual taxpayers, only.

Debeachesand Jerseyshores's picture

I agree,instead of giving Trillions of Taxpayers money to the corrupt Banksters etc to cover up their Gross Insolvency and Criminal activity.

 

The TARP should have went to the Taxpayers who filed 2007 Tax Returns and that would have injected money directly into the system and not pay for Bonus to the corrupt Banksters.

Taxes would have been directly withheld from those checks to pay Federal,State and local taxes,plus FICA and Medicare.That would have helped various State and local governments to fund necessary critical services and avoid short term expensive financing for these governments.

It would have lessen some of the damage cause by the housing bubble and overall help many small businesses to keep the lights on and help alleviate high unemployment.

 

 

boiltherich's picture

Too bad that tomb is a work of superstitious fiction and there is no war-god in the sky to back up the promises made in it.  Only children, the mentally ill, the grossly stupid, or the emotionally crippled would live according to the psychotic ramblings of some Jewish tribal leader dead more than 2,500 years.  On second thought, maybe it is a good thing there is no serial killer psycho with all powerful abilities to do the promised killing and vengence and shit because in 54 years I have yet to meet a person that actually lived up to the expectations stated in that indecent collection of bullshit (especially those that claim to live by it).

Disenchanted's picture

 

 

 

Can I get an amen up in here!? (@ what boiltherich said)

 

bank guy said "Moses...jubilee...the land...etc."

 

That jubilee and not using usury against a "brother" only applied to a certain land and a certain group of people. Israelites of the Old Testament, worshippers of YHWH.

They could/can usura the hell out of anyone else that wasn't/isn't the 'chosen' of YHWH. "They" in the present tense refers to the group that misappropriated the title of YHWH's 'chosen' because their ancestors converted to the cult of YHWH back around the time of 700 - 800 AD...and specifically the even smaller group of 'they' that hide behind the trappings of that cult.

Those whose name cannot be spoken...

 

"To learn who rules over you, simply learn who you are not allowed to criticise." — (attributed to)Voltaire

boogerbently's picture

Mark 3

24 If a kingdom is divided against itself, that kingdom cannot stand. 25 If a house is divided against itself, that house cannot stand.

GMadScientist's picture

And if zero is divided against itself you get +/-INF.

falak pema's picture

thats ironic even incongruous for a "bank guy". 

Hype Alert's picture

Exactly and he didn't even fully explaining the side of the debtor.  The moral hazard this would create is exactly the same as what the market is demonstrating with the expectation of QEx, QEy, QEz, etc.  The article on the side of the creditor should be titled "The Feedback Loop", what happens when creditors are paid back in worthless currency.  It will be no different than negotiating a default/bankruptcy where you settle for $.10 on the dollar.

hangemhigh77's picture

Giving the people money and not some bankster piece of shit? Never happen. imagine how many yachts and mansions Jamie Dimon could buy as opposed to allowing entire families remain in their homes and not be thrown out on the street homeless and hungry? No, bailout the banks, it's the only option for crooked lying scum like Oboner or Rombot, they need more yachts. Who cares about the people of Amerika, they've been sold out long ago, give them more bread and circuses.

john39's picture

in the end, they may do something like a jubilee...  because its not really about money, but rather power...   a jubilee would leave the parasites in power... true they would like to crush your spirit a bit more by destroying the world economy further first....   this makes it easier to control humanity (look at the rise of dictators after world war I).   its all about power and control.

hangemhigh77's picture

I agree, money means nothing to them it's printed on paper out of thin air, they use it as their weapon of power over the people.  I agree, before silver or gold is money they will push the fiat lie as far as possible.

JPM Hater001's picture

"money means nothing to them"

"money means everything to them" - there...fixed.

Money is their tool.  It means nothing as a currency perse but everything as a tool to control.

hangemhigh77's picture

Let me clarify, money means power to them.

hangemhigh77's picture

Gee isn't that exactly what they did for the banksters?  And they did what with it? Gambled and gave themselves bonuses.

hangemhigh77's picture

Just give everyone a million dollars and have it come out of the bank's pocket. Wipe out the banks and give the proceeds to the people that they've been defrauding for decades.

AssFire's picture

This is simply devaluation with a little forgiveness, as tried by the Brits...to a further disastrous end.

Mad Mad Woman's picture

The Brits didn't do shit, they made their own problems and gave the people nothing and didn't do anything for the people. Don't give me that tried by the Brits bullshit.

analyzer_66's picture

the Brits did do the LIBOR fixing, and LIBOR is still being used to set mortgage rates, credit card rates, car load rates and numerous other rates for all kind and manner of consumer and commercial loans

government intervention fails, we cannot legislate economic recovery, start a recovery by ending the federal reserve control of interest rates and the money supply, set interest rates to shadow the rate of interest paid on US treasury bonds, let big banks and auto makers fail if they cannot exist without government interventions

brettd's picture

Failing to learn the lessons of financial failure, will only lead to a repeat event. 

Remember that 90 percent of Americans are current on their mortgages.

Do we really want to let the failings of a few drive the policy for the many?

RockyRacoon's picture

You've stopped too soon.  The game is only in half-time. 

"Do we really want to let the failings of a few [banks] drive the policy for the many [citizens]?"

The final play is a long time from now.   The moral hazard that has already been perpetrated could actually be offset by some of the same medicine for the general populace.   At least a sense of balance would be restored.   It'll be chaotic for sure, but wouldn't it be a fun ride?

This natural sense of "fairness" is what is now missing.

Here is a fuller explanation:

Punishing Cheaters Promotes the Evolution of Cooperation

Troy Ounce's picture

 

 

 

I want the representative of status quo brought to the guillotine. Do whatever you want afterwards.

 

Blood! The system must come down!

 

Things that go bump's picture

The government seems to believe that they have the wherewithal to triumph this time around.