Debt jubilee: Revolutionary change or reform to stabilize capitalism?

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Debt jubilee: Revolutionary change or reform to stabilize capitalism?

May15 by Systemic Disorder

Debt has been a crucial lever in implementing austerity, both as an instrument and a moral cudgel. Eliminating debt, private and public, would have transformative effects — but would doing so be revolutionary or merely a reform to stabilize world capitalism?

Those are not the only two choices, of course, and the mere thought of a debt jubilee would send many a set of teeth gnashing. Debt jubilees are not a new idea; in fact they have existed since long before capitalism was born. But given the unprecedented level of debt, a jubilee today would entail unprecedented complexity.

The Australian economist Steve Keen has for several years energetically promoted the concept of a debt jubilee. His concept is to bail out people instead of banks, reasonably arguing that people would spend the money, reviving the economy. So in this formulation, radical as the concept of a jubilee is (and radical as the idea of helping working people instead of the super-wealthy is), it is conceived as a reform.

Professor Keen conceptualizes a jubilee in a form that would not cause damages to debt holders not responsible for the crisis, such as pension funds:

“Whereas only the moneylenders lost under an ancient Jubilee, debt cancellation today would bankrupt many pension funds, municipalities and the like who purchased securitized debt instruments from banks. I have therefore proposed that a ‘Modern Debt Jubilee’ should take the form of ‘Quantitative Easing for the Public’: monetary injections by the Federal Reserve not into the reserve accounts of banks, but into the bank accounts of the public — but on condition that its first function must be to pay debts down. This would reduce debt directly, but not advantage debtors over savers, and would reduce the profitability of the financial sector while not affecting its solvency.”

“Quantitative easing” is a government program of massive buying of assets from banks in an effort to promote increased lending and liquidity through increasing the money supply. A “quantitative easing for the public” would give money to everybody. Those with no debt would be free to spend it as they wish, and those who received more money than the size of their debt would similarly have no obligations once they wiped out their debt. Dramatic as this idea is, Professor Keen is no revolutionary; he seeks to put capitalism on a firmer footing:

“Returning capitalism to a financially robust state must involve a dramatic fall in the level of private debt — and the size of the financial sector — as well as policies that return the financial sector to a service role to the real economy.”

His reasoning is that economic recovery is impossible until private and government debt is paid down:

“The standard means of reducing debt — personal and corporate bankruptcies for some, slow repayment of debt in depressed economic conditions for others — could have us mired in deleveraging for one and a half decades, given its current rate. … That fate would in turn mean one and a half decades where the boost to demand that rising debt should provide — when it finances investment rather than speculation — will not be there. The economy will tend to grow more slowly than is needed to absorb new entrants into the workforce, innovation will slow down, and justified political unrest will rise — with potentially unjustified social consequences. … 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.”

A radical idea, then, to save the system. A radical idea that is not at all revolutionary in the hands of Professor Keen. Considering the mass political movement required to force what would be an extraordinary change in the policies of the world’s central banks and finance ministries — institutions staffed by and run on behalf of financiers — would we be simply content to say, “Well, that’s it, then, we can all go home now”?

Revolutions as ‘transformations of common sense’

The U.S. activist and economist David Graeber also calls for a debt jubilee but, in contrast, conceives this as a revolutionary demand. Writing in the latest edition of The Baffler, Professor Graeber argues that world revolutions consist “above all of planetwide transformations of political common sense.”

Drawing upon the works of “world systems” theorist Immanuel Wallerstein, he argues that the revolutions of 1848 were successful even though none took power because the ideas behind it and the French Revolution widely took root. He similarly sees Russia’s October Revolution as responsible for the New Deal and European welfare states and, on less firm ground, that 1968 “changed everything” because of the personal liberations that grew out of it, including feminism.

Fear of communist revolutions, and large mass movements, did lead to the many advances of the mid-20th century. But as most of those advances have been reversed, it is more realistic to see them as simply reforms — and reforms can, and will, be taken back when movements subside. People can’t stay in the streets forever. The changes of personal liberation spawned by 1968 and beyond are not as susceptible to reversal, and, as with LGBT movements, continue to advance in some ways but, nonetheless, feminist gains in particular are under sustained assaults.

We should be careful to differentiate advances that threaten the system — such as major structural changes in the economic sphere — and those that don’t, such as same-sex marriage or women shattering glass ceilings, however much individual religious fundamentals or tradition-minded men believe themselves to be “threatened.” In no way do I wish to minimize the social gains made by women, LGBT communities, and racial and national minorities, nor ignore that social divisions are integral to the functioning of any system based on inequality and hierarchy. Such freedoms — still only partially attained and still requiring organized defense — are prerequisites for any concept of a better world to have meaning.

Economic inequality has steadily widened as class repression intensifies; objectification of women in mass media is ubiquitous, as exemplified by the pornification and coarseness of corporate-controlled mass culture; and nationalist and other xenophobias are gaining new traction under the impact of economic disintegration and the accompanying social disruptions. It seems premature to declare everything has changed, even keeping in mind that leaps in social zeitgeists are a process rather than a sudden jump.

A jubilee linked to other demands

Given the interconnectedness of struggles, is the idea of a debt jubilee in itself a “revolutionary demand,” as Professor Graeber declares it? In other words, would it actually overturn the current world system, or would it be simply a reform, albeit a welcome and thorough-going one on the scale of the New Deal? He does link the idea of a jubilee with the necessity of slowing down growth:

“We seem to be facing two insoluble problems. On the one hand, we have witnessed an endless series of global debt crises, which have grown only more and more severe since the seventies, to the point where the overall burden of debt — sovereign, municipal, corporate, personal — is obviously unsustainable. On the other, we have an ecological crisis, a galloping process of climate change that is threatening to throw the entire planet into drought, floods, chaos, starvation, and war. The two might seem unrelated. But ultimately they are the same. What is debt, after all, but the promise of future productivity? … [Producing more is] precisely what’s destroying the planet, at an ever-increasing pace.”

Thus, Professor Graeber argues:

“Why not a planetary debt cancellation, as broad as practically possible, followed by a mass reduction in working hours: a four-hour day, perhaps, or a guaranteed five-month vacation? This might not only save the planet but also … begin to change our basic conceptions of what value-creating labor might actually be. … The morality of debt and the morality of work are the most powerful ideological weapons in the hands of those running the current system. That’s why they cling to them even as they are effectively destroying everything else. It’s also why debt cancellation would make the perfect revolutionary demand.”

Such an outcome would require an extraordinarily strong global movement; in this conception a debt jubilee would be a means to an end and linked to broader structural change. For a debt jubilee to be “revolutionary” it would have to be one piece of a more comprehensive struggle. A debt jubilee by itself, in isolation, would be, as Professor Keen intends, a method of stabilizing capitalism. Indeed, he has shown that a jubilee could be brought about using standard capitalist-management tools in a different way.

Saving the current world system would be a temporary salve and nothing more; all the contradictions within it would resurface. But that system is of human creation. When new ideas gain secure social foundations, revolutions can happen — whether it is sovereignty residing in the people rather than a royal family designated by a god, or that democracy is possible only with everyone able to participate on an equal footing rather than only men of a society’s dominant ethnic or racial group, or that political democracy is an empty shell without economic democracy.

A better world can only arise from unleashed human imagination and creating unbreakable links among struggles.

https://systemicdisorder.wordpress.com/2013/05/15/debt-jubilee/

Has The Debt Jubilee Already Started?

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by John Rubino on January 23, 2013 · 25 comments

There are three fairly radical ideas floating around the monetary policy world right now. The first is economist Ellen Brown’s belief that governments should stop borrowing money and simply create the currency they need, thus bypassing central banks and government bond markets. The second is Australian economist Steve Keen’s debt jubilee, in which governments give newly-created money to individuals with which to pay back their debts, in the process resetting the system with lower leverage. The third is that trillion dollar platinum coin thing, where Washington just conjures that much money out of thin air and uses it to evade statutory debt limits — which looks like an ad hoc mash-up of the first two ideas.

Until yesterday these proposals seemed like provocative curiosities, fun to think about but too far off the mainstream radar screen to become official policy anytime soon. Then reader Bruce C responded to a DollarCollapse post about the impact of rising interest expense on US and Japanese budgets:

All of the Treasury bonds owned by the Fed are at effectively zero interest because all interest payments from the Treasury to the Fed are returned to the Treasury. That actually means that total net interest expenses for the Treasury are currently decreasing with time as the Fed buys about $85 billion worth of Treasuries each month (which is about 90% of all new issuances). As long as the Fed is willing to do this the current deficit spending by the US can continue for a lot longer than most analysts think possible (I mean for decades).

I don’t know if Japan’s central bank (the BOJ) reimburses the Japanese Treasury of its income from government bonds but if it does then there won’t be any need to sell JGBs to outsiders who may demand higher interest rates. For the same reason explained above the Japanese government could literally enjoy decreasing debt servicing costs despite rising price inflation. Again, that can’t last forever but I wouldn’t hold my breath.

This got me to thinking about the way in which the Fed buying bonds and returning the interest payments resembles the three proposals above – and wondering if they’re all really the same thing accomplished with different mechanisms. In the Fed interest repayment, debt Jubilee, and trillion dollar coin strategies, the money is filtered through various intermediaries, while in the Brownian scenario it is just created and spent. But in each case, the government creates and spends money without reference to the bond market or budget deficit or anything else.

Is this debt monetization? Or the elimination of the concept of government debt?

At first glance, the flaw in all scenarios in which government takes direct control over the money supply is that, well, government has control of the money supply. That would remove the last vestige of external pressure to control spending and open the floodgates for every vote-buying scheme now festering in the minds of blue-state senators, neo-con chickenhawks, corporate CEOs, and public sector unions. Why would a government that doesn’t have to answer to the bond markets ever limit its spending? Taxes, it seems, could be cut to zero while Medicare and the military rise to infinity, all paid for with newly-created cash. Steve Keen, to his credit, couples his debt jubilee proposal with strict new limits on lending and the elimination of fractional reserve banking. But there’s no guarantee that such changes would pass as part of that package.

Have we already put such a system in place, waiting only for the guys sitting around the debt ceiling negotiation table to recognize the cornucopia they’ve created?

Is this the unexpected last act of the fiat currency experiment, in which the pretense of outside control falls away and big government really lets fly?

What would happen to the currencies of countries that free themselves from budgetary restraint and simply buy whatever they want when they want it? Will the dollar, yen and euro become the last barometers of public faith in government, or will they be managed via derivatives fueled with Treasury cash?

Is this the Austrians’ crack-up boom on a global scale?

And finally, precious metals. How would gold behave in a world of literally unlimited money creation?

These are brand new, not-fully-formed thoughts and questions, so implications and answers will have to wait for another day.

Tagged as: deficit, deflation, Dollar, euro, fed, Federal Reserve, gold, government bonds, inflation, silver, yen

http://dollarcollapse.com/inflation/has-the-debt-jubilee-already-started/

Jubilee Debt Campaign UK : Home : Drop the Debt

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Calling for 100% cancellation of unpayable poor country debts

The Walking Debt: Expanded Look at Zombie Debt, Jubilee & Students

May 20, 2013 · by Meghan Clark · in Journal

Are you prepared for the invasion of Zombie debt? Everyone knows there is a foreclosure crisis – but are we prepared for the unfolding crises of education and medical debt?

In his recent NY Times blog, Student Debt and the Crushing of the American Dream, economist Joseph Stiglitz notes some astounding facts:

“According to the Federal Reserve Bank of New York, almost 13 percent of student-loan borrowers of all ages owe more than $50,000, and nearly 4 percent owe more than $100,000. These debts are beyond students’ ability to repay, (especially in our nearly jobless recovery); this is demonstrated by the fact that delinquency and default rates are soaring. Some 17 percent of student-loan borrowers were 90 days or more behind in payments at the end of 2012. When only those in repayment were counted — in other words, not including borrowers who were in loan deferment or forbearance — more than 30 percent were 90 days or more behind. For federal loans taken out in the 2009 fiscal year, three-year default rates exceeded 13 percent.”

The high cost of higher education, interest rates, laws governing student loans that make them ineligible for bankruptcy and other debt relief programs, and relatively high unemployment all contribute to lowering economic and social opportunity/mobility.

Contributing to the crisis are predatory practices by for-profit colleges, with high default and low graduation rates. However, default rates are only one aspect of the student debt problem; we must also contend with the broader economic reality. Increased student debt and higher unemployment lowers consumption, and in a consumer economy, this creates a circular problem. Stiglitz’s main point is that the looming student debt crisis is not a failure of students, it is a failure of our public commitment to education and social mobility (something he has written about extensively).

Despite this, there is still clear“value added” by a college degree. Stiglitz notes the numbers:

“College graduates earn $12,000 more per year than those without college degrees; the gap has almost tripled just since 1980. Our economy is increasingly reliant on knowledge-related industries. No matter what happens with currency wars and trade balances, the United States is not going to return to making textiles. Unemployment rates among college graduates are much lower than among those with only a high school diploma.”

So a college degree is still clearly a good investment.  However, one can no longer afford to ignore the questions of how much debt one can or should take on in pursuing a bachelors, masters, law or medical degree. The options one has upon graduation are constrained by the level of debt one has accumulated.

~A college graduate with a full time job may no longer be able to afford to live on his or her own. Even living with roommates may be outside of reach, given anxiety concerning student debt.  More and more young adults are moving back home with their parents after graduation because they cannot afford both rent and student loan payments (this is especially true of graduates who have only been able to find part time work, due to high youth unemployment). Many young adults are intentionally delaying marriage and children because of student loans. Whether that is smart or not, it is the growing reality.

~Our society has plenty of graduates in the legal, medical, and other professional fields, and yet we cannot fill these positions in low income communities.  High student debt contributes to our inability to get teachers, doctors, lawyers, and other professionals in these communities. Few go into general medicine because, in part, paying off loans is easier in high cost specialties. (Money-Driven Medicine is an excellent POV documentary on this).

~ Many young college graduates will opt for a year or two of volunteer work. However, student debt provides an intimidating barrier to graduates who hope to pursue a career dedicated to social welfare.  Those hoping to work in Catholic schools, as a social worker, as a community organizer, or for a non-profit  can’t unless they have been fortunate enough to have very little or no student loan debt. These jobs, which are so important, do not pay enough to allow an independent adult to pay back the loans.

There is a structural injustice at the root of this problem. Banking fraud and illegal foreclosures continue (without any real threat of punishment).  A culture of fraud extends beyond the foreclosure crisis into medical and education debt. (On the education side, this fraud is perpetuated by for-profit institutions with high loans, low graduation/completion rates, and high probability of default).  This structural injustice lies in stark contrast to the biblical jubilee and justice tradition, which calls for the forgiveness of debts.

Invoking the biblical tradition, a group of people are fighting back. Rolling Jubilee by Strike Debt continues its campaign to cancel the debts of individuals by linking the jubilee traditions in Judaism, Islam and Christianity.

“Strike Debt is an offshoot of Occupy Wall Street. First started in New York City, but inspired by movements around the globe, Strike Debt now has affiliates across the country. We believe people should not go into debt for basic necessities like education, healthcare and housing.”

Beginning with medical and housing debt, Strike Debt buys individual debt and cancels or “forgives the debt.” How do they do this?

What most people do not know is that defaulted debt is sold on a secondary market – bundled together and sold at auction.

“Banks sell debt for pennies on the dollar on a shadowy speculative market of debt buyers who then turn around and try to collect the full amount from debtors. The Rolling Jubilee intervenes by buying debt, keeping it out of the hands of collectors, and then abolishing it. We’re going into this market not to make a profit but to help each other out and highlight how the predatory debt system affects our families and communities. Think of it as a bailout of the 99% by the 99%”

In many of these cases, the patients are haunted by Zombie Debt, or debts they thought were paid off.

“Logsdon, the first of those debtors to publicly identify herself, said she thought her delinquent $983 bill for back pain care had been paid by Medicare last year. That’s what her doctor told her, she said, after a 2011 dispute during which the bill had gone to a collection agency.”

Strike Debt has forgiven 1.1 million in medical loans and they are now investigating ways they can buy and cancel student loans. Federally backed student loans do not get sold on a secondary market, but an increasing number of defaulted private loans are making their way to the secondary market.

In Luke’s Gospel, Jesus stands up and reads from Isaiah and explains his purpose:

“The Spirit of the Lord is upon me, because he has anointed me to bring glad tidings to the poor. He has sent me to proclaim liberty to captives and recovery of sight to the blind, to let the oppressed go free, and to proclaim a year acceptable to the Lord.” (Luke 4:16-19)

Deeply embedded in the Biblical tradition is the concept of Jubilee – what does it mean to set people free and proclaim a year acceptable to the Lord?

The Jubilee tradition understands biblical justice to include the forgiveness of debts. Rolling Jubilee is following the legacy of Jubilee 2000. During the Millennium, Pope John Paul II, Bono and others mobilized the world around the Jubilee 2000 Campaign and the forgiveness of crippling loans to developing countries. While the fight for debt relief for developing countries goes on, it has already accomplished a lot of good for the citizens of developing countries by freeing up money for investment in public goods.  Jubilee is necessary to proclaim a year acceptable to the Lord. There is strong theological support for Rolling Jubilee’s forgiveness of medical debt and perhaps it is time to call for a Jubilee for student debt as well.

Imagine, for example, if we as a nation made a public commitment to double the number of public defenders? Or provide significant loan forgiveness for those who work for Legal Aid? If we put into practice the medical school loan forgiveness ideas President Obama mentioned back at the beginning of the healthcare reform debate – and did it on a large scale to reward doctors who serve in underserved areas? And, given the manipulation and structural injustice, what if we provided for loan forgiveness for those taken advantage of by for-profit higher education? All of these would lessen the burden on young adults, allow for social mobility, and provide significant contributions to the common good. The real question is: Do we have the public will to do so? And as Christians, we must remember that setting the captives free is a pre-req for proclaiming a year acceptable to the Lord.

http://millennialjournal.com/2013/05/20/the-walking-debt-expanded-look-at-zombie-debt-jubilee-students/