I will preface this by saying I have no formal education in economics, but I was just having a conversation with a friend of mine who was an econ major and very mainstream in his views. I postulated the question: Let’s say growth is no longer possible. In that case what measures can be taken to adapt the economy to that reality?
Further along in the conversation I came up with something like this:
Totally a hypothetical, but what would happen if all debt was immediately converted to to cash (for example you owe $100,00 on your house you now have $100,000 in cash and own your house outright), then the holders of the debt (banks) were wiped out and closed down. New small local banks could be opened with negative interest rates and savings and loans would be kept separate from investment and speculation. Capital controls would probably have to be used for the first couple of years to keep consumers from going crazy and causing rampant inflation….not sure how it would work with debt held by other countries. Obviously there would be some kinks to work out, but I wonder if something like that could work.
Tallman, In my opinion, our money system is fatally flawed in that when money is created as debt (principle), the interest needed to pay off that debt is not created. Because of that, the total debt in the system always runs away from the total money in the system;
There is one way to cover up this dynamic imbalance – grow the system continuously, be it good, organic growth (nearly impossible now due to resource depletion) or bad, nominal, inflationary growth. Once you understand the inherent instability in our money system, you understand why our monetary masters demonize deflation, and why, even though they are tasked with, "price stability" via their FED charter, they target inflation at 2-3%. In printing enough money to successfully fight deflation in the face of very strong deflationary pressures… our monetary masters are going to kill their host.
Your suggestion seems to do nothing to fix the root of the problem. It basically gives a huge, inflationary windfall to anyone holding mortgage debt… why should they get a helicopter drop and not the more prudent folks who have paid off their mortgages? As well, why would not just killing the debt itself be enough.. why the suggestion to essentially give this money away twice, once via destroying the debt, and a second time via remonetizing the debt and giving this to the debt holder as cash? It does seem nonsensical.
"bt was immediately converted to to cash (for example you owe $100,00 on your house you now have $100,000 in cash and own your house outright), then the holders of the debt (banks) were wiped out and closed down. "
1. It would cause a lot of inflation as it would free up trillions. It might very well cause hyper-inflation
2. How would you prevent people from finding out about and loading up on debt prior to the cash conversion. For instance I would go out and by tons of gold using debt. There is no way you can keep this a secret and there is no way to prevent massive amounts of fraud.
As Einstein once sad, a problem can not be solved at the same level that created it. Their really is no solution to the debt crisis as there is too much debt to rectifiy the problem. The only realistic solution would have been to avoid it from the start. Consider a smoker that smokes daily, and gets terminal cancer. You can try all sorts of tricks to delay death, but it can't be avoid. The solution is to never smoke. Debt is no different.
Unfortunately society has made some very poor choices over the past 50 years and now it has to suffer the consequences of its poor behavior. 50 years of bad decisions cannot be wiped away in a year or even a decade. Everything to date since the the beginning of the financial crisis back in 2000 has just postpone the problems and compounded the suffering.
You are proposing and idea that is similar in vain to the year of jubilee. in ancient times, every 50 years debts where forgiven. This gave a chance for the society, both the rich and the poor, to release class tensions and have a fresh start. (I would put a link but I dont know how)
Prof Keen's idea of a debt Jubilee still needs more air.
Everyone in the whole country is given a substantial but fixed per capita amount.
On the proviso that they first have to pay off their debt(s) with it. Anything left over is yours to spend.
"That's not Fair!" Yes it is. And besides who cares about "fair" these days? Take a look around you-where do you see "fair"?
"It's not Patriotic!" Oh Please! Take the Red Pill. Patriotism is the last refuge of the scoundrel.
"The Big Banks would fail!" Diddums.Banks are not people.
Here is the real reason that the USA will not do what is right. Let us place the spotlight right on the real issue. The USA needs it's IOU's (The Dollar) out in international circulation or it will lose it's ability to pay for everything with play-money. (It will lose it reserve currency status). The USA needs to be in debt in order to continue its parasitical behaviour.
If there was a jubilee of any kind who would benefit? Why You of cause! But we cannot let self interest triumph over Debt Slavery now can we? That would be unpatriotic.
The Common Psychosis exasperates me.
I suggest we should think of the fiat dollar as really just an accounting scheme. Formerly, our free market system was designed so that we were ever optimizing the allocation of our limited resources (time, tangible natural resources, labor and ideas) to the best use. But what is the "best use" and who ought define it? Government rules and regulations have intruded so far into the free market, that we do not have one any longer – govt defines whats best, and who gets the opportunity to pursue.
As a work out, we don't necessarily want to place large dollar volume in the hands of those unaccustomed to directly controlling investment – for they are likely to err, costing them and society greatly. This is just what is happening now with our govt running perpetual high deficits. They are placing more dollars, more purchasing power for societies resources – in the hands of incompetent people (government programs of questionable value, or connected crony capitalist bankers – and little or no productive feedback on merits when projects are complete). We are likely unable to correct many of the wrongs of the past, but we can forgive them, and transition to a new system whereby intelligent and truely productive actors in society (successful business people) are given ever more responsibility (stewardship of capital), so that we all are encouraged to build a brighter future for one another.
The way towards this honest free market I describe is the potentially painful path of transitioning off the fiat dollar. A real currency with tangible backing of some type (gold and/or other things) would restrict government spending to only that which they could take honestly and overtly by direct taxation. Much of the wealth (free time and extra resources) produced by society would be left in the hands of those who produced it – every business and individual small and large creating value to greater or lesser extent.
Our federal government now, in its present operation, is the most unsustainable aspect of our present existence. As each day passes it further undermines the true wealth of society – the spirit which resides in the hearts and minds of its people.