Friday, Jul 03, 2009
Willem Buiter proposes Debt Jubilee
FT: Quantitative easing, credit easing and enhanced credit support aren’t working; here’s why.
I propose a combination of mandatory recapitalisation of the banks and a debt Jubilee for the household sector to remove the two key obstacles to an economic revival.
Posted by devo @ 02:25 PM (1069 views) Add Comment
11 Comments
- If you do not have an admin password leave the password field blank.
- If you would like to request a password allowing you to add comments and blog news articles without needing each one approved manually, send an e-mail to the webmaster.
- Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
- Please note that any viewpoints published here as comments are user's views and not the views of HousePriceCrash.co.uk.
- Please adhere to the Guidelines
1. peeping tom said...
Unless the 'Debt Jubilee' is something biblical, what is he proposing? The nationalisation of all housing debt, meaning the (part) nationalisation of a lot of housing stock? The obvious answer being where does the money come from, other than printing it, in the real or virtual sense.
2. 51ck-6-51x said...
He is proposing writing off debts ( or some form of relaxing of debtors commitments ); he has not specified details.
3. uncle tom said...
I read the conclusion to this piece several times, as the author is not a lightweight, and I was trying to elicit the rationale behind his notion of writing off household debt.
But despite that, my conclusion remained unchanged - the guy's nuts...
For every debt there are savings; and if you write one off, you have to write off the other.
So what he is saying is: "write off the debts of the greedy, spendthrift and feckless, and bankrupt the prudent pensioner"
Somehow, that policy ain't going to win a general election...!
The Biblical notion of the Jubilee had some virtues; and going forward, the spirit of the concept might be adopted to some extent.
- but it's not something you can retrofit to the present predicament..
4. titaniccaptain said...
As I have said before a partial Debt Jubilee might be a way forward...just the negative equity written off...if this could be linked to a coordinated crash by estate agents to below 50%+ of current values followed by a new way of taxing main residence to prevent a new property bubble forming i.e. LVT or a form of it.
5. bellwether said...
Total sh*te based on the premise that you can just reset to zero whenever the debt collapses under its own weight. You might as well just move the decimal point and then continue as if nothing happened. Why are we even bothering with having the crisis if it's that easy to solve. Inflating in a deflationary environment is also going to tend to be hyper inflating. It's so pathetically short term its actually becomes frightening.
6. mrflibble said...
This guy ought to be in the back of my car with a spring in his neck nodding to the guy behind...
What a complete load of tripe.
If this were to happen then the prudent amongst us may as well take all out cash out of the bank, withdraw as much money as we can from loans and credit cards and then declare bankrupt, because at that point the credibility of this nation will be gone.
7. uncle tom said...
Whatever elaborate theories get put forward, the only outcome that has any real credibility is inflation; coupled to devaluation relative to the economies of the developing nations.
Any suggestion of a write-off (or 'Jubilee') has severe consequences, and is politically impossible to deliver.
Inflation and interest rates need to rise, but not to such an extent that existing borrowers default en masse.
With a 5% inflation rate, and commensurate interest rates; the fall in house prices would be at first accelerated, and then brought to a fairly prompt end; thereby avoiding the possibility of a long and lingering period of house price deflation.
Wages would start to rise, while old debts remained the same, thereby making the burden of repayment gradually less onerous.
Once stability in real terms has been achieved, house prices would start to rise in line with inflation; not only reducing negative equity, but also providing a ray of hope for those thus trapped.
8. titaniccaptain said...
@Uncle Tom
I'm brainstorming here with some hypotheticals......in your considered opinion if funds were diverted from public funds to subsidize negative equity write offs have the same effect on a country's economy?
9. drewster said...
Any jubilee would require money to be taken from savers or bondholders (pension funds, insurance funds) and given to debtors. If the government even so much as hint that they would do such a thing, confidence in the banking system would be destroyed overnight. Therefore the government will either not do it, or do it swiftly and without warning.
Over the last year I've avoided trading in bank shares or treasury bonds because there's too much government interference. Now I can't even keep cash without worrying about government interference. I'm starting to see why gold looks appealing again...
10. stillthinking said...
Maybe a debt writeoff is unnecessary, because the debts are going to be written off anyway as they are unrecoverable. So another idea would be to write off some of the equivalent savings, something that could have been managed when the banks failed and the government restricted themselves to the 50K guarantee. That was the unrealistic move which has condemned us all.
It is hard to see what the UK can do now. Minimising the level of unemployment seems the best strategy but also pretty hopeless. Whether or not Jim Rogers is right, I am sure there will be an event of some kind before the end of 2010 because unemployment cannot rise for ever, eventually everybody is out of a job.
If as many commercial debts go bad as is suggested, then I think the credibility of the government to support the banking sector with taxpayer obligation will break. So the most likely cause of an even more disastrous lurch for the UK will be government debt.
NuLabour need to work out who takes the losses on the chin. We are going to be shafted beyond belief with the witless attempt to hide losses, and will ultimately end up with more repossessions than otherwise needed.
11. tenyearstogetmymoneyback said...
One option which they already have in some states in the USA would be Jingle Mail where any debt is written off
when you hand back the keys.
I wonder if Northern Rock would have offered 125% mortgages if they knew that the keys could be
handed back and any debts written off at any time in the future.
:- Duncan