This page has been archived and commenting is disabled.

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.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sun, 08/19/2012 - 16:59 | 2718819 RockyRacoon
RockyRacoon's picture

The "article" is only a taste of the entire situation.  For a full understanding of how the Jubilee concept fits the current scenario you'd have to have all 12 pages of the current issue.  Your concerns would be diminished.

Sun, 08/19/2012 - 13:06 | 2718201 Arnold Ziffel
Arnold Ziffel's picture

<<...to spend ... as they see fit....>>

 

Good. I need only 4 more iPads and another Flat screen and I'll be even with my neighbors. I don't want to look poor.

See. I really I need that money. I may even buy anohter $450,000 house with $500 down and a near zero FHA loan...

And best of all, It's free !!

[PS: I hope this free gift does not interfere with my son's application for that $75,000 student loan for his Masters in basket weaving.]

Sun, 08/19/2012 - 15:35 | 2718651 TIMBEEER
TIMBEEER's picture

Oh, don't bother with the iPad. While you're touching your iPad in Facebook trying to look cool and smart, I'm actually touching and connecting with your wife who is bored of the iPhones and the virtual friends and, best of all, it's free!

Sun, 08/19/2012 - 13:16 | 2718205 Hannibal
Hannibal's picture

Paying off platonic debt with imaginary fiat currency (also debt),....fucking brilliant stupidity confirming fiat is fake and imaginary

A can't, won't or refusing to pay seem much more sensible and it starves the beast!

I'll stick with physical silver, real money with no counter risk.

Sun, 08/19/2012 - 13:09 | 2718227 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

Can I ask for a certain amount or is it just going to be blindly deposited in my checking?

Sun, 08/19/2012 - 13:12 | 2718236 e-man
e-man's picture

This suggestion may indeed work temporarily, but it is nothing more than a transfer of wealth from savers to spenders.  This is just the kind of simplistic solution to a complex problem that government "elites" love (i.e., if there is a healthcare problem, lets just force everybody to buy health insurance. Problem solved!)  I always thought that as the Fed continued to print, half the country would say "You can't stop printing or we'll all go hungry" and the other half would say "stop printing or we'll all be broke."  I do think the Fed will attempt some kind of debt jubilee in a more surreptitious manner, perhaps tax rebates from the future paid today.  We can not return to $1/gallon gasoline when the national debt is currently around $16 trillion.  It simply doesn't work.

 

Sun, 08/19/2012 - 13:26 | 2718282 TrustWho
TrustWho's picture

One fact, the money savers have loaned, will not be paid back in the same real dollars. World society can either deflate (creditor defaults), inflate or go to war.

Sun, 08/19/2012 - 13:26 | 2718283 americanspirit
americanspirit's picture

How about seizing the assets of the readily identifiable criminals in our society - people like Jon Corzine and Angelo Mozillo ( but the list is much much longer) and then divvying that pool of money up rather than the Fed printing money and giving everyone a check which is nothing more than a generational wealth transfer ( from the unborn to the undead).

Hey I know it isn't practical, but it sure sounds like fun. Maybe begin by having a nationwide poll to name the top 1000 individuals whose wealth should be seized, and than wham - just do it. Or maybe we can create that list here on ZH and save the gummint the trouble of doing the polling. Come on - who should be on the list. Gimme those names. Jaime. Lloyd. Both Kochs. See - it's easy.

Sun, 08/19/2012 - 13:35 | 2718321 css1971
css1971's picture

The point is the monetary system is based on debt. That has to change or you're wasting your time.

It's possible to pay back the debt and simultaneously move away from the fractional reserve banking which causes the debt/growth problem in the first place. Do it through control of bank reserve ratios.

The government continues to run a deficit (like that's a problem.) and the central bank buys all the issued bonds (as they're doing now) and then you start increasing the bank reserve ratios (the bit they aren't doing) to start bringing the leverage under control.

Continue till bank reserve ratios are 100%. Then stop the deficit spending (yeah right). Tada  you have full reserve banking and the leverage should be 1:1, not 30:1.

 

Sun, 08/19/2012 - 13:40 | 2718339 Neethgie
Neethgie's picture

Where is that idiot, who kept coming on zerohedge telling us to invest in bitcoins, note the hilarity bit coins just lost 50% of their value in 2 days, sorry i just want to laugh

Sun, 08/19/2012 - 15:13 | 2718608 slewie the pi-rat
slewie the pi-rat's picture

he got out 2 weeks ago and in doing shooters w/ robo_T in cabo for another week

wait!  someone thinks they saw them out in the hamptons drinking brunch this morning...

any guy in a bra...  seems to do for a "sighting" these daze...

Sun, 08/19/2012 - 13:54 | 2718387 monad
monad's picture

"We desire to set up a moral standard. There can be no delusion more fatal to the Nation than the delusion that the standard of profits, of business prosperity, is sufficient in judging any business or political question - from rate legislation to municipal government. Business success, whether for the individual or for the Nation, is a good thing only so far as it is accompanied by and develops a high standard of conduct - honor, integrity, civic courage. The kind of business prosperity that blunts the standard of honor, that puts an inordinate value on mere wealth, that makes a man ruthless and conscienceless in trade, and weak and cowardly in citizenship, is not a good thing at all, but a very bad thing for the Nation." Theodore Roosevelt, 1905 

Sun, 08/19/2012 - 13:59 | 2718408 gdogus erectus
gdogus erectus's picture

Oh no!  Not debt jubilee!  What about paying back all those electrons that put that money into some other banker's pocket when you bought that house!  What about the bankers collecting their interest payments from said "printed" bucks?  Then what?  Oh, the moral hazard of it all.

Funny, it sure seemed to work for Iceland when they threw out their central bankers, defaulted on their owed digi-bux and then, gasp!, let their citizens default on their mortgage debt!  Funny thing happens when you wipe out individual's debt - they start spending again.

At a MINIMUM - if we let individuals fail then let banks fail.  Same for bailouts.

Sun, 08/19/2012 - 14:04 | 2718430 tradewithdave
tradewithdave's picture

.... and fires can also be extinguished with gasoline. Who needs gold to extinguish debt anyway?

www.tradewithdave.com

Sun, 08/19/2012 - 14:07 | 2718440 markar
markar's picture

Where do I submit my acct & routing #? I'm debt free and there's some silver/gold coins at Apmex with my name on them.

Sun, 08/19/2012 - 15:06 | 2718583 slewie the pi-rat
slewie the pi-rat's picture

tyler & sac already have the vapor#z

so you're all set  ok?    _____ (initials)

Sun, 08/19/2012 - 14:13 | 2718463 JLee2027
JLee2027's picture

Pay down debt or Buy Silver (Real money) and destory the entire system, thus ending up debt free and semi-wealthy in the new currency.  Hmmm...what a choice.

Bottom line is anyone who actually thinks Bernanke will be sending us money is smoking the wacky stuff.

Sun, 08/19/2012 - 14:33 | 2718528 dolph9
dolph9's picture

Debt jubilee will never happen, because the debt is owned by the elites, and they would have to take a hit.

And if there's one thing that you need to learn, and learn well, is that the elites will do anything to avoid taking a hit.  They will militarize the whole country before they take a hit.

Mon, 08/20/2012 - 11:39 | 2720624 tip e. canoe
tip e. canoe's picture

alas, the "elites" are stuck in a prisoners' dilemma like the rest of us lowlifes.

perhaps this is why there might be a debt-for-equity swap being planned behind the scenes?

welcome to the ne0-feudal future?

Sun, 08/19/2012 - 14:38 | 2718536 phat ho
phat ho's picture

We Will..... Rape the horses; and ride off on thee women

Sun, 08/19/2012 - 14:39 | 2718540 LongSilverJohn
LongSilverJohn's picture

Hey, it's only money, as they say. Money, like love, should be free. Information should be free. Come to think of it, your car should be free (to me). Anybody got a problem with that?

Sun, 08/19/2012 - 14:50 | 2718559 swabeyjw
swabeyjw's picture

I see this as a financial structural issue that is not getting addressed due to a social structural issue. I also see that the options for innovation are massive.

Financial Structural Issue:

Money is created as principle on one side of the balance sheet. On the other side of the balance sheet (the owning side) is principle + interest. What is significant about this is that the interest is not created! Collectively this is unstable when money from new debt is not created at a rate to address interest owning. There is not a way to balance out the interest component without negative interest rates or terminal losses. With time there is a exponential bias to debt growth and instability if debt growth slows. Asset bubbles at the time of occurrence maybe innovations to extend what many are coming to feel is a flawed financial structure.

Structural social issue:

It appears to me economics at the level of financial structure has been off limits to politics and society in general. We have free markets, is the argument. Yes, perhaps we do but they are structured within the financial frame work that was decided by individuals and is not at this time subject to free markets - there is no money without debt for example.

I see a debt jubilee mechanism without the introduction of debt free money (or perhaps negative interest rates) as another extending mechanism. It will likely to help in the short term.

I fully expect goverment mechanisms for debt free money will end up evolving. From my persepective, I would like to see this socialized.

For example, perhaps we are required to report how much money we paid and earned in interest each year (banks included). We vote on the percent of this interest that will be printed as debt free money each year.

This money is averaged by citizen and returned not as cash but as assignment rights. Any entity with debts can appeal to be a benefactor. We are provided randomly 50 choices of exisiting debts to which we can assign this money.

Note the following banks that lend are still managing risk. People that borrow with the expectation of debt relief may not get the relief. The chances that you will not be arms length from your assignee can be managed by the number of random choices.

Sun, 08/19/2012 - 14:53 | 2718564 Freewheelin Franklin
Freewheelin Franklin's picture

Reset, bitchez.

Sun, 08/19/2012 - 15:03 | 2718581 monad
monad's picture

There is no debt jubilee. This would be the traitors putting us on the auction block to the highest bidder, in order to liquidate their debts & keep all they have stolen & laid claim to.

Sun, 08/19/2012 - 15:47 | 2718664 egoist
egoist's picture

They had a seg on NPR/MarketPlace about what kids were using their student loans for, really. Obviously, it's all over the place - cars, vacations, boobs... This Jubilee would be the same. The idea is quite goofy anyway.

Sun, 08/19/2012 - 15:47 | 2718666 brianshell
brianshell's picture

Read Steve Keen. Read Bill Still.

Debt jubilee is as old as Hammurabi.

Get over the idea that money is a store of value.

Outlaw government borrowing.

Mandate government issuance of money.

Outlaw fractional reserve lending.

 

Sun, 08/19/2012 - 20:13 | 2719192 linrom
linrom's picture

Steve Keen , Bill Still and Michael Hudson are some of the smartest economic populists. Interestingly none of them is also a goldbug.

Sun, 08/19/2012 - 15:57 | 2718679 Mr.Kowalski
Mr.Kowalski's picture

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

http://themeanoldinvestor.blogspot.com/2012/07/great-reset.html


Sun, 08/19/2012 - 16:01 | 2718690 Yellowhoard
Yellowhoard's picture

This is beside the point but,

Why aren't the Tyler's talking more about the Sentinal Circuit Court ruling?

Apparently, it is now perfectly legal for banks to receive stolen money with no recourse allowed on behalf of the victims.

This is the largest travesty of justice EVER.

Sun, 08/19/2012 - 16:11 | 2718706 Ungaro
Ungaro's picture

What an elaborate web we weave
when we Quantitatively Ease!

Sun, 08/19/2012 - 16:28 | 2718741 cosmictrainwreck
cosmictrainwreck's picture

well SHIT I feel like Rip van Winkle......what did I miss here? When did this happen? when is it GONNA happen? If there's no answers to those then WTF is this gum-flapping about? Everybody really that bored?

Just an aside, IMO, if they'd done that in 2009 at the start instead of paying off the fucking extortioners, we'd have 1/10th the problems we do now... oh well, tough shit, just another fantasy come & gone......

Sun, 08/19/2012 - 16:30 | 2718749 adr
adr's picture

Debt jubilee only for those with jobs. Not a single check for the welfare class.

Of course those who never worked a day in their life will demand equal payment.

Actually a better plan is to stop all welfare completely and allow working people to keep an extra 20% of their paycheck.

Sun, 08/19/2012 - 17:20 | 2718857 Peter Pan
Peter Pan's picture

You can print all the money you like but if there are not enough jobs and too many expectations as well as a string of governments that cannot control their purse, then I am afraid that you have simply attempted the equivalent of a motivational course in a hospice. It will perk things up for a moment and then we are forced back to dysfunctional reality.

Sun, 08/19/2012 - 17:28 | 2718863 Shelby Moore III
Shelby Moore III's picture

There is no debt jubilee, because the masses keep taking on new debt to replace the original debt. Thus the jubilee clock (7 or 50 years) is reset.

Those masses who are walking away from debt, are seeing an opportunity to downsize their lifestyle and escape the burden. But most don't choose this option, and instead choose to double-down on statism and debt-slavery.

There is very affordable land (for a cheap trailer) out in the hinterlands of America (as low as $1000 for a plot), but very few people are willing to downsize and revert their life back to subsistence, while they train themselves in some career or business on the internet which they could develop from some remote location, e.g. computer programming.

Sun, 08/19/2012 - 18:38 | 2718999 tongue.stan
tongue.stan's picture

The trillions in debt that are fucking up the economy do not belong to the people.

It is phony derivative debt, made up by phony hypergreedy ethically challenged people, who hornswaggled dumb corrupt politicians into taking on the alleged debt on behalf of the people.

Therefore, no need for a debt jubilee. Talk of jubillee legitimizes the ponzi.

K*l#l the motherfuckin bankers, and the debt disappears.

AU Guillotines and AG nooses, bitchez.

Sun, 08/19/2012 - 19:45 | 2719141 sadpanda
sadpanda's picture

Well if seventeen large financial firms got trillions in backdoor loans. I'm sure they'll do right rest of us muppets.

Sun, 08/19/2012 - 20:16 | 2719198 tlnzz
tlnzz's picture

Brace for impact.

Sun, 08/19/2012 - 20:31 | 2719241 Zgangsta
Zgangsta's picture

If this is the plan, then I'm quitting my job and creating ten new bank accounts every day.

Sun, 08/19/2012 - 20:48 | 2719272 kennard
kennard's picture

This article's proposal could be effected on a sovereign level in Europe. It would require printing at least 24 trillion Euros. The funds would be allocated to each country by GDP. Every recipent would be required to pay out its sovereign debt. That is the reason for the 24 trillion Euros. Greece's share would pay its sovereign debt at 100 cents on the dollar. Germany would pay out its sovereign debt and have several trillion to spare. The  Euro would be worth, say, half of what it is now, which would do wonders for exports. All funds advanced by the ECB to each country would be in the form of senior first-position very long-term debt with a low coupon. this would prevent each country from running further deficits, since it could not finance them. Any lender would be required to take second position, or worse.

"Sure, we'll pay out your debt. You just won't be able to incur any more."

Sun, 08/19/2012 - 21:33 | 2719385 radicall
radicall's picture

Apart from the inflationary impact it would have (at least for a couple of years), keep in mind that not everyone has a bank account. 

 

 

Sun, 08/19/2012 - 21:44 | 2719414 HungrySeagull
HungrySeagull's picture

SImply add three or four zeros to all checking accounts in the USA one time.

 

Or...

 

Simply taking Mastercard, Visa, Discover and Amex and paying the entire outstanding directly via the Treasury one time. (And then closing all of these accounts so that the cards cannot and will not be run up again.)

 

Or...

 

Taking control of the Utitlies across the USA and have the Electric, Water and gas bill paid by Uncle Sam.

 

or

 

Taking the entire Student Loan Outstanding and wiping it off. Make all University, Colleges etc not-for profit and submit direct to the Government what they can and will do to produce students graduation with useful and actionable degrees.

 

While eliminating outside immigrants on work visas.

 

Or...

 

Simply write off all debts and call it even one time. Schedule the next one in 60 years so that people will not depend on this as a way of being able to take advantage.

Mon, 08/20/2012 - 01:41 | 2719839 walküre
walküre's picture

Debt Jubilee? After the rapture, please.

Mon, 08/20/2012 - 01:55 | 2719849 Judge Arrow
Judge Arrow's picture

Debit Jubilee? Assuming governments write the ehecks, and create bureaucracies to verify the amounts to be written (oh, think of the forms to fill out!) there will another 50 bazillion owed --   inflation will be on a trajetory past the Voyager and when your check clears to pay off your debts  -  you will already be in hell. Bailiff, another round of drinks for the jury, thank you.

Mon, 08/20/2012 - 02:04 | 2719855 Element
Element's picture

 

 

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.

 

Scheesh!  Wot's everyone getting so fretty about?

Any one might think this is a completely untested experiment, or that CBs don't really know what they're doing, or don't know or care what constitutes the 'right' way.

Mon, 08/20/2012 - 17:15 | 2721732 Tracker8
Tracker8's picture

Actually ther is a plan which was launched in January 2012 which pays for itself.

And it delivers real benefits - direct to American families.

It is called the Leviticus25Plan.

It gives American citizens the same access to credit form the Federal Reserve

that major domestic and foreign money centers have been getting.

Do NOT follow this link or you will be banned from the site!