At the end of every seven years you shall grant a remission of debts. This is how it is to be done: Every creditor shall cancel the loan he has made to his fellow Israelite. He shall not require payment from his fellow Israelite or brother, because the LORD's time for cancelling debts has been proclaimed.
- Deuteronomy 15:1-2
I brought again to Athens; yea, and some,
Exiles from home through debt's oppressive load,
Speaking no more the dear ATHENIAN tongue,
But wandering far and wide, I brought again;
And those that here in vilest slavery
Crouched 'neath a master's frown, I set them free.
- Solon
The IBBC is a bank. Their objective isn't to control the conflict, it's to control the debt that the conflict produces. You see, the real value of a conflict, the true value, is in the debt that it creates. You control the debt, you control everything. You find this upsetting, yes? But this is the very essence of the banking industry, to make us all, whether we be nations or individuals, slaves to debt.
- Umberto Calvini, The International
So, it seems at least, a consensus on the solution to the economic crisis has been reached. After the shameful, naked theft that was the "bailouts" for the banks, principle agents in causing the crisis, it has been decided everyone else is going to be punished with austerity measures – cuts in government spending. You may have noticed a double standard here.
However, it is not entirely unexpected. Like chimpanzees transfixed by fire, our leaders ascribe magical properties to money, both fearing and revering it. However, unlike our primate relatives, our leaders think they are sufficiently smart to control and use money, through certain ritual actions and intentions. Which I suppose makes them more akin to medieval alchemists, a slight improvement.
These rituals usually have something to do with the illusion that cutting spending and paying off the national debt will spontaneously result in an economic recovery. A few minutes thought will show how utterly ludicrous this belief actually is. This false belief is usually accompanied by the equally false one that national debt is a vengeful and godlike being, with the power to utterly destroy a country if not appeased.
The truth is much less disturbing in many ways, but more in others. For example, no nation has ever become rich through paying off it's debts.
Contrary to this, defaulting or renegotiating on one's debt has often been the start of a remarkable economic recovery. The most remarkable of these is Athens. You know, the cradle of democracy, the great Classical influence on western civilization. Athens, in 6th century, was a mess. The Eupatridae, powerful aristocratic oligarchs, were running the city into the ground through their short-sighted and oppressive economic practices. Using debt as a weapon, they disenfranchised large numbers of the Athenian population, where political representation was based on ownership, as in many ancient cultures. Many citizens were enslaved, and those who were not had no way to reverse this trend.
In such a situation, civil war was a likely result. The poor are pissed and have nothing to lose, and massively outnumber the ruling Eupatridae. The situation was very unstable, and the city was in poverty, the aristocratic class aside.
In this situation, a reformist aristocrat with democratic inclinations, Solon, was made archon and awarded temporary dictatorial powers to deal with the crisis. His actions were to cancel all the debt, break up the power of the Eupatridae by giving out land to the disenfranchised and reforming the Athenian political system so people of every class (except women, slaves and foreigners, naturally) would have a say. And soon afterwards, Athens entered what is commonly considered it's Classical period, where it became the central power of Attica, a rich, prosperous, powerful and culturally and intellectually rich nation which stood as an inspiration to the Ionian Greeks, Romans and, eventually, Enlightenment era political philosophers such as those who justified the French Revolution and helped found America.
Other examples exist, including Henry IV of France and, more currently, Mexico in 1982. Last time I checked, Mexico is not an international pariah in the eyes of international finance and investment. It does have problems, but these come from another source, mainly being the transit route for almost all drugs from central and South America.
If a businessman cannot pay a debt, there are regulations to help them renegotiate or default. Yet the debts of nations are treated as sacrosanct contracts, despite the fact that in the case of nations, the only regulatory authority that exists are nations themselves.
This debt threatens to become crippling when the borrower's cash flow can no longer pay off the interest on the loans. When that has happened, the point of no return has been reached. As such, when that state is reached, cutting costs to pay for the debt will only provide marginal returns. But these are savings, not cash flow, and so not a viable solution. Furthermore, paying off the debt is not an economically productive activity. It makes the lender richer, to be true, but the lenders are already very rich and, especially in the current political climate, restricting the loans they are making for various reasons (mainly blackmail against central banks and governments). In fact, the more successful a nation is at paying off it's debts, the more damaged it's economy is going to be, as those are payments which are not going into education, relief programs, maintaining infrastructure and other activities which produce economic value.
A good example of what happens when one attempts this ritual austerity cure is the end result of Thatcher's Britain. Endemic unemployment, economic stagnation and a stunted industrial sector are the end product, along with an artificially inflated financial services sector.
Furthermore, international debt has the effect of making us all poorer. Debt to the third world prevents the growth of third world economies and the necessity of various aid packages and foreign aid to countries which are in fact very resource rich and, on paper, quite capable of feeding and looking after their own population. The vast majority of the Third World is therefore a cash-flow dead zone, dead weight on the global economy.
Debt is a form of control. If the ancient Greeks and Israelites, to speak nothing of various Enlightenment philosophers who our pundits pay facile lip service to, were able to understand the basic nature of debt, why is that realization impossible now? Debt is useful, in controlled scenarios, but when it gets out of control, as it clearly has done and threatens to engulf us all, then it should be treated in the way it has in the past – by dismissing it entirely. A clean slate, which unlocks the real wealth of the people, allows for spending and creates the kind of commercial culture I'm sure many of us here prefer to the crushing grind of poverty and disconnect between the average person in the street and the ultra-rich modern day oligarchs who run the show.
Of course, I don't expect this to be implemented anytime soon. The ideological indoctrination of the last thirty or so years have been highly effective, more so than I ever expected. And there are too many vested interests who would lose a lot of power in any such reformation of the global financial system.
But that's OK. Indoctrination only works so far and everyone has a breaking point. If they aren't willing to negotiate now, they'll be trying it later with angry mobs who, I believe, are not known for their rational and reasonable approach to such disagreements.
so basically we should tell China to fuck off?
You know, I never really understood the whole point behind Third World Debt Forgiveness other than just being nice.
Thanks Cain, that was well written and makes a lot of sense. Even if it does justify Bono.
Well, China itself has massive debts (http://www.businessweek.com/magazine/content/10_32/b4190014454795.htm) it needs to pay. Most debts, nationally and internationally, eventually go back to international banks.
Quote from: Doktor Alphapance on September 09, 2010, 03:52:42 PM
You know, I never really understood the whole point behind Third World Debt Forgiveness other than just being nice.
Thanks Cain, that was well written and makes a lot of sense. Even if it does justify Bono.
Personally, I think most of those artists don't understand why it should be done either, except to boost their image and press exposure, and because it's "nice", or else they'd be campaigning for total debt forgiveness. But no problem.
Cain, I really enjoyed reading this. Thanks for writing it.
ok, so we tell these be multi-national corps to fuck off.
And they all have debts to each other. Which is why it'd be really sensible for them to do it as well. Of course, it would also be sensible not to bet sums of money twice the size of the national economy on risky outcomes, but that hasn't stopped them so far. Sometimes you need to beat someone into accepting their own best self-interest.
So which bill currently on the floor of the House or Senate will do this, so I can tell my Representative or Senator to support it? Oh, right.
Our system was such a nice system. Too bad it's hopelessly infested with lawyers and bankers.
great essay, Cain. You draw a very strong distinction between the economic crisis and the national debt, a relationship about which I was unclear.
QuoteFurthermore, paying off the debt is not an economically productive activity. It makes the lender richer, to be true, but the lenders are already very rich and, especially in the current political climate, restricting the loans they are making for various reasons (mainly blackmail against central banks and governments). In fact, the more successful a nation is at paying off it's debts, the more damaged it's economy is going to be, as those are payments which are not going into education, relief programs, maintaining infrastructure and other activities which produce economic value.
:mittens:
Vex, I did point that out, at the end of the rant.
Several rather prominent economists have suggested, in that kind of tentative tone which suggests they know they are right but are running so far against the orthodoxy that they might lose tenure, that some kind of debt relief would be a good idea. Which is a start, I guess, or at the very least ensures they will be spared come the Revolution Angry Mobs
Thanks Cram and Freeky. Also remember this crisis was a direct result of subprime debt. So yeah.
Does this mean that we should follow the addage of "deficits don't matter"?
That's not a gotcha question, I'm just wondering if the republicans got that one right.
Quote from: Cain on September 09, 2010, 04:10:38 PM
Vex, I did point that out, at the end of the rant.
Several rather prominent economists have suggested, in that kind of tentative tone which suggests they know they are right but are running so far against the orthodoxy that they might lose tenure, that some kind of debt relief would be a good idea. Which is a start, I guess, or at the very least ensures they will be spared come the Revolution Angry Mobs
Thanks Cram and Freeky. Also remember this crisis was a direct result of subprime debt. So yeah.
What's a subprime debt?
Quote from: Doktor Alphapance on September 09, 2010, 04:13:14 PM
Does this mean that we should follow the addage of "deficits don't matter"?
That's not a gotcha question, I'm just wondering if the republicans got that one right.
Well, ideally, you should be trying to spend within your means anyway, that would strike me as a sensible approach.
I think it's best to say deficits don't matter if you intend to default on payments. If you intend to actually pay them back, as most Republicans seem to, then yes, they matter a lot, for all the reasons stated above.
Quote from: Mistress Freeky, HRN on September 09, 2010, 04:14:13 PM
What's a subprime debt?
http://en.wikipedia.org/wiki/Subprime_mortgage_crisis
Ohhhhhhh, that. Yeah.
Ok, I understand. I'm kind of a doofus when it comes to economics.
Most economics is complicated jargon masquerading as a fiendishly difficult to understand science.
Once you eliminate the jargon, it becomes a lot easier to understand.
If a country said, "screw this, we ain't payin'," could that be considered a hostile act, and spark a war?
Quote from: Doktor Alphapance on September 09, 2010, 04:42:48 PM
If a country said, "screw this, we ain't payin'," could that be considered a hostile act, and spark a war?
Probably depends on who says it. If the US said that, it would probably not spark a war, just a complete global financial collapse that would kill more people than a war.
Quote from: Doktor Alphapance on September 09, 2010, 04:42:48 PM
If a country said, "screw this, we ain't payin'," could that be considered a hostile act, and spark a war?
Maybe, but unlikely. More likely, it would would encourage further defaults.
Simply because a keyword is absent from this thread thus far:
Jubilee
the disruption that this would cause would be fantastic...
i support it.
I really enjoyed this.
It comforts me to know that there's a perfectly good solution that nobody is using.
Why don't they, again? Where does this indoctrination, that paying the loan will make it all better, come from? The subprime crisis being the start, did international lenders, and/or the US who gave the bailouts, say, "ok, we'll take that for you. Make the check payable to..." or is it some moral/ethical concept everyone just accepts for no good reason
Is it a bit of both?
Thanks Iptuous.
Alty, that's a good question. The only rooted moral objection related to loans in Judeo-Christian culture that I can recall is ursury, so it's definitely not an old phenomenon.
My belief is that it has to do with Chicago School style neoliberalism (http://en.wikipedia.org/wiki/Chicago_school_of_economics), or at least a vulgarized version of it popular in certain financial policy circles. They're ideologically disposed towards cutting government spending, which isn't always a bad thing, but is when it's your only solution to every single financial problem. And of course part of cutting government spending involves selling off public services, usually very cheaply, there is a significant business interest in making sure the government feels panicked about loans.
Quote from: Doktor Alphapance on September 09, 2010, 03:52:42 PM
You know, I never really understood the whole point behind Third World Debt Forgiveness other than just being nice.
There's also the consideration that a lot of the third world debt was racked up by dictators that overthrew (somewhat) legitimate governments, and left their bills to the country after they finally died/were overthrown (Liberia and Haiti for example).
Cain, an excellent read and theory.
I, for one, agree to forgive all debts held to me in exchange for being forgiven all I'm owe.
EoC,
Just made 60k hypothetical dollars.
Seriously though Cain, this was a good read, thanks.
Very interesting.
Are there any mainstream advocates of this position?
Quote from: Eater of Clowns on September 09, 2010, 11:23:45 PM
I, for one, agree to forgive all debts held to me in exchange for being forgiven all I'm owe.
EoC,
Just made 60k hypothetical dollars.
Seriously though Cain, this was a good read, thanks.
I'm slightly less comfortable with it, as the only American left who has more money in savings than in debt.
are you owed money, such that you would lose out were a widespread debt forgiveness declared?
You should take out 20-30 massive loans right now, just in case they delcare a debt amnesty tomorrow.
/winning streak of good financial advice officially over.
Quote from: Iptuous on September 10, 2010, 02:43:44 AM
are you owed money, such that you would lose out were a widespread debt forgiveness declared?
My total debt is 36 dollars (currently in dispute). And the bank lends out my money to other people. Mind you, the humor value alone would be worth losing my savings (which are damned small anyway, thanks to living off em for 6 months).
i don't believe that debt forgiveness would include the wiping of savings from accounts...
Quote from: Iptuous on September 10, 2010, 03:35:28 AM
i don't believe that debt forgiveness would include the wiping of savings from accounts...
It would when the banks crash.
Aha! I knew I heard about something like this from ancient times:
http://en.wikipedia.org/wiki/Jubilee_(Biblical)
I'd love to see some teabaggers try to wrap their head around *that* part of Leviticus.
Quote from: vexati0n on September 10, 2010, 03:44:13 AM
Quote from: Iptuous on September 10, 2010, 03:35:28 AM
i don't believe that debt forgiveness would include the wiping of savings from accounts...
It would when the banks crash.
but, but, but.....
it's all
insured by fdic!
:lol:
The debt the banks owed would also be wiped out, so the crashes should be minimal, as I understand it. It would be an entirely clean slate, for everyone. Banks, corporations, governments and citizens.
Net, there is some mainstream support for this, yes. A prominent Australian economist whose name escapes me caused waves about a year back by proposing this as the only viable solution to the economic crisis, and he got some support in academic circles. I know this is very vague, but it was a long time ago sorry, and I didn't save the article in question.
hmm...
honestly, with fractional reserves, wouldn't the only money that is left in the system be the high powered money (M0)? i would think a massively deflationary act like this would crash the game PDQ...
of course, i still support the notion, just saying i don't think it would be anywhere near painless....
It's possible, it depends on exactly how much the bank is owed compared to how much it is owing and it's real estate/currency/company investments.
However it is also worth considering that with everyone's debt forgiven, the need for banks would reduce dramatically, at least in the short term. And others would likely step into that space in the meantime, being newly enriched as they are.
It's hard to say though without an accurate look at bank account records which, of course, isn't going to happen.
This could have long term negative impacts on future lending by banks. They are going to refuse long term (mortgage, business, etc) in favor of the much shorter loans.
That could really hurt the economy.
CB, i would think that it would definitely cap the loan terms to 7 years if we actually implemented a regular 7 year jubilee, for obvious reasons. Even if we just did it once, it would have a hell of a dampening effect for fear of it happening again, with a trail off that i don't think could be predicted.
a lack of lending, in the current setup, is certainly puts the kibosh on an economy. but if this were actually implemented, i think it would be a whole new world economically, and trying to predict the outcome would be impossible.
i guess that's my take on it, in the end. the current system is so complex, monstrous, and calcified at the core, that any large disruption would crash it like a house of cards.
we need this bill in congress stat. :evil:
I am going to think on this for a while. The destruction of the housing market and small business would have long reaching effects.
The fact that money is owed is not the problem. It's the fact that debt is used as collateral on more debt, and then that debt is used as collateral on still more debt. A bank lends one dollar, and uses the value of that dollar plus interest as collateral against a loan it takes out in order to loan more money and repeat the process, even though that first dollar hasn't been paid back yet.
Even if that first dollar is payed back with interest, it's not enough to cover the cost of the other loans; if even a single loan fails to be paid back, the entire system collapses (in theory). Banks value themselves based on the amount of debt they control; and they trade this debt back and forth between each other in order to generate more loans. The only people who ever end up owing actual money are the poor schmucks who took out loans to actually use the money, a.k.a. the Middle Class. When you receive the check for a loan you take out, that is the first time that money ever actually existed as money. Before that check was printed, those dollars were basically just a nebulous idea based on calculations and expectations. It didn't really exist.
The Middle Class is then stuck with the bill for an out-of-control lending system. They are the ones who do the work that generates actual wealth; and all the wealth they generate is already owed to banks who created loans out of thin air.
Canceling debt is the logical thing to do because it dismisses the banks as the parasites they are and frees people who are generating wealth to use it directly, rather than forcing them to push it through the Gigantic Bullshit Machine known as the banking system, and get literally less than nothing in return. It'll never happen, though, at least not until there's nothing left to suck out of the Middle Class anyway.
Between you, Cain, and Vex just now, I think you have have won me about six rounds of debate. Holy fuck, this is going to be useful. Really interesting, too. I hadn't know much of what you talked about and I'm not sure I would have put it together.
Do you have any links handy? I want to get to know this information as thoroughly as possible and whatever you might have will at least get me started.
I will respond when my head is clear tomorrow.
Quote from: Iptuous on September 10, 2010, 03:27:37 PM
CB, i would think that it would definitely cap the loan terms to 7 years if we actually implemented a regular 7 year jubilee, for obvious reasons. Even if we just did it once, it would have a hell of a dampening effect for fear of it happening again, with a trail off that i don't think could be predicted.
a lack of lending, in the current setup, is certainly puts the kibosh on an economy. but if this were actually implemented, i think it would be a whole new world economically, and trying to predict the outcome would be impossible.
i guess that's my take on it, in the end. the current system is so complex, monstrous, and calcified at the core, that any large disruption would crash it like a house of cards.
we need this bill in congress stat. :evil:
This is bugging me now because it's triggering something i'm having trouble articulating. I remember hearing of something (it possibly was even the jubilee example, and i think i may have read it in Freakonomics) but the example was of a cylcle by which debts were routinely repaid. (Could even have been Islamic.)
The point was that the whole thing had MASSIVE issues because everyone always tried to fuck eachother; borrowers would try to avoid repayments for long enough to have debts repaid. Lenders would get crazy and intimidate and harass borrowers approaching the forgiveness period.
So as for routine debt forgiveness... uncertain.
Jubilee happened every 50 years in Israel, and it was not an across-the-board debt forgiveness, it was a specialized sabbatical year in which all debts were mandatorily repaid: loans were repaid, leased land was returned to the owner, etc. Basically anything that had been borrowed had to be given back to its owner. Things like interest and rent were prorated based on how long it was until the next Jubilee year. So it wasn't just "every 50 years, all debts were erased." All debts were erased, because they had to be repayed by the borrower in that year. Or else... Being Israel 2500 years ago, I assume the penalty for failing to repay a loan during Jubilee was stoning or something. Also I expect they worked out lots of "technically repayed with more borrowed money" schemes in order to avoid the whole thing.