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Is it time for a Debt Jubilee?

Jul 06, 2016

The first casualty of the Brexit seems to be Italy. Virtually all of the Italian banks have been in trouble for years, mostly because they hold about $400 billion (360 billion euros) in bad loans. Since the Brexit, those banks have lost 30% or more of the stock value, and now the Italian government feels forced to bail out their banks.

The problem is that this violates the rules of the EU. But here is where it gets interesting.

Italy’s Renzi threatens to bail out the banks. The EU threatens them in return. Renzi then says, “Don’t stand in our way, or we will put “Italeave” on the ballot. The EU then either capitulates, which encourages other countries to do the same, or they stand firm and watch Italy leave the EU, followed by Greece (remember “Grexit”?) and France (“Frexit”). The EU falls apart either way. It is only a matter of time, because the debt loads are only increasing.

So what is the solution? If we just declare a Jubilee and cancel all debts, it will be a very hard landing for the entire world. Debt has been building for too long, and falling from such dizzying heights could cause a lot of chaos. The sheer amount of positive money without debt would immediately cause hyperinflation, where the cost of goods and services would soon wipe out any value in the money that people thought they had.

Here is the obvious solution, which is what I have advocated since the 1970’s. Take the existing Federal Reserve Notes, which are actually debt notes, and convert them 1:1 into national currency. In other words, un-debt them, because these debt notes were created out of nothing in the first place and loaned to the government at interest. The private international banking families became extremely wealthy once they got control of the money tree and were allowed to create their own money and loan it to governments at interest. Let’s give back the money tree to the public (government), so that it can create money without interest and without debt.

If individuals own government bonds, then just cash them out and exchange those bonds for money. The only thing anyone may lose is the interest payment on the bond. In fact, now that bonds have hit bottom and are on the verge of negative rates, no one really has anything to lose.

Below is part of an article that advocates this very thing. After talking about the Italian bank problem, this is their solution….


Time for a Reset

That may get Italy out of the woods, but the system is clearly broken. A $500 trillion derivatives time bomb poised atop a $100 trillion mountain of debt [total sovereign debt of world nations] is not a stable situation. It's time to push the reset button, but how? Bailouts and bail-ins have been tried and proved wanting. But a debt "jubilee" -- simply canceling the debt -- would devastate creditors and collapse the massive derivatives bubble.

All else having failed, it may be time to do what should have been done all along: convert "sovereign debt" into "sovereign money." The "event of default" triggering a derivatives meltdown can be avoided by simply paying the debts with money issued by the government.

A government oppressed by "sovereign" debt is not really sovereign. A sovereign government has the power to issue money and need not go into debt at all. But EU member governments have lost that sovereign power. They are unable to issue their own money or borrow money issued by their own central banks. If they leave the EU, they can get that power back for future expenditures; but their existing debt is in euros, and only the ECB has the power to convert bonds into euros.

In fact that is what it does when it buys government bonds with QE. The problem with QE as currently practiced is that the bonds remain on the central bank's books, "sterilizing" their effect on the market. The idea is to be able to sell them back into the market should inflation become a problem. But that means the bonds are still counted as debt for purposes of balancing national budgets, forcing continued austerity, cutbacks and privatization. If the bonds were bought back and voided out, national governments would be free to spend again. QE doesn't need to be unwound by selling bonds into the market. If the money supply grows too large, money can be pulled back with taxes, interest or fees.

The invariable objection to paying off the debt with central bank-issued money is that it would lead to hyperinflation. But would it? Government bonds are already classified as "near money" -- so liquid that they are readily exchangeable for cash. Turning them into cash is little different from moving money from your savings account to your checking account. One draws interest and the other doesn't, but cashing out the savings account doesn't make you any richer than before. It doesn't propel you to spend more on goods and services, driving consumer prices up.

If people and governments were incentivized to spend more, however, that would actually be a good thing. Consumer markets need more demand today. The way to stimulate economies is to get money into the pockets of people who will spend it. Demand (money) stimulates supply (productivity). Before QE can stimulate the real economy, it has to make it into the real economy. If the goal of the EU is to hold itself together and avoid a derivatives meltdown, some QE that actually got into the hands of the people could be just the ticket.

End of article.

The problem is that the banks have become more powerful and wealthier than sovereign nations that are debt-ridden and weak. Banks have replaced nations, insofar as power bases are concerned. The article above makes the key point, “A government oppressed by ‘sovereign debt’ is not really ‘sovereign’.” Scripture says plainly, “the borrower is servant to the lender” (Proverbs 22:7 KJV). Slaves are not sovereign. There is no such thing as a sovereign debtor.

When this current Babylonian captivity began in 1913-1914 with the passage of the Federal Reserve Act, it came because congress gave the money tree to private bankers and decided that instead of creating money itself, they would let bankers create it and then loan it to the government. This monopoly made it so that in order to put money into circulation (as oil in the economic engine), it had to be borrowed from these big bankers—at interest. We were all supposed to have more confidence in the bankers to regulate the supply of money than in the government. How has this worked? It has enriched the bankers and has put the governments of the world into slavery.

In the end, we traded dishonest politicians for dishonest bankers to run the economy, which in turn drives politics. Money is political, clothed in economic terms. Even the solution above will only work in the long term if honest people oversee it. The problem is finding honest people who have the ability to manage the economic systems of whole nations. A century ago we gave away the money tree to bankers. It is time to take back the right to create money. But we need overcomers with financial callings to take the reins and to see to it that we get an honest system with integrity.

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Category: Financial
Blog Author: Dr. Stephen Jones