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Forgive them their debts

Economist Michael Hudson’s new book argues that the world’s debt can never be repaid. It will have to be written off.
Debt cancellation was common in ancient times, and far more humane than current practices. Image: Shutterstock

It may seem a long way off, but the day will come when household debts must be forgiven, for the simple reason that they cannot be repaid.

The most reckless financial experiment in history has been unravelling in front of our eyes over the last decade, as a tsunami of created debt was hosed into the world financial system to save the casino banks from their inevitable demise. The result was a massive transfer of wealth to the financial, insurance and real estate (or FIRE) sector.

In South Africa, finance contributes 23% to GDP (in the US it is 85%). It makes little contribution to the economy as it involves the re-trading of already-existing assets at ever-inflated prices. Precious little of this money is invested in new production.

Remove this distortion from the GDP figures and the world economy has been in depression for the last ten years, argues economist Michael Hudson in his book ‘… and forgive them their debts: Lending, Foreclosure and Redemption From Bronze Age Finance to the Jubilee Year’.

Read: Finance dominates SA economy, and that’s a problem

For a glimpse into the future, look at what is happening on the streets of France or Chile, where demonstrators complain that they are being asked to – wait for it – “tighten their belts” while living from one month-end loan to the next.

In SA, about four out of ten of the roughly 20 million who qualify for credit are in financial distress, meaning they are two or more months in arrears on at least one account. How long before they take to the streets?

Hudson has been banging this drum for the best part of a decade, arguing that in 2008, rather than bail out the big banks, authorities should have given the money to the citizens so they could pay off their debts.

The result, based on historical evidence, would have been a boom of almost unimaginable strength.

Instead they rescued the banks with trillions of dollars in quantitative easing, which went straight into the stock and real estate markets. In other words, straight to the rich.

This can’t, and won’t, last.

The social order is fraying and debt – not climate change – is the real curse of our age.

In his book, Hudson delves into the storied history of debt jubilees (or forgiveness) through history, from Sumer to Babylon, Greece, Sparta and Rome. Judaism took the practice of debt forgiveness and placed it at the centre of Mosaic Law. All this was done in the interests of social peace. The ancient battle between debtors and creditors courses through the Bible and the Quran, from the economic proclamations of Moses to the gospel of Luke, when Jesus announces the coming of the Jubilee year when debts were to be forgiven.

Ancient history makes better sense once you start to view it through the lens of creditors versus debtors.

Wars are always an asset grab clothed in the fineries of impugned rights. Creditors fought the jubilees every inch of the way, waging war where necessary to collect their dues. Roman creditors fought and won a century-long ‘Social War’ that was ultimately catastrophic to the empire, creating a caste system of grotesque inequality.

Livy, Plutarch and other Roman historians saw creditors as a pestilence that destroyed classical antiquity, by using interest-bearing debt to impoverish and disenfranchise the population. The Barbarian invasions of Rome and elsewhere succeeded only when societies were sufficiently weakened from within by debt.

Chronic indebtedness ‘normal, desirable’

Most economists today recoil from any suggestion that debt write-offs are needed. Hudson takes them head on: lacking any historical understanding of debt and the inevitable servitude it imposes, they see chronic indebtedness as normal, even desirable.

However, debt cancellation was far from radical in ancient times, and far more humane than current practices. For example, it was illegal to waive one’s rights to debt forgiveness in ancient Sumeria, Babylon and Israel. Today, banks require borrowers to waive their rights in favour of the courts – and that has put ten million Americans out of their houses since 2008.

There were usually sound, practical reasons for debt forgiveness: it prevented creditors from accumulating too much power at the expense of local sultans, allowed rulers to recruit soldiers or workers from those recently freed from debt peonage, and enabled overindebted farmers to resume payment of taxes.

The idea was to create a fair and equitable society and provide citizens with the basic minimum standard needed to be self-sustaining. Populist leaders in 7th Century Greece paved the way for the economic take-off of Sparta, Corinth and Aegina by cancelling debts and redistributing lands monopolised by their cities’ aristocracies.

It didn’t always go the way of the debt cancellers. There were creditor-sponsored counter-revolutions in the Western Roman Empire and then Byzantium.

The word ‘tyrant’ is today loaded with invective, but only because the original ‘Tyrants’ who sought to liberate Greek populations from debt bondage lost their war against creditors. It turns out the Tyrants were the good guys.

Today’s legal system is based on the Roman philosophy of upholding the sanctity of debt rather than its cancellation.

“Instead of protecting debtors from losing their property and status, the main concern is with saving creditors from loss, as if this is a prerequisite for economic stability,” writes Hudson.

“Moral blame is placed on debtors, as if their arrears are a personal choice rather than stemming from economic strains that compel them to turn to debt simply to survive.”

In pre-Christian Babylon, debts that could not be repaid as a result of misfortune were written off. Hudson points out that most household debt today – as in ancient times – is for consumption, and therefore cannot and will not ever be repaid.

Asset forfeiture

The long game with any debt cult is asset forfeiture. “Concentration of land ownership and polarisation between creditors and debtors is traditionally a formula for economic shrinkage and depopulation,” writes Hudson.

Lending to farmers was used as a lever to privatise land. The Sumerians invented usury (lending at interest) but mitigated its effects through periodic royal edicts forgiving debts, particularly those related to crops and fees owed to public collectors. The meaning of ‘usury’ has changed through the ages to mean lending at excessive interest.

The concept of legal title to land is a relatively modern concept and, once tethered to debt, is the most efficient method of foreclosure and stripping the poor of their customary rights.

The absence of formal property rights in Africa has actually protected the poor from the dispossession and eviction that follows debt peonage.

The modern concept of economic liberty exalts title deeds and the transferability of land as an act of empowerment, yet ten million Americans and an estimated 100 000 South Africans have been stripped of their properties in the last decade or so through foreclosure.

Property ownership

Property ownership is vital to economic prosperity but is under constant attack by the creditor class. Title deeds were one of the principal tools of dispossession used by colonisers in Africa, subverting the traditional system of communal property. The Bafokeng in North West Province had to buy back the land they had occupied for centuries because some ‘smart’ 19th Century property speculators proved by means of a title deed that they were the new owners.

Hudson also challenges the notion that money originated out of primitive barter economies. The origins of money, he suggests, lay in fiscal arrangements with the palaces, where dues had to be settled in silver.

To insist that all debts must be paid ignores thousands of years of contrary practice in the Near East and the economic flowering that followed this humane practice.

Hudson says he wrote the book as the time is now ripe to re-introduce the concept of debt Jubilees into public consciousness. It will allow an instant and orderly economic recovery rather than decades of slow atrophy and social disorder, as banks continue to make claim on debts and interest that can never be repaid.

Read: Review: J is for Junk Economics by Michael Hudson



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In the modern era, unlike the past, moneyblent out by creditors are actually deposits made by citizens and bonds purchased by pension funds.
Debt cancellation in modern times would disincentivize savings and constrict the credit markets specifically the lower income credit markets.
The options they turn to then are far more lethal and dangerous than losing your property.
Also, debtors are not nearly so much the victims as is sometimes popularly claimed. There are vast numbers of people who intentionally try to dodge their obligations.

This is a multi layered topic that I could go on at length with but suffice to say I am not in agreement with the idea of debt forgiveness.
Having said that, circumstances and bad luck do happen. Allowing a small portion of the fiscal budget to assist people in getting out of debt is an idea with merit. Understand that it must be a once in a lifetime option only and should come motivated through proper channels like people who are already with debt rescue.
Also settlement of debt has the advantage in that no one has to lose.

Ita not a very simple issue this, but debt forgiveness will be catastrophic. The world has changed since the days of Babylon.

Debtors are never the victim.
Do what u agreed to do. This simple 6 word sentence is basically the corner stone of any forward moving society.

Notice how the debtor only ever has the problem with the debt when it’s time for payment…. When Non payment spirals outa control it has major negative run-on effects to societys economy.
Non payment should be a lockupable offense.

I am not sure forgiving debt will send the right signal. Debt will then just build up faster : the era of no consequence for bad decisions. I do get that there are external events that mitigate whose “fault” it is.

What I do agree with is that it is untenable that QE supplies near free capital to markets as stimulus, yet right now the average business overdraft interest rate in the US is nearly 9%

Where is that 8% friction going????? The bankers?

Debt forgiveness won’t cause debt to build up faster, because nobody, except for loan sharks, would be willing to extend any more credit. Who’d want to lend people money if the money you lend out is at risk of being “forgiven?”

DEBT = Modern Slavery… The problem is many do not understand its mechanics and only a few masters it’s intricacies.

One can only guess who is the Slave master and who is not the slave!!!

Modern Slavery ? its then a self chosen slavery !
Pay cash or dont buy : Simple .

But it’s out of choice….
Maybe Some people deserve to be slaves while others slave masters.

There is something seriously wrong with the financial sector and the worse is that the banks bailed out by citizens savings refused to onwards lend virtually free money made available by the reserve bank.

Excessive usury is the problem.

What about Eskom debt?

Another R69bn bailout on the cards.

You can’t just write that off.

Methinks there are a lot of these ANC types stealing frantically from Eskom.

Very interesting (and thought-provoking) take on this subject by Hudson!

I think Hudson has a refreshing point of view. Clearly seems foolish to argue with repeated history.

But what do I know.

Hudson strikes at the very heart of Sensei’s eloquent arguments.

I find Sensei’s always insightful and instructive, and am very much looking to his comments on Hudson’s opposing position.

Other commentators touched on the valid points.

Fractional Reserve Banking relies on banks to lend a multiple of what they own. At a 10% reserve ratio, 90% of bank lending is created out of nothing. The R10 deposit in the savings account forms the basis of the R100 that was created as a loan by the bank. That implies that if 10% of debts are forgiven, then 100% of the depositor’s money is gone. This is exactly what causes a run on the banks.

There is only one ultimate reason for the existence of Reserve Banks and that is to act as a lender of last resort. The Reserve Bank has a license from the state to print money to save the banking system. When debt is forgiven, or when individuals or businesses go bankrupt on a large scale, and cannot service or repay the debt, then the Reserve Bank rushes in to save the bank with newly created money.

Newly created money derives its value from the value of the old, previously created currency. It dilutes the value of the currency that is in circulation. There is no alternative method to create money. This implies that if the debt is forgiven, the value of that debt forgiveness is taken from the purchasing power of everybody that uses the currency.

In other words, if the socialist government decides to use debt forgiveness as a method to buy votes from your over-indebted gardener, and passes a law to cancel the debt to the amount of R10 000, then in effect, it is the same as if you gave your gardener the R10 000 to repay his debt. The government actually spends your R10 000 on your behalf without you realizing it.

This is why socialism is a structure where naïve philanthropists use other people’s money as charitable donations. They never use their own, or they think they don’t until they get the bill in the form of devaluation of the currency.

Debt forgiveness will, and does happen on an epic scale. It is called financial repression and it is the strategy of the IMF. Financial repression is the way in which the debt of governments is “forgiven”. When citizens cannot repay their debt, then the issue escalates to the Reserve Bank and then to the IMF. Financial repression is debt forgiveness, but it means that the debt is actually repaid by the “collective”, you and I, and our pension funds.

Why so scared to use the inflation word? Inflation is where the collective pays for debt forgiveness without knowing. If money is printed to save the system its inflation. Finish en klaar. Inflation is where everybody pays for someone’s mistake, almost always without knowing. Like someone in the beginning posted: pay what you agreed to in the first place – then no problem

The author of the book identified the debt of individuals as the factor that leads to anarchy. He believes that it is the abuse by lenders that destroyed the purchasing power of borrowers. He is mistaken in this assumption. The most basic reason behind general uprising and anarchy is the debasement of the currency. It was the debasement of the denarius by emperor Nero that led to uprisings. This forced him to blame the rising cost of living on the Christians.
The French Revolution followed after a similar debasement of the currency.

The current escalation in populism and identity politics on the international arena is a result of the financial collapse after the 2009 financial crisis. The financial boom was driven by credit-expansion and credit-expansion is a debasement of the currency.

The idea of a debt-jubilee is an outright attack on property rights. One person’s debt is another person’s assets. What the author of the book is advocating, is a redistribution of assets = socialism. We have to nationalise the depositor’s assets if we want to cancel the borrower’s debt. We all know where socialism leads to, we only have to look at Zimbabwe and Venezuela.

“The law has been perverted by the influence of two entirely different causes: stupid greed and false philanthropy.” – Frederic Bastiat 1850 (after the French Revolution and the popularity of socialism.)

Sense, many thanks for responding so quickly and clearly, and in simple terms that I can understand.

There’s stuff I still have a great deal of unease about: principally, that over time, ALL of the collective’s wealth concentrates into the hands of the very few.

This CANNOT be to the ultimate benefit of the “collective”.

The author states that lenders become wealthy on the backs of borrowers. Lenders are borrowers by the very nature of their business. The only pure lender is the saver who owns pension savings and a bank deposit.

This is the only party who is a true lender without also being a much larger borrower at the same time. Who are the largest debtors? Banks and governments are the biggest debtors by far. Who will benefit most if debts are forgiven? Governments and banks will be the main beneficiaries and savers and pensioners will be the ultimate casualties.

Inflation and credit-expansion mean that smart borrowers become fabulously wealthy while all savers become poor. The wealthies individuals are those who borrow to buy assets that increase in value. Smart borrowers use the loan to finance productive assets. Stupid borrowers use the loan to finance consumption. In a free-market economy people have choices, and they can decide for themselves whether they want to be smart or stupid.

Is it the task of the law to protect stupid people against themselves? If so, then 90% of the population should be sterilized and refused the right to vote.

Jonnoxx, I appreciate the opportunity you gave me to share my viewpoints on this matter. You are correct in your view that wealth is concentrated in the hands of the few. This does not happen by chance, this takes place by design. This process is an inherent part of a democratic system.

The collective, as you call them, use their voting power to transfer their wealth, and to concentrate it into the hands of the few. When people vote for social benefits like a social grant, free education, free medical, free housing, electricity, water etc, then as a part of that process, they concentrate wealth in the hands of the few.

Let’s take South Africa for instance. We are the most socialist country on earth that is not already in hyperinflation. After 25 years of ANC rule, it is no coincidence that we also have the highest inequality, as well as the highest unemployment figures on earth. Socialist strategies concentrate wealth in the hands of the few.

Our government uses inflation as a mechanism to fund socialist projects. Inflation, by its very nature, concentrates wealth in the hands of people who own assets. We have a democratic government, elected by people who demand socialist benefits. This process drives up the nominal value of property and assets. Therefore, it is clear to anybody who wants to see, that the wealth gap is the result of socialists policies.

“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some.” – John Maynard Keynes

Thanks for your eloquent responses, Sensei. Much appreciated!

I do agree with your premises. Mostly.

I also see Hudson’s point as compelling, that ALWAYS – at some point – events get so out of hand for the greater majority of the population that it doesn’t work for them anymore.

And then it’s time for society to press the RESET BUTTON. And we ALL start from scratch again.

There is VALUE in seeing this eventuality coming, and preparing for “the NEXT game”.

here’s a crazy idea. Instead of rewarding irresponsible people for their boneheaded borrowing decisions, why not reward the people who have managed their debt responsibly?

Bone-headed LENDING to obvious idiots that have little propensity to repay the debt ALSO needs to be punished!

Hudson’s thinking (and apparently the lessons of history through the ages) solves that problem very neatly indeed.

Couldn’t happen to a more deserving class of parasites. No?

What I don’t get about this article is that fact that Ciaran knocks on the door but never opens it. Why on earth not? The problem is simple: we use debt as money. Money can only be created by an act of borrowing. This is what backs fiat: the fact that every cent in your pocket or in your bank account is owed by someone who will lose their assets if they don’t service their debt. Think about that for a minute.

Now the debt will always increase exponentially (the magic of compounding anyone?) The interest on the debt is never created hence the money in circulation is always less than the debt. The debt can never be retired simply because the money to do so does not exist. Any new money has to be borrowed into existence thus incurring more debt, and more interest. This is why we have ongoing debasement of the currency and governments tax us on nominal gains due to this (CGT).

The solution is not to forgive debt but change the pure fiat fractional reserve banking system. Under a gold standard, gold was the ultimate extinguisher of debt. Gold was money that was not owed by anyone. Thus one could expand the money supply and at the same time pay down debt as happened in the boom times in the USA in the 1950s. A gold standard has other benefits: stabilisation of prices, which is not the intention. A gold standard does, however, stabilise interest rates. There is no bond speculation under a gold standard. Bond speculators (parasites) would then have to get real jobs where they create a produce or service of value to society. They would strop siphoning off industrial capital, bankrupting productive enterprise. The disadvantage for the ANC is that the welfare state is severely compromised. No free lunches.

But the gold standard requires bullion in the vaults.
It makes countries vulnerable too. There was runs on banks during the gold standard era as well and without enough bullion in its vaults reserve banks cannot honor requests for swaps from carrier bonds/ notes.
I dont know that thats a solution.

David- I don’t think you understand how a gold standard works. The only reason people would rather hold specie (non interest bearing) over gold bonds (interest bearing) is because interest rates are too low and bond values are too high. In other words if interest rates are forced down then the central bank will lose gold. If interest rates are too high then the central bank will accumulate gold. This is actually how the gold standard controls interest rates. Interest rate gyrations are a wrecking ball. Falling (not low) interest rates transfer industrial capital to bond speculators (parasites).

Reading this one would think overindebted people were forced at gunpoint to take out debt in the first place…

Evil bankers grrr trying to destroy the world, Illuminati, greedy Zionists, the 1%, viva la revolution, keep the red flag flying high.

Scary thing is these people walk around amongst us

You need to pay attention to the reality.

It’s one thing to responsibly lend to equally responsible borrowers.

And another thing altogether, where the slimeball “business model” is to DELIBERATELY prey on gullible, vulnerable people who you KNOW are seriously bad risks, but no probs – the REAL PROFIT is to be made when they default, and you set on them with your attorneys.

“PARASITES” does not even begin to describe these SCUMBAG “businessmen”.

End of comments.





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