A debt jubilee is the only way to avoid a depression, by Michael Hudson - The Unz Review
Even before the coronavirus appeared, many American families were falling
behind on student loans, auto loans, credit card balances and other payments.
America’s debt overhead was pricing its labor and industry out of world
markets. A debt crisis was inevitable eventually, but covid-19 has made it immediate.
distancing, with its accompanying job losses, stock dives,
and huge bailouts to debt-strapped corporations,
raises the threat of a depression.
But it doesn’t have to be this way. History offers us another alternative in
such situations: a debt jubilee. This slate-cleaning, balance-restoring step recognizes the
fundamental truth that when debts grow too large to be paid without reducing debtors
to poverty, the way to hold society together and restore balance is simply to
cancel the bad debts.
The word Jubilee comes from the Hebrew word for trumpet — yobel. In Mosaic Law, it was blown every
fifty years to signal the Year of the Lord, in which personal debts were to be
cancelled. The alternative, the prophet Isaiah warned, was
for smallholders to forfeit their lands to creditors: “Woe to you who add house
to house and join field to field till no space is left and you live alone in
the land.” When Jesus delivered his first sermon, the Gospel of Luke
describes him as unrolling the scroll of Isaiah and
announcing that he had come to proclaim the Year of the Lord, the Jubilee Year.
Until recently, historians
doubted that such a debt jubilee would have been possible in practice, or that
such proclamations could have been enforced. But Assyriologists have found that
from the beginning of recorded history in the Near East, it was normal for new
rulers to proclaim a debt amnesty upon taking the throne. Instead of blowing a
trumpet, the ruler “raised the sacred torch” to signal the amnesty.
It is now understood that these rulers were not being utopian or
idealistic in forgiving debts. The alternative would have been for debtors to
fall into bondage. Kingdoms would have lost their labor force, since so many
would be working off debts to their creditors. Many debtors would have run away
(much as Greeks emigrated en masse after
their recent debt crisis) and communities would have been prone to attack from
The parallels to the current
moment are notable. The U.S. economy has polarized sharply since
the 2008 financial crisis. For far too many, the debts in place leave little
income available for spending on goods and services or in the national
a crashing economy, any demand that newly massive debts be paid to a financial class that
has already absorbed most of the wealth gained since 2008 can only further split our society.
This has happened before in modern times — after World War I, the
burden of war debts and reparations bankrupted Germany, contributing to the
global financial collapse of 1929-31. Most of Germany was insolvent, and its
politics polarized between the Nazis and Communists. We all know how that ended.
America’s 2008 bank crash offered a great
opportunity to write down the often-fraudulent junk mortgages that burdened
many lower-income families, especially minorities. But this was not done, and
millions of American families were evicted.
The way to restore normalcy
today is a debt writedown. The debts in deepest arrears, and most likely to
default, are student debts, medical debts, general consumer debts and purely
speculative debts. They block spending on goods and services, shrinking the
“real” economy. A debt writedown would be pragmatic, not merely a moral sympathy with the less affluent.
In fact, it could create what the Germans called
an “Economic Miracle” — their own modern debt jubilee in 1948, the currency
reform administered by the Allied Powers. When the Deutsch Mark was introduced,
replacing the Reichsmark, 90 percent of government and private debt was wiped
out. Germany emerged as an almost debt-free economy, with low costs of
production that jump-started its modern economy.
In the past, the politically powerful financial sector has blocked a
writedown. Until now, the basic ethic of most people has been that debts must
be repaid. But it is time to recognize that most debts now cannot be paid — through no real fault of
the debtors in the face of today’s economic disaster.
The coronavirus outbreak is serving as
a mind-expansion exercise, making hitherto unthinkable solutions thinkable.
Debts that can’t be paid, won’t be. A debt jubilee may be the best way out.
Michael Hudson, author of “…
and forgive them their debts” and “Killing the Host,” is president of the
Institute for the Study of Long-Term Economic Trends and is Distinguished
Research Professor of Economics at the University of Missouri–Kansas City.