Discussing a Modern Debt Jubilee on Macro’n’Cheese

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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

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.

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

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About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.