Well, in lieu of complete debt forgiveness why not just give every tax payer an amount of fresh fiat currency.
Just to pick an arbitrary method...........how about linking it to the amount of tax the individual paid over their lifetime.
I know it has many more moving parts than that but at least everyone gets a benefit and not just the prodigal sons and daughters.
I have no debt and have always paid the debt that I have incurred. I lived much differently than the squandering fools over the years and I resent wholly any get out of debt free card at my expense.
Talk about a moral hazard!!!!!
Having said my peace I do think that the system is rigged to fleece the have nots by the haves and that is what needs attention. I just don't think it is fair at all to penalize prudence.

1) If the prudent individuals are not compensated in some way it will destroy the fabric of an already tattered and fragile society.

2) I think even at this point it is plain to see that the creditors are usurious vampires with no moral conscience what so ever so they are already stigmatized. Former debtors that get off the hook will be hard to indentify "socially". I mean walking down the street I can't tell who is up to their eyeballs in hock plus they are in the majority.

3)Everything will ramp economically including oil production..........this is not a long term desirable.

4)I don't think that inflation is going to work. The US economy is a hollowed out shell with hardly any meaningful occupations.
All Americans do is borrow and buy. Until we re-industrialize and produce nothing will matter.

Interesting post, Nate.

My take on it is that a new approach to Equity (I was intrigued to see Taleb advocating this in the FT the other day) will actually make debt obsolete.

The current position is that credit - in the form of IOUs issued by credit intermediaries - has been monetised. That is to say, that we assign value to something which is the exact opposite -a claim over value. Emissions trading and carbon credits are the same - the political attribution of value to something intrinsically worthless.

Now, >97% of this bank money=credit is interest-bearing - and dated. ie there is a repayment date.

The balance <3% of this money is not interest-bearing, and is undated ie notes and coin.

This undated money is "redeemable". It used to be redeemable for something of value ie gold - but that ended in 1971 and now a note is just redeemable for....errr....another note.

I advocate the creation and issue by energy producers of Units redeemable for value or "money's worth". In particular I advocate Units redeemable for electricity - and for as long as carbon-based fuels are in use - in such fuels.

Moreover, it is also possible to create Units which are redeemable for the right to occupy location. Almost two thirds of money ever created came into existence as mortgage loans ie it is credit issued by credit intermediaries and backed by location/land rental value.

Whatever the basis of the Units, transactions may take place by reference to a Unit of measure or "Value Standard" consisting of a unit of energy. The result of this is, as I posted here before, a form of Energy Accounting, but with far more value in circulation than just energy.

As I said here

REIT Way to solve the Credit Crunch

there is IMHO quite a simple solution to the Credit Crunch, and that is to create Pools of affordable rentals and unitise them into what are essentially REITs where the units are redeemable for the right to occupy land/location.

And as I said at the recent All Energy show in Aberdeen

Supergrid - Energy Pool

the Unitisation and forward sale of renewable energy and energy savings enables us to fund the massive investments needed. This is because issuers of Units are receiving value now in return for Units they issue which will cost them nothing to redeem in the future.

The outcome of what is essentially a Debt/Equity swap on a large scale could be seen as a form of Jubilee. It leads to forms of money based upon value and which give us credit which is not so much "debt-free" (debt is the flip side of credit) but what I may term "date free".

I believe that a new networked financial architecture

Money 3.0

is capable of spreading virally, firstly because its consensual nature (a partnership framework) means no legislation is necessary, and secondly because it benefits from the "Cooperative Advantage" of not having to pay returns to purely financial investors.

We may turn neoclassical MSM rhetoric on its head. In a P2P world there is simply no need for "unproductive" rentier shareholders for investment, while for credit - as Gilmore (almost) put it - "the Internet interprets Banks as damage and routes around them".

I believe there will be a debt jubilee,both on a national and global scale.But it won't be in any sense be by consensus or organized.It will be a global scale mess as a result of economic and resource meltdown and it will not play out well for the reasons outlined in the article.

If the current ruling hierarchy can't get their act together on virtually any scale as amply demonstrated so far then how could they possibly negotiate a solution to the debt crisis?
Pigs might fly.I think this fundamentally answers questions 1 to 4.

1. How likely is a 'debt jubilee', either between countries, or between internal classes of creditors within say, the United States?

As a voluntary political choice, this seems even less likely than an actual revolution, given the feudal calcification of the entire system. It could probably happen only in the context of some such upheaval.

Still, I can't imagine any sane person thinks the public debt, entitlements, or a significant portion of private debt is ever going to be paid off. This can't even be serviced for much longer.

I think the debt jubilee will simply be imposed by history when the system can't take it anymore, and we have hyperinflation or federal default, at which point the dollar will collapse and all existing debt will be forcibly jubileed.

2. Following a mass debt forgiveness holiday, would it be the former debtors, or former creditors (or neither) that might be viewed with a social stigma?

It seems there's no social stigma left at all for anything other than child molestation. No one has any authority to try to bestow shame, and no one is capable of feeling shame, for anything. It's part of America's complete moral collapse, which is certainly related to the bubbles and financial collapse.

There is one exception. While none among the wealth and power elites feel any shame at all over being history's worst thieves and beggars, there are still many among the non-rich who carry this as a kind of brainwashing, who still feel a need to pay their debts to the banks who preyed upon them even as those same banks default on their own debts, receive massive bailouts, and take pleasure in committing this second round of fraud.

3. What would the implications for energy production be following a debt jubilee?

The reason the banks are refusing to lend right now is because they, better than their political waterboys and bagmen, recognize that the global economy is insolvent and "growth" is finished.

I imagine a debt jubilee would tend to confirm this perception for them. So energy projects which have to be privately capitalized through yet more zombie debt, after all the old zombie debt was just jubileed, aren't going to get that capitalization.

Will Western governments finally see the light, that it was deranged to put energy production in private hands in the first place?

Well, if they could call a debt jubilee, anything is possible.

4. Is there any workable path between the two poles of debt forgiveness and eventual inflating away debt through printing/stimulus?

No. America is insolvent now, held up as a zombie debtor by helpless creditors; there has been no real growth in over ten years, only debt-bubbled fictional growth; the productive base is hollowed out; America has no reality-based way to produce again, to provide the dollar with any basis, and all the fairy-tale ways seem to have run out. (Reflate the housing bubble? A new carbon bubble? Those don't look promising. Anyway, any new bubble would not be a "workable path", but just a way to prop up the zombie for a few more staggering steps.)

Since the vast majority of money IS debt, a repudiation of debt is the destruction of money.

In the late 70's, central ND, farmland sold for $500/acre. The value of the land was at best worth $300/acre from the standpoint of crop production.

Farmers were going bankrupt in the early 80's. But the best the banks could do is get $300/acre if they foreclosed. So there was as program to just write down the loans by the banks. Many thought it was not fair, but it was generally accepted as best for the farm community.

Nate,
You mention the prodigal son.

The other 2 parables of Lent are

The parable of the lost sheep.
The parable of the lost coin

Maybe there is something behind the Bible after all !!!

If everything were to be put in a great pot and shared out equally that would be a true jubilee and while I think many of us here have greater than the average amount to put into that pot, we would still all be wealthier for it.

In the meantime, Nate, you put me in a great dilemma with that prospect of a possible debt Jubilee ordinaire. What is it I should do, stay in cash or use it to take out a mortgage on a castle in Spain?

Given that this is a thought experiment and not necessarily an ideological stance, here goes:

Rather than an across the board debt repudiation, how about a permanent interest 'jubilee'. All principle is still owed. The implications for different kinds of debt [long term vs short term, private vs public, personal vs corporate, debtor vs creditor etc] will play out differently. This shouldn't be a one-off event because we are hoping to restructure the economic system to accomodate the expected shrinkage economy. It would be a way of doing business with the deflationary expectation built in. It is the reverse of the current 'discount rate' where money now is worth more than money tomorrow.

Given that no matter whether we keep the same system we have or drastically change someones ox will get gored. The question is whose ox will be gored the worse.

Vicky

I think this post talks about an important issue. There is no way that all of the debt outstanding can be paid back with interest. Somehow, the whole system is going to come apart--probably not nicely.

The fact that there are not enough underlying assets means that there are going to be some that are going to be left out in the cold.

One thought that occurs to me--why favor debtors or creditors? If the whole system is unsustainable, a change in government is likely as part of working out a new system. A new government could, at least theoretically, start over. It could announce that all assets will be distributed to the people, regardless of prior ownership. Large farms will be broken up so everyone gets a share. Businesses will be given to co-operatives operated by the workers. The new leaders of government will get the big houses (paid for or not).

Of course, those who own their own homes and farms would be unhappy, but ultimately another part of what is unsustainable is the concentration of wealth in the hands of the few.

Another approach would be that the new government would own all the land, and the people would rent from the government.

Debt forgiveness should be seen as part of a system of remodeling our basic societal system to something fundamentally sustainable. As I wrote in A Problem of Growth, the fundamental unsustainability of our society is that it's current structure requires perpetual growth--even where (as we are and will see) resource constraints or credit bubbles cause the structure to collapse to a smaller size, it continuously reverts back to searching for ways to grow and expand all over again because its fundamental structure remains the same. I described that structural predicate for growth as hierarchy, but I think debt is the flip side of this coin. Debt--as is made clear by by its alternate name "leverage"--tends to result in hierarchal structures that, because they are in peer-polity competition with other hierarchal structures, must find ways to grow or be consumed by more aggressive competitors. Debt isn't the sine qua non of growth or hierarchy, but we'll find it difficult to address either hierarchy or growth without addressing debt.

That said, while I wholeheartedly support a debt jubilee on all levels (for the reason above), I'm concerned that it is highly unlikely without--or in lieu a threatened--violent revolution. Additionally, it could be devastating in isolation to our current economic model (not that this model needs any help collapsing). Take mortgages: if a widespread jubilee looks possible, then one result may be a dramatic reduction in available credit, which would exacerbate the housing markets' problems even further, requiring the resulting jubilee to be either cancelled or dramatically expanded.

Additionally, because it would take some time to transition our economic model from credit-based to savings-based, there could be significant disruption (economic and political) during this transition period...

Not sure what the impact on energy production would be. My initial thoughts are that 1) oil majors have been more able to continue operations in the midst of credit constraints than other companies because they tended to be in a better cash flow position, and 2) the most detrimental impact would probably be in the alternative-energy startup arena.

1. How likely is a 'debt jubilee'?

Sovereign defaults are far more common than one might suppose from the risk premia (
This Time is Different: A Panoramic View of Eight Centuries of Financial Crises; Reinhart, Rogoff, 2008-04-16).
Given the loud noises about the demise of the dollar as world reserve currency, some tectonic shift is clearly countenanced.
I think some complex arrangements are more likely in a bretton-3 than simple dollar default, for example political concessions and agreements over spheres of influence, control of resources, etc.
There is also talk of arrangements with IMF Special Drawing Rights, which could for example be redfined so that the exchange rate to a currency is related to the net credit of a nation plus it's gold reserves in e.g. 1 gram fine = 1 SDR.
SDRs could also be used to 'print' quantities of currency in equal proportion, thus devaluing the money supplies of world currencies in lock-step.

Sovereign default has some subtleties I don't grasp, to do with the relationship between banking grops and nation states - if a nation allows all it's banks to default on non-deposit debt, this isn't quite the same as a sovereign default.

There are reports of international trade shifting towards barter, and I suppose we'll see that in workplaces - public travel passes and lunch vouchers have been commonplace in London for years, and such things may expand.

I overheard yesterday an Irish member of parliament telling his homies that he though rationing (of food and fuel i guess) is possible in future.

So credit and debt may become less meaningful.

2. .. social stigma?

The mass media that several generations have grown up with have been enormously effective if pursuading us that we are incomplete without a welter of gadgets and status symbols, and have conditioned us into passive pliant consumers. (watch this stuff (adam curtis)).

As the means to pay the vig on those surround sound systems and 50" plasma tvs subsides, we might find people being more alientated from the mass consumerism, and having the time (being unemployed) to engage in more group activities, politics, social activism, awareness-raising.

I guess whether one's hill of beans is convex or concave will be less important than social skills and charisma.

3. .. energy production be following a debt jubilee?

The mechanisms of production and distribution functions pretty much like a commodity, so this would continue, with fuel and electricity rationing.
It's anyone's guess how the resources will be allocated between countries - perhaps forms of barter will appear here too.

4. .. path between the two poles of debt forgiveness / inflating .. ?

I was talking to a guy who worked in a US bank before the Y2K thing; he said that the bank really couldn't fix their systems, so they actually reverted to a paper based system. I think this kind of return to simpler lower-energy systems [1] could become widespread, so some of the more organisationally-demanding complex solutions mightn't be feasible once the mail is delivered by horse once a week.

Ilrgi is pretty pursuasive that deflation will continue for some time (though I'm hedged 70/30 against deflation/inflation - more because of risk/benefit than probability).

Overall, I think there will be a sort of sobering-up and walking-away-from-the-circus, where the locus of narrative is with the person, rather than the mass society we see ourselves as members of. Community, Food, Water, security - money was only ever a means to these ends, there are many other means.

More than one way to skin a cat (which my german girlfriends' granny knew as "roof-hare").

[1]: sure, paper+ink+horses might end up higher energy overall then netbooks and wifi.

j

I think an important place to start is at the beginning and then walk back from there. It's a structuralist approach, which has its faults (when you take something apart and put it back together, you don't get the original thing: you get the thing that was one thing, then taken apart and put back together) but these are faults I am willing to live with for now.

So, first: What Is Debt?

Debt is a claim on labour. I borrow - I work to acquire funds/resources/whatever to "pay the debt".

That is personal debt - between two sentient beings.

Then there is imaginary debt: the debt between organisations. The national debt does not exist. I don't owe someone in China or the UK a damned nickel. Organisations (governments and corporations) are likewise imaginary. I exist. You exist. Governments and organisations only exist insofar as we "let" them exist.

Viz lyrics by Young Marble Giants from 1980, the song NITA. The emphasis is mine because of relevance:

It's nice to hear you're
having a good time
But it still hurts 'cos you used to be mine
This doesn't mean that I possessed you
You're haunting me because I let you

Shape up your body "Let's be a tree"
Visual dynamics for you to see
Nature intended the abstract
for you and me

(watch it, performed 28 years later by the same group Here)

We let debt haunt us. Example: Today I am in debt. I declare bankruptcy. No more debt. I am still breathing. I still eat. I no longer have to labour to pay off that debt. If I did not labour to pay it off in the first place, causing the bankruptcy, then the debt never existed. If I do not give power to the debt, then the debt has no power. I didn't possess the debt and it only haunts me if 'i let it. This is an abstract point, and only has meaning because "Nature intended the abstract for you and me".

So, we need to unpack this a bit more.

A personal debt (between you and me) is only binding insofar as you and I share a similar notion of property. You're haunting me because I let you: we agreed to this "bond".

An impersonal debt isn't between you and me. It is between classes. Nature intended the abstract...

The ruling class uses debt instruments to get richer. In the end, it is the labour of the working classes that pays it off. A debt jubilee would render signifiers of class distinction meaningless. If I knew that a debt Jubilee would occur on 25 DEC 2009, I could BURY myself in debt and buy a giant mansion and an airplane and a nice car and spend my days snorting coke off some stripper's tits. And afterwards, I'd still have the plane and the house and a burned out septum - just like any other irresponsible jet set jackass.

There will be no credit jubilee. There will be a radical immiseration of the working classes who will be stunned and distracted by their entertainment systems. Killing people "isn't cool" so rather than rise up and actually invent a truly socialist society, they will piddle around with mythologies of wealth, or put their trust in a system that calls itself "socialist", viz Jay Hanson, and do whatever they can to keep their crack/culture/class/whatever habits going.

Again, the Young Marble Giants:

Go for credit in the straight world
Look a dealer in the eye
Go for credit in the real world
Won't you try?

I got some credit in the straight world
I lost a leg, I lost an eye
Go for credit in the real world
You won't die

Instant credit in the straight world
Leaving money when you die
Lots of credit in the real world
Gets you high

Watch them perform it 28 years later Here.

I lost a leg I lost an eye. Go for credit in the real world you won't die.

There is no debt. There is no credit. As far as social object go, only what we say exists.

What you believe is what you see.

One man's debt is another man's asset. Hence writing off debt is the same as destroying assets. If all debt is forgiven, then all financial assets are automatically destroyed.

1. No one will lend money and all credit activity ceases
2. Banks will not be able to return money to depositors and all banks will shutdown
3. Corporations and businesses will cease to function when credit is not available to meet payroll and buy raw materials. Also, customers will not be able to buy finished products without credit.
4. There will be a desperate attempt by everyone to convert financial assets into physical currency; this will cause all financial markets to collapse and shutdown.

I just don't see how it is possible to have a debt jubilee. Instead we will have more and more people and corporations go bankrupt which will deflate the value of assets bought with borrowed money (e.g. real estate). Eventually we will reach a new equilibrium when debt reaches a more manageable level.

Great Topic Nate!

Believe it or not, I spend most of my waking hours thinking about - coke and stripper's tits - not that! Debt, currencies, foreign exchange, bond markets ... how to make a living. You know ...

There are many examples of debt forgiveness, one only has to Google 'Bono Debt' and get back over a million hits. I can forgive Ghana's sovereign debt, easily! They don't owe me any money!

The real question is whether the amassed OECD debt is collectible. If it is, than in what form? This is unanswerable right now because there is no consensus about what sorts of income flows will be available in the intermediate future.

If the USA has a $30 trillion GDP then servicing and repaying the current debt load is not too difficult. The issue of whether this $30t is inflation is irrelevant, the debt is also inflation and in an inflationary context all inputs are slso inflated; even rising energy prices and other input costs can be and are inflated; the context allows those closest to the money source to fund the resulting costs and still earn large returns, regardless.

The rest are simply unlucky, too bad for them!

This then is the ideological force behind the Wall Street bailouts and the other strategies of the Federal Reserve, the Treasury and the other Central Banks ... which are all engaged in similar reflationary efforts. Energy costs are real but the most important part of that term is the 'cost' part rather than the 'energy' part.

The short version here then is the current debt burden is manageable provided that a) the structured finance and securitization machine can be restarted and b) energy or social costs don't become too distorting.

Adding to this is the realization that GDP is measured on the curve; growth exists whenever the markets are not actively collapsing says Janet Yellen of the San Fransisco Fed (via Calculated Risk):

The Uncertain Economic Outlook and the Policy Responses.

[I]t takes less than many people think for real GDP growth rates to turn positive. Just the elimination of drags on growth can do it. For example, residential construction has been declining for several years, subtracting about 1 percentage point from real GDP growth. Even if this spending were only to stabilize at today’s very low levels—not a robust performance at all—a 1 percentage point subtraction from growth would convert into a zero, boosting overall growth by 1 percentage point. A decline in the pace of inventory liquidation is another factor that could contribute to a pickup in growth. Inventory liquidation over the last few months has been unusually severe, especially in motor vehicles—a typical recession pattern. All it would take is a reduction in the pace of liquidation—not outright inventory building—to raise the GDP growth rate.

What this means is the current approach tends to perform an end run around the issue of debt issue since it is simply another cost that can be manipulated. For instance, in China there is growth and this is supporting the US"s funding needs:

This tension has torqued Chinese currency and trade policy even as its neo- Keynesian stimulus plan and lending bloat leveraged against those dollars has pitched the argument in the direction of the dollar being valuable. The continued strong economic 'growth' depends on the increase in dollar reserves. This makes these dollars proxies for Chinese growth. Each dollar printed by Bernanke is buying some of it. Seeing this and measuring the value the dollars have to China, the US Federal Reserve is massively inflating the number of dollars it issues, trying to buy some Chinese growth.

China is giving the Fed a free lunch, just like always. Courtesy of China's inability to come to terms with its dollar surplus.

With all this maneruvering, is any sort of large scale debt relief possible? What would trigger its application? Will the maneuvers actually work?

First of all, the one realization is the US and other sovereign deadbeats are just that. Can they pay or won't they? This is not easy to answer. Fortunately or otherwise, there is no 'off- planet debtor's prison' where defaulting countries can be sent. While individual can be, the actions of the governments to date have tended to shield individuals; they lose their houses but not their freedom of movement.

Additionally, who would forgive? All countries are running large (temporary) debts in attempts to restart their speculative economies. Debt is being passed back and forth, who are the lenders and are any of them able to make a creditors' claim without that claim being superseded by others? This is a real problem in the mortgage industry where original claims are sold to others, sold again, repackaged and resold, etc. The same actions take place with all kinds of debt and synthetic debt. (Don't ask.)

Additionally, the event or 'Force Majeure' that would be the trigger relief is hard to quantify in advance. It is likely that the establishment would not see a need for relief until circumstances that required it had rendered the issue moot. See Citigruppe ...

If there is a dollar crisis or a default - and a sovereign default under the current commercial/energy constraints would likely be unremedieable - the debt might as well not exist anymore. It would be uncollectible; the US is lucky its neighbors are peaceful Canada and poor Mexico. We are greatfully too far from warlike Vietnam.

As for the rest, it would seem that bankruptcy is the means to do just what is suggested. The knock- on effects are to be felt by the banks and the banks' investors; hedge funds and insurance companies. These in turn will wind up in the hopper, in the end. All roads lead to Washington, DC which has put all of its hopes into the one basket of inflationary speculation.

I doubt the money machine restart efforts will work. The establishment simply has no idea how our current system works. It claims that speculation can improve standards of living and this is demonstrably false. Our Chinese adjunct - and our history - suggests that manufacturing/industrial commercial ventures can propel living standards just as well. This paradigm is grounding itself upon the increasing energy costs and is failing as well.

Any new regime would likely pivot away from debt. A new preferred system would lever toward resources rather than against them; legacy dollar- or money debts would simply not be applicable ... Like debts of the Confederate States of Ameerica.

So yea, we can forgive those.

Jim Willie's latest missive address some of the questions of this Campfire, by the way it is remarkable how Obama's teflon coat prevents even cursory questioning re Goldman's frontrunning of the markets http://www.financialsense.com/fsu/editorials/willie/2009/0716.html

I believe that the debts both on and off the books are so large that they will not-simply cannot- be repaid.
I'm thinking not only in terms of mortgages and credit cards but also pensions and medicare and social security ,etc.

One way of looking at this is that,except for the resulting upheavel,the creditors will have
simply made bad investments,and lost.Just like people why buy the wrong stocks lose.

Younger folks who are paying big bucks into current programs that promise a check or benefits later are going to get a check,probably, but one that represents a negative rate of return.

The folks who enjoyed the easy ride are going to benefit enormously at the expense of the folks who played by Nate's "old school rules".One thing that really frustrates the hell out of me in regard to liberal thinking is that no allowance is made for the people who really have "played by the rules".I personally know many people who have worked two jobs for decadesand gone without many things considerecd necessities by my liberal friends so that they could own a home and hold thier head up and say "I took care of MYSELF and mine and nobody ever give me a thing (-or if not pious,a GODDAMN THING)"

Followed by "And now somebody who pissed away ever nickel he ever made goes to the hospital and walks out an don't pay a dime and but theytook old Joe (or Susie or Garfield) for his last nickel.Had it to do over agin,I'd never even try to get ahead,I'd jis take it easy an enjoym'self"

And the liberals can't get thier heads around this man's value system,and they can't understand why he voted for Reagen.(Or Bush-but he was probably holding his nose as he pulled the lever for Bush.)

(I wonder how many people here on the Oil Drum know how Bush made his personal fortune
at taxpayer expense playing baseball?)

So to get back on track,there are going to be a lot of strange bedfellows against a jubilee,but by some means or another it will come about.

The backbone of the conservative voting coalition may already have been broken by the current economic crash.If not,it may still break as more and more formerly fairly successful voters find themselves on the receiving end of the income transfer schemes,rather than the paying end.

And although I can't prove it,my very strong impression is that people dependent upon government paychecks,military excepted,are about 80 or 90 percent liberal once in the voting booth.And there a lot of them.They can imo be counted on to vote for more government nearly every time.

So we could see a sea change in American politics,and wind up with a lot of nationalized industries,as people come to believe that such is thier best hope of a fair shake.

We might have a revolution similar in many respects to the French Revolution, but hopefully not so bloody, if the people can't get thier way otherwise.And the nature of the game is that a politician COULD rise who is ready to sell of the current ruling class for galley slaves if he thinks doing so will put HIM

in office.

Every system of government and finance/banking/business,so far as I can see,can be gamed.

The winners rig the rules so as to stay on top as long as possible.

But the top,historically speaking,is a very slippery place.

One way or another,peaceably or not,the debts will be ,if not forgiven,forgotten.

I think things may get a little out of hand as the process of debt repudiation unfolds.

If we are really lucky,we might get by with a few million very lenient bankrupticies and a lot of lenders effectively liquidated.

A few of the debtors may feel a little shame in private,but more and more will simply feel like the luck is finally running thier way and celebrate.

Creditors may have to go into hiding.Once the righteous(to them if to no one else) indignation of the working classes is made manifest,nobody who ever accumulated a lot of loot will be safe.

Inflation will play a very large role in the eventual repudiation of current debt,and it might just be the safety valve that keeps the lid on the pressure cooker.

In the end the world will still be here,minus most of the easily exttracted minerals of course,and after things settle down life will again become routine.

And a generation or two or three down the road there will be another crisis as bad or worse.

I wish I had a week to organize and polish this little rant!

ps and to think i used to be a publican!and wrote this!!

I expect the smart-rich, like Richard Rainwater has already done earlier [google Rainwater Prophesy], to convert their paper assets into real assets. Rich farm land with a good, nearby stream & shallow aquifer/well, then a 10 year-stockpile of seeds and I-NPKS inside the farmgate, plus O-NPKS recycling and much more to stock the bunker.

IMO, Richard will not trade foodstuffs for PMs, big screen TVs, worthless paper currency, or any debt instruments. Now if you have some 'future-oriented' I/O-NPKS plus your volunteered manual labor to trade with him: you might come back home with some bread, bacon, and eggs for your family...

NPKS-->food surpluses-->job specialization-->civilization. How could it be otherwise? We are evolved to do the nightly darkness [no FFs], but not starvation.

Recall my prior postings on this subject: Currency serial # based to exactly correlate with the serial # on a bag of NPKS. No usury allowed, but our future is REAL PHYSICS stockpiled in my speculative 'Federal Reserve Banks of I-NPKS'. Otherwise IMO, we get the dire Ft Knox scenario...

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

Printed money is not wealth. Real wealth comes from a productive workforce. Rewarding unproductive behavior (such as extending unemployment benefits, increasing welfare payments, providing free health care, etc.) will cause the collapse of the economy. As Margaret Thatcher once said "The problem with Socialism is that you eventually run out of other peoples money".

Without the free enterprise system, the Republic itself may collapse in favor of the more universal Oligarchy (rule by a small group of elitists). A Bill has in fact been introduced that would eliminate Presidential term limits. Democrats in the House have quashed the ACORN investigation. If the government continues in this direction, the economy and the Republic are doomed.

Nations have a different set of morals to individuals.
If I kill it is murder. If my nation kills it is war.

Nations are under no moral obligations to honour their debts.
The nation must only consider the cost versus the benefit of abrogating their debt.

What are the benefits of debt forgiveness? What are the costs?

These are the issues that must be ballanced.

"If not, the discussion is probably still better than watching TV.;-)"

Probably, but not always...it depends on what you are watching. As I write this, I am watching (for about the 5th time) the movie "The Longest Day." It is about the preperations for and the invasion of Normandy beach and the beginning of the liberation of Europe from the Nazi regime.

But in one way, it is about something else: It is about a nation (the United States)that managed to launch the greatest boom in construction, manufacturing, technology and science the world had ever known by way of the war effort. And it did so coming off the worst,longest most devastating depression in world history.

It is about a nation that came out of hyper inflation and what was essentially a state of subjugation due to the terms of the Treaty that ended WWI (Treaty of Versailles) and launched one of the most expensive and daring war efforts in all of history and took control of a continent. Germany was essentially bankrupt going into the dawn of the Third Reich but still managed to build one of the most impressive war machines in all of history in about a decade.

It is about how another nation that in it's declining days of empire, and after having it's major city almost bombed to dust managed to hold off an enemy, avoid invasion and act as the launching pad for one of the greatest invasions in history. The United Kingodm defeated the German air force in the Battle of Britain, and retained control of the air and the English Channel, and retained control of enough home food productiona and industrial capacity right through the blitz to remain a competitive fighting nation until the U.S. could get organized and arrive.

Coming into WWII, there were no dependable jet engines. In 1946 it was obvious that the piston engine warplanes would soon be scrapped. Comming into WWII there was no dependable radar. By 1946 any nation without it was essentially blind. Coming into WWII, there were no workable rockets. By 1946 the high tech nations were already planning for the space age. Coming into WWII a "computer" was a giant building that had to have water carrying laborers keep the buckets moving to keep the tubes cool enough to function. By 1946 the concept of the portable computer was already on the drawing boards and moving forward at blinding speed. Coming into WWII virtually no vehicle had an operating portable alternator. By 1946 alternating current was the wave of the future in automobiles, planes and ships. Coming into WWII the world had never seen and most people had never heard of nuclear weapons or power. By 1946 we had entered the 'atomic age".

How was all of this paid for by a group of nations on all sides coming off of the greatest worldwide economic depression, decline of empire and utter defeat and destruction in the cases of the Axis powers?

There is one word that matters more than any other, a word that is now considered old fashioned and superstition, that is now regarded as not at all keeping up with the "rational" modern de-constructionist way of viewing the world. That word is WILL.
Remember it: WILL. WILL. WILL. WILL. It is a tool. WILL can be used as the ultimate device for human destruction, The WILL TO POWER, or as the device to propel humanity forward, as in the WILL to CARE, the WILL to better our neighbors along with ourselves.

The world and the world economy will be designed by those with WILL and the rest will live by their insight and concept of what is desirable. Depending on who these people are and how they view humanity and their role in it will decide the fate of millions, even billions of people. So it has always been, so it will always be.

So it was with Alexander the Great
So it was with Christ
So it was with St. Paul
So it was with Charlemagne
So it was with Alfred the Great (the only English king called the great)
So it was with Napoleon
So it was with Lenin and his 32 allies on the "sealed train"
So it was (sadly) with Hitler
So it was with the Polish labor leader Lech Walesa and the South African revolutionary Nelsen Mandela

Economics is a human invention. Economics is a social science. As Lewis Carroll once famously said of words, "Are you the master of the word, or is the word the master of you?" So it is true of economics...are humans to be the master of economics or is economics to be the master of humankind?

Economics will follow the course chosen by those humans who have the will to take control of destiny and guide it. So it has always been. So it will always be. All other discussion is simply a matter of working out the details...but the devil is in the details.

RC

"But certain individuals/regions/nations will resent any debt forgiveness en masse, especially those who played by old school rules and did not participate in the past decades orgy of easy credit. If this trajectory comes to pass, it will reward those who lived beyond their means. As TOD regular 'Greenish' would say, this will cause our 'capuchin fairness meters' to go haywire. I can only imagine.... "

Let's not forget that a sizeable portion of the population has been incentivised, and well- rewarded, for getting people into debt - realtors operating on commissions, salespeople in stores, advertising agencies, brokers of all kinds - the list goes on.

Advertising, particularly, is an exercise in stimulating basic needs and desires, and the wish to have acceptance by one's peer group. i.e. the adolescent wish to "fit in", by having the things one's neighbor has. Perceived success. Or the wanting to fill the voids or peceived failures with "stuff".

I think the ability to be swayed by advertising must, in some way, be connected to the ability to be hypnotised, or to be addicted to drugs, and, therefore, it is as difficult to kick the habit.

It makes no more sense to me to rail against those who have got into debt over their heads as to rail against the cocaine habit, if cocaine were as pervasive as tv advertisimg.

Personally, I am resistant to hypnosis, drugs, and, to a lesser extent, advertising. It takes a conscious effort of will, at times, to get over that "oh, cool, gotta have that" feeling.

Nate, what had happened through the last 3 decades does not look to me like a ‘social response’ to anything. First of all, the ‘receding horizons of natural resource availability’ or ‘peak’ of oil, ores, or whatever else has not in fact been observed with exception of peak oil which we still see being disputed by many. Debt and credit indeed enabled a large % of society to maintain consumption in the environment of flat earning through three decades but I think this has nothing with resources and their availability. This is, IMHO, a pure financial matter showing who really matters in this world or in other words, who has power in its hands. Why is wealth not distributed more evenly through the society (not only American society)? Instead of having to approach the bank for a credit to buy a car, a house, tractor or truck why the income is not such that would allow us to do that – without the credit? OK, it is unreasonable to expect that one can buy a house without a credit but why people cannot pay the bills for everyday life without getting buried under the pile of depth on their credit cards? Stagnating average income during the past decades is the result of the fact that system had been designed by the same people who are using it for their benefit – our benefactors are at the same time the beneficiaries; the people behind the world financial system (who owns Fed we all know, I guess?).
Debt forgiveness is not something that will have to be planned for or designed. Its coming is as probable as the sunrise tomorrow morning. It will come as a result of chaos and will result in even greater chaos. It is not only US who can not repay its debt. Many, many countries are so indebted today and so much oriented to ‘services’ and not material production that repaying all those debts looks as probable as directional change of Earth’s rotation. The only possibility of avoiding such scenario may be in some kind of worldwide central government and one currency which has long been the idea of David Rockefeller and his flock. A while ago he was recorded saying that ‘one worldwide crisis would convince everybody that one world government is a solution for all problems’. So now, when we read how Greenspan ‘was forced/requested’ to produce another bubble after dotcom bubble blew up, does all that look somehow ‘synchronized’ to produce required results? Is it really possible that all those bankers (Goldman Sachs’ elite, ‘Bilderbergers’ & Co, so to speak) are so blindingly stupid that they really thought the party that just finished can go on forever???
For conclusion; yes, we have a resource problem which has not showed up yet to any significant degree. When it does show up in a few years the economy as we know it will be dead because it will dawn to more than present 1ppm of population that our present problem of indebtedness is a function with only two solutions. One is ‘zero’ and the other one is ‘∞’. Which one is more realistic is not hard to guess...

If there are species in the universe a million years more advanced in technology and applied morality than us, I suspect that they have learned to maturely embrace unfairness.

If I owe the bank $1000 and can't pay that is my problem. If I owe the bank $1,000,000,000,000 and can't pay it's the bank's problem. Essentially we have suckered China and the oil Arabs into loaning us so much that our inability to repay is more their problem than ours. They have to keep lending in order to keep their oppressed populations under control. The money needs to keep circulating for the world's economy to keep alive just as blood needs to keep flowing for an animal to stay alive.

The Jews had a away around the ban on usury. They invented the silent partner. That way if they loaned someone money to buy new tools for his business then they would share in future profits for as long as possible or until they were bought out at a profit. Financially the debtor may have been better off paying interest for a short time then sharing profits for decades. This silent partner concept eventually evolved into the modern corporation and the stock market. We have to our detriment whole heartily embraced the sin of usury and mislabeled it a virtue.

If you look at a break down of the National debt, it's in great part from stealing (oh sorry, borrowing) from social security and medicare. If the debt is forgiven then all that social security money taken out of everyone's checks during all those years of employment, will go bye bye. Ouch!

I find it fascinating, that during Bush jr.'s two terms the mantra was the increase in debt was small in comparison to GDP, but once a Dem is Prez the mantra is the debt is unmanageable and we now need to discuss how to lose it on the back nine.

No, deal with it in whatever manner is necessary.

Debt is nothing new. It has a long history, and this suggests to me that this is one thing where historical precedents really can offer some guidance.

When it comes to the little guy - ordinary people - in debt, you can forget about any large scale "jubilee", it just won't happen. It has rarely, if ever happened anywhere, any time, under any circumstances. Most commonly, the only way for masses of ordinary people to get their debts wiped clean is in the midst of a sweeping social, political, and economic revolution. Ordinary people in China pretty much all got their debts wiped clean, because most of their creditors were killed during and after the revolution. Need I point out that such an event can be very much of a two-edged sword.

Short of something like that, don't expect much help if you are an ordinary person in debt. I would point out that having masses of people in debt is a powerful tool for social control, and it is a tool that those in power love to use. Notice that there has never been much concern expressed by government leaders about the extent of personal indebtedness, or much said to discourage it.

More likely, what will happen is that ordinary people will stop taking on new debt (this is happening now), and one of three or more things will happen with the remaining debt:

1) Among those who are fortunate enough to have the means, they will eventually pay their personal debts off.

2) Many will run out of life before they run out of debt; their next of kin will inherit nothing of much value, but neither will the debts be passed on to the next generation; the creditors will just be "stiffed". (Excuse the pun!) This is one case that might be considered "debt forgiveness", but it will be of no benefit to anyone living.

3) Some will avail themselves of bankruptcy and discharge their debts that way. This has been made more difficult for many, but not impossible for all. Again, this is a form of debt forgiveness, but it is being made an increasingly painful route for debtors to take. In times past, to file for bankruptcy meant financial and social ruin; it also meant that the career prospects of the bankrupt were extremely bleak. There was a definite and very high personal cost to be paid for bankruptcy, and I suspect that things are going to head back in that direction.

4) In the past, there were other possibilities. Debtors could be thrown into debtor's prisons, or enslaved, or transported to places like Australia. We could speculate whether any of these more draconian possibilities, perhaps updated for modern times, might come back into play.

As for businesses, the historical pattern has pretty much been that you pay your debts or you are no longer in business. We are probably going to have to increasingly be moving back to that rule, as we cannot afford it to be otherwise.

Which leaves us with governments, and the issue of sovereign default. The historical pattern is clear: governments LOVE to run up big debts, and then to default on them. This has happened over and over and over again. Debt is too tempting to resist for most governments, and then sovereign default is too tempting to resist. Betting that the USA, and all big debtor nations, will eventually default in some way or another is a pretty safe bet - especially given that we've racked up a national debt that cannot possibly be liqidated, or even serviced, with a likely stagnant or declining economy. Don't think that this will have no consequences, though. Nations can get away with sovereign default when they are small fry and their debts don't loom all that large from a global perspective. There is no way that a nation like the US can default on our national debts without there being very major and serious negative consequences.

Nate:
Great article. I enjoyed reading it. Many of the ideas you presented are things that I have been asking myself, as well. Though I hesitate to make predictions, its fun to guess.

So far there's been a little luck in all of this in that it seems to be in most nation's best interest, yet, to support the dollar. And, two, the economic crisis is global which should provide some kind of safety net and the possibility of negotiating repudiation internationally, for example. Maybe I'm just a dreamer.

If we have any givens by now, they are that our "democratic" process has been corrupted by financial institutions and lobbying and deregulation which in combination with American apathy seems likely to stick around for a while. Two, is that the Fed and Treasury will do about anything to keep up the charade and to prevent a meltdown. The moral hazard question goes out the window on this platform. I would expect government to choose monetization over repudiation, except through legislation such as writing down all underwater home and CRE loans, for example.

What we need above all right now and going forward is good, strong, unbiased leadership.

My two predictions would go something like this, and one is congruent with your post, here. Maybe, in reality, something in between will happen.

1) On the one hand I could see dominoes cascade into a deflationary crisis with 2-3000 banks failing, including some of our too-big-to-fail ones, CRE defaults, Fred/Fan disasters, unfunded pension and state budget deficits, SS and health obligations, insurance cos. etc., to the point where our treasury and Fed try to monetize all debt failures that come along, or 70% of them. Government would take on a role of nationalized ownership in much of what was previously private enterprise (at least for an interim) as well as required social services (food distribution) and this could be quite a wild card. If totally overwhelmed with this process, a failure of democracy and incompetency in dealing with the crisis situations could lead to chaos. Regions would deal with the problems because the national government would be ineffective. We'd be acting as a nation, at this point, and the global bond market would not be an issue. This is my worst case scenario.

2) A better version of the above would be that the government does much of what I mentioned including starting a huge government work program to stabilize unemployment and the economy gradually comes back. The debt problem on a national level would be solved through negative interest rates, combined with monetization and a return to fiscal conservatism and strict regulation. American's would wake up from their complacency to produce a renewed improved government. To deal with the debt on a global level, central banks could coordinate percentage of agreed upon repudiation, country by country to stabilize the global bond market. Derivatives could be resolved through negotiation, write-offs and regulation.

I think part of the key is the rate at which the process unwinds. If it is more slowly, we could have a better outcome. (I'm speaking of the next one-5 years, and ignoring the PO issue for this post.)

Kalpa @ Financial News Express

Okay, since this is a Campfire string, let's get to work and ask folks waht they are doing down at street level, and what they are seeing down at street level:

1. How many folks here are willing to take a poll of how much debt they are carrying? Are folks who read and/or post on TOD in any different situation regarding debt than the average American? Do we keep our debts down? Do some folks here feel that since the system is going to collapse anyway they don't have to worry about it? Where will the debtor get the gasoline to come out and collect the debt after the crash?

2. Has anyone here made a real effort reduce debt? Have you succeeded? Has anyone here went deeper into debt due to spending on "peak" preperations?

3. Credit cards are widely perceived by financial planners to be the absolute worst form of debt. How many of us still have them? Why? What are the terms you are paying on them?

4. How many people here have attempted to get a loan or a mortgage recently and so have had real world experience with the "credit" crisis?

Since I am asking the questions, I will go first to this set of questions in replying to it. In a post up the page, I mentioned the power of will. We all seem to agree that debt, both personal and national is a huge problem, maybe a critical one, so let's see if we can appply our will here on this issue at this time. How many of us are working on our WILL to reduce our own debt?

RC

For the last few years, the banks have been advertising to encourage the elderly to do a reverse mortgage. All up, the fees are outrageous but for many, this is a real source of income. The value of the house is determined by an appraiser and about 80% of that value is the reverse mortgage minus whatever the original mortgage is remaining. This is a direct loan to the former owner as long as they live in the house. It is guaranteed by the government. When they, for whatever reason, leave the house for one year, the house must be sold and the debt settled. So this is a debt with the house as collateral just like a regular mortgage. In this buy off of debt the original owner got in cash money (line of credit, or whatever) 80% of value of their house … then the debt is cleared and the owner gets the house back free and clear. No bad deal … go AARP.

All this talk about debt jubilee reminds me of Russia, 1917. "Take everything and share it." - P.P. Sharikov
Pretty sad, actually.

This whole subject of debt forgiveness is ludicrous in the extreme.

Will never happen for reasons take about 1 minute to understand.

What should be discussed it the ridiculousness of our national debt and the willingness of our government to spend us into bankruptcy.

We are not the idiots. We are led by idiots. They empower stupidity by such. We are the idiots who let them continue this charade.

We just finished electing one to the highest office. That is our sin.
He promised much. Now we see the delivery.

Airdale

Forgiveness, waiting to be given something etc.
These are the thoughts of a slave not a man.
No one "gets" anything they go out and take it.
I think Darwin would agree and probably most people reading this as well.

One of the goals of the occult ruling class is to make people into debt slaves. That is where the bankers get their real power. The ability to control entire populations by choosing, arbitrarily, whose debts will be forgiven.

Underwater on your mortgage? No problem! All you have to do is lick some boots! You will have to become a supporter of "the system", or else your underwater home will be foreclosed upon and your credit cards will be cut up. However, if you're a good little debt slave, you might not even need to pay your mortgage. Hell, they might even toss in a credit card. Do you understand the level of corruption I am talking about? If it doesnt make you sick to think of this country succumbing to such a fate, you must not be thinking in enough detail.

The financial oligarchs setting up this "perfect system" (ie New World Order) dont even care about money. They'll gladly let people stay in their homes for free. Because those homes are the epitome, the culmination, the testament, the sacrement, of all things "consumer". Big spacious McMansions are the center of the consumer world. And "consumption" is all the ruling class cares about. They want to bring the world past the point of peak energy as quickly as possible, because after we are past that point the entire world will revert back to feudal control.

There will be jubilee, but only for those those who serve the system. The choice of who does and does not receive debt relief will be determined outside the bounds of the constitution. The "right" of selective debt forgiveness will be protected by the cloak of "private enterprise".