"Michael Hudson’s simple phrase that “Debts that can’t be repaid, won’t be repaid” sums up the economic dilemma of our times.
The only real question we face is not whether we should or should not repay this debt, but how are we going to go about not repaying it?
We should, therefore, find a means to reduce the private debt burden now, and reduce the length of time we spend in this damaging process of deleveraging. Pre-capitalist societies instituted the practice of the Jubilee to escape from similar traps (Hudson 2000; Hudson 2004), and debt defaults have been a regular experience in the history of capitalism too (Reinhart and Rogoff 2008).
But a Jubilee in our modern capitalist system faces two dilemmas. Firstly, in any capitalist system, a debt Jubilee would paralyse the financial sector by destroying bank assets. Secondly, in our era of securitized finance, the ownership of debt permeates society in the form of asset based securities (ABS) that generate income streams on which a multitude of non-bank recipients depend, from individuals to councils to pension funds.
Debt abolition would inevitably also destroy both the assets and the income streams of owners of ABSs.
We therefore need a way to short-circuit the process of debt-deleveraging, while not destroying the assets of both the banking sector and the members of the non-banking public who purchased ABSs. One feasible means to do this is a “Modern Jubilee”, which could also be described as “Quantitative Easing for the Public”.
A Modern Jubilee would create fiat money in the same way as with Quantitative Easing, but would direct that money to the bank accounts of the public with the requirement that the first use of this money would be to reduce debt. Debtors whose debt exceeded their injection would have their debt reduced but not eliminated, while at the other extreme, recipients with no debt would receive a cash injection into their deposit accounts."
"The broad effects of a Modern Jubilee would be:
- Debtors would have their debt level reduced;
- Non-debtors would receive a cash injection;
- The value of bank assets would remain constant, but the distribution would alter with debt-instruments declining in value and cash assets rising;
- Bank income would fall, since debt is an income-earning asset for a bank while cash reserves are not;
- The income flows to asset-backed securities would fall, since a substantial proportion of the debt backing such securities would be paid off; and
- Members of the public (both individuals and corporations) who owned asset-backed-securities would have increased cash holdings out of which they could spend in lieu of the income stream from ABS’s on which they were previously dependent."