Saturday, April 10, 2010

Debt repudiation: good idea or bad idea?

Momentum Grows for Debt Repudiation

Ambrose Evans-Pritchard wrote in 2009: In the end, the only way out of all this global debt may prove to be a Biblical debt Jubilee. Economist Steve Keen is also calling for a debt jubilee, stating: We should write the debt off, bankrupt the banks, nationalize the financial system, and start all over again. We need a twenty-first century jubilee. [We’re going into] a never-ending depression unless we repudiate the debt, which never should have been extended in the first place. If we keep the parasitic banking sector alive, the economy dies. We have to kill the parasites and give a chance to the real economy to thrive once more and stop the financial crooks doing what they did this time around ever again.

Posted by devo @ 02:54 PM (2053 views)
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14 thoughts on “Debt repudiation: good idea or bad idea?

  • This includes wiping out all savings accounts, ISAs and pensions. It’s such a good idea that the feckless who overborrowed, have no savings or investments, should get to keep their cars and by-to-let flats.

    Any other bright suggestions?

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  • At the sovereign level there’s Iceland and eastern Europe outside the eurozone with a lot of mortgage debts denominated in euros and other major currencies. Government borrowing there is not so much to finance a budget deficit as to borrow euros to pay western banks. Latvia, Hungary, Romania etc. are suffering widespread unemployment and widening trade deficits that are no longer financed by inflows of money into property.

    The tax bases of these countries were structured to benefit western banks. Very high taxes on labour made up for very low taxes on property, leading to speculation by the banks and emigration by workers. These countries have supported their exchange rates, in order to pay back loans in euros, only by borrowing on unsustainable terms – budget cuts, higher taxes on income from work, shrinking economies.

    Devaluation of their currencies and debt default are the only means left to these countries. The choice is between bankruptcy for countries and their businesses on the one hand and weakening the capital base of creditor banks on the other. It’s a choice between usury, debt peonage, asset-price inflation, and economy shrinkage, with no way out, and re-structuring these economies with credit for productive purposes so they can keep their workers and expand their economies.

    There are a lot of hard choices ahead.

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  • The choice is between bankruptcy for countries and their businesses on the one hand and weakening the capital base of creditor banks on the other.

    hmm, let me think about that one….

    thought about it

    bye bye banks

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  • Solventandproud says:

    Is this for real? I just had to comment on this as it makes me so angry!
    So for those who like myself who have saved hard and worked hard that are now faced with pitiful interest returns for our efforts, we had the presence of mind to see what you borrow you must pay back with interest. For the rest of us there is no help with ever harsher conditions if we might want to buy a little place of our own because now credit is impossible to get.
    But for those greedy people who have massive mortgages, the Range Rover on the drive, the 150inch plasma TV on the wall and 5 exotic foreign holidays a year and dont have a cat in hell’s chance of paying for any of it; a “Get Out Of Jail Free Card” you cannot be serious.

    If there is gonna be a revolution then it just might start with people like me……. Unbelievable.

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  • So where does that leave prudent savers?

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  • 3. mr g said… So where does that leave prudent savers?

    an oxymoron if ever there was one

    you’ve had your bailout, courtesy of the taxpayer

    if you get caught out again – tough luck

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  • I would say this sounds highly suspect. It would probably play out along the lines of yes all debt will be written off but to do this we will require that you withdraw all existing currency, introduce a One World Currency (electronic?) , introduce an immediate financial transaction tax on every single transaction, no matter how small. Would the massively indebted countries be able to sell this to their massively indebted people? yes they probably would even if it meant being microchipped! Bang, you’re in the NWO.

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  • A debt jubilee is a misty-eyed romantic idea for debtors – keep your leveraged asset but be freed from the burden of repayment!

    Who wouldn’t want to entertain such a fantasy?

    The problem is, that debt is someone else’s credit, so if you remove the debt you have remove the credited asset too – so what a debt jubilee is really advocating is giving up ownership.

    It is in fact putting the case forward for … communism.

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  • @6 – Nobody’s talking about forgiving all debts. It’s a case-by-case deal. There have been laws against predatory lending for centuries. Over two hundred years ago English spivs made loans to upstate New York farmers, then called in the debts before the harvest was in so they could foreclose and get hold of the land at cents on the dollar. There are many degrees between that and let’s say somebody who borrows irresponsibly or cynically works out that he can get out of repaying.

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  • “Over two hundred years ago English spivs made loans to upstate New York farmers, then called in the debts before the harvest was in so they could foreclose and get hold of the land at cents on the dollar.”

    how were the English spivs punished?

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  • “how were the English spivs punished?” Who said they were punished? Predatory lenders nowadays are bailed out when their victims can’t pay.

    New York’s first Fraudulent Conveyance Act was the colony’s response to said English spivs making loans to upstate farmers, and demanding payment just before the harvest was in, when the debtors couldn’t pay. The spivs then foreclosed, getting the land on the cheap.

    The Act established the legal principle that if a creditor makes a loan without having a clear and reasonable understanding of how the debtor can repay the money in the normal course of doing business the loan is deemed to be predatory and therefore null and void.

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  • “Who said they were punished?”

    I thought you were telling a morality tale – my mistake

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  • “The Act established the legal principle that if a creditor makes a loan without having a clear and reasonable understanding of how the debtor can repay the money in the normal course of doing business the loan is deemed to be predatory and therefore null and void.”

    I’ve got a Mr. Papandreou on line 1 asking if there’s a sovereign nation equivalent

    Mr. Brown on line 2, you’re going to have to hold I’m afraid

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  • Things were slightly different in Biblical times. Money was coin – gold, silver. So if you hadn’t lent money to anyone, your savings were safe. Your money had physical being. Nowadays pretty much all saved money exists only as electrons in an electronic brain. Even cash could be rendered worthless by govt decree. The physical manifestation of your savings is the house being purchased by a mortgage, a car on a loan, or a plasma TV on a credit card. So in modern times, if you repudiate the debt, all the savers would be wiped out. There would be no assets to repay them. A debt Jubilee is basically a massive transfer of wealth from the savers to borrowers. Possibly the biggest Moral Hazard of all – why save at all if you face losing it all in another Jubilee? Better to load up on debt and hope to get lucky. Thereby sowing the seeds of the next debt bubble.

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