Modern Jubilee

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Description

Steve Keen:


"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."


Characteristics

Steve Keen:

"The broad effects of a Mod­ern Jubilee would be:

  1. Debtors would have their debt lev­el reduced;
  2. Non-debtors would receive a cash injec­tion;
  3. The val­ue of bank assets would remain con­stant, but the dis­tri­b­u­tion would alter with debt-instru­ments declin­ing in val­ue and cash assets ris­ing;
  4. Bank income would fall, since debt is an income-earn­ing asset for a bank while cash reserves are not;
  5. The income flows to asset-backed secu­ri­ties would fall, since a sub­stan­tial pro­por­tion of the debt back­ing such secu­ri­ties would be paid off; and
  6. 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."

(https://www.debtdeflation.com/blogs/manifesto/)