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Discussing a Modern Debt Jubilee on Macro’n’Cheese

Summary:
I dis­cuss a Mod­ern Debt Jubilee On Macro’n’Cheese today, and this is a quick expla­na­tion of how it could be done. Jubilees were com­mon in antiq­ui­ty. The Lord’s Prayer did not orig­i­nal­ly say “And for­give us our sins, as we have for­giv­en those who sin against us”, but “And for­give us our debts, as we also have for­giv­en our debtors”. But an old-fash­ioned Jubilee would reward those who gam­bled with bor­rowed mon­ey, and thus effec­tive­ly penalise those who did not. It would also effec­tive­ly bank­rupt the banks, since their assets—our debts—would fall, while their liabilities—our deposits—would remain con­stant. A Mod­ern Debt Jubilee gets around both prob­lems by: Giv­ing every­one, whether they bor­rowed or not, exact­ly the same amount of mon­ey; and Replac­ing

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I dis­cuss a Mod­ern Debt Jubilee On Macro’n’Cheese today, and this is a quick expla­na­tion of how it could be done.

Jubilees were com­mon in antiq­ui­ty. The Lord’s Prayer did not orig­i­nal­ly say “And for­give us our sins, as we have for­giv­en those who sin against us”, but “And for­give us our debts, as we also have for­giv­en our debtors”. But an old-fash­ioned Jubilee would reward those who gam­bled with bor­rowed mon­ey, and thus effec­tive­ly penalise those who did not. It would also effec­tive­ly bank­rupt the banks, since their assets—our debts—would fall, while their liabilities—our deposits—would remain con­stant.

A Mod­ern Debt Jubilee gets around both prob­lems by:

  • Giv­ing every­one, whether they bor­rowed or not, exact­ly the same amount of mon­ey; and
  • Replac­ing risky pri­vate debt as an income earn­ing asset for banks with risk­less Jubilee Bonds.

The basic mechan­ics in a Mod­ern Debt Jubilee are:

  • Every adult gets an iden­ti­cal sum of mon­ey;
    • Those in debt must pay their debt down by that amount;
    • Those that are not in debt—or have less debt than the Jubilee amount—must buy new­ly-issued shares direct­ly from cor­po­ra­tions;
    • Cor­po­ra­tions must use the rev­enue from share sales to pay down cor­po­rate debt;
  • Jubilee Bonds are sold by Trea­sury to banks; and
    • Inter­est pay­ments on Jubilee Bonds (part­ly) com­pen­sate for the fall in inter­est pay­ments on house­hold and cor­po­rate debt.

Fig­ure 1: The basic mechan­ics of a Mod­ern Debt Jubilee

Discussing a Modern Debt Jubilee on Macro’n’Cheese

The end-result of a Mod­ern Debt Jubilee is:

  • Debtors are not unfair­ly advan­taged over savers (debtors have less debt, while savers get new debt-free assets);
  • Pri­vate debt, both house­hold and cor­po­rate, falls, while equi­ty (share own­er­ship) ris­es;
  • The amount of mon­ey does not change a great deal (it changes only by the inter­est on Jubilee Bonds); and
  • Banks remain sol­vent, because their assets rise as much as their lia­bil­i­ties, and they gain equi­ty from the inter­est on Jubilee Bonds.

As with a gov­ern­ment deficit, the gov­ern­ment does­n’t need to bor­row the mon­ey giv­en to debtors and savers: the Jubilee cre­ates the mon­ey, in the same man­ner that a deficit cre­ates mon­ey. It also cre­ates addi­tion­al Reserves, on the Asset side of the Bank­ing Sec­tor’s ledger. If the Trea­sury issues “Jubilee Bonds”, then rather than those bonds involv­ing bor­row­ing mon­ey from the pri­vate sec­tor, they are an asset swap that lets the banks swap non-income-earn­ing reserves for income-earn­ing bonds.

Discussing a Modern Debt Jubilee on Macro’n’Cheese

I’ll go into more detail on the hows, whys and where­for­es of a Mod­ern Debt Jubilee in a lat­er post.

Steve Keen
Steve Keen (born 28 March 1953) is an Australian-born, British-based economist and author. He considers himself a post-Keynesian, criticising neoclassical economics as inconsistent, unscientific and empirically unsupported. The major influences on Keen's thinking about economics include John Maynard Keynes, Karl Marx, Hyman Minsky, Piero Sraffa, Augusto Graziani, Joseph Alois Schumpeter, Thorstein Veblen, and François Quesnay.

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