The best way to restart global growth is with debt. We need both more and less of it. Bear with me here.

We need less debt now: Developed-world debt is holding the recovery back. Individuals are cutting what they owe as fast as they can, especially in the United States and Europe, and governments aren't picking up the difference. After briefly loading up on debt -- in part because of stimulus, but now mostly because of bailing out broken banking systems -- they now have the deleveraging bug, too.

Cash diverted to paying off bills must come from somewhere, however, and that somewhere is consumption. With the United States and Europe together accounting for half of global GDP and with consumption making up 70 percent of U.S. GDP, we have a math problem: No matter what innovations are introduced, no matter what entrepreneurial ideas are tried, there aren't enough customers for the United States to export its way out of the self-imposed austerity that comes with deleveraging. Consumer demand is the most precious product in economic life, and the United States, normally demand's biggest provider, is rationing its supply. A deleveraging U.S. consumer is not reconcilable with a speedy global economic recovery.

So, here we are. We need to get deleveraging done quickly if we are to restart the global economy. We can't wait until China becomes a country of consumers, and we definitely can't wait until the developed world works through the massive overleveraging of its real estate, the root cause of the current malaise. We need a debt jubilee: an organized and massive deleveraging in the developed world. Call it First World debt relief, if you will. (Paging Bob Geldof.)

The original debt jubilee idea comes from the Old Testament's book of Leviticus, which (by some interpretations) decrees that every 50 years we should forgive all debts. It is doubtful that such festivals of debt deliverance ever happened regularly. After all, who would lend to anyone in Year 49, knowing full well that in Year 50 you would have your debt repudiated? But the idea is the thing: the notion that societies steadily accumulate the dead weight of debt until it becomes too much for the economy to bear, at which point it must be sloughed off.

Sometimes that happens slowly, as it did during the near decade of the Great Depression, but it can happen quickly, too. The history of debt deleveragings tells us that doing it slowly is painful and prone to causing multiple recessions. The cure is a debt jubilee: a sharp and systematic reduction in overall debt, at all levels, from countries to individuals. Call it mass default if you must, but it will be organized default that runs along predictable tracks.

A jubilee alone won't restart growth -- for that we will eventually require, among other things, more consumer debt. Capitalism needs debt and always will, and the lesson of bankruptcy is that lenders come back quickly afterward. But first we need a fresh start, and we need it now.

Erik Abel/Bloomberg via Getty Images

 

Paul Kedrosky is senior fellow at the Kauffman Foundation.

JOHN MILTON XIV

1:39 AM ET

January 3, 2012

Steve Keen

Another economist who is calling for a (series of) Jubilee Years is UWS economist Steve Keen; who is a follower of Hyman Minsky.

A good intro to Keen's thinking and work is an interview that he did on BBC's "Hardtalk".

http://maxkeiser.com/2011/11/24/steve-keen-on-hardtalk/

And his blog is here:

http://www.debtdeflation.com/blogs/2008/03/10/time-to-read-some-minsky/

 

ATIMOSHENKO

2:18 PM ET

January 3, 2012

Good idea

The question, of course, is who pays? Although, given just how (unjustifiably) concentrated wealth has become in the hands of a few the answer to that may end up being quite straightforward...

 

RACE_TO_THE_BOTTOM

10:56 AM ET

January 4, 2012

What happens to savings?

I agree that this is necessary. Debt is strangling the economy.

How would we do this? Suppose you have your savings in bond mutual funds. You would need some mechanism to protect the savings of middle class people. Pension funds also hold bonds. How do you deal with that?
The finance capitalist class is the class which rules society and owns most of the debt. Elimination of debt overthrows the power of this class. This is by definition a real revolution like the one that overthrew the Ancien Regime. This needs to be understood.

 

JROC42

1:25 PM ET

January 5, 2012

We all pay

There is no difference between wiping out debt and wiping out savings. They are two sides of a single coin. Savings in demand deposit accounts, in bond funds, in money markets are debts owed to you. If all debts are wiped out, you have no savings. Pretty much all debts are held by consumer investors at some point. The exceptions are real property and equities; some people have a lot of their net worth stored in these type of property and the ones who would really benefit from this are the ones who hold the titles with leverage (e.g. they borrowed the money for real property or hold stocks on margin). They would get their property for "free" while the more conservative people who kept their money in bond funds would get nothing.

 

KM519

10:42 AM ET

January 7, 2012

Equities and property are a form of savings

The article's prescription is insane. The path out of the debt maze is to not punish savings or the creation of original wealth; but to liberate it. A dual policy of eliminating capital gains taxes on cashflow, asset appreciation, and interest payments; while at the same time taxing debt by removing interest payment deduction and forming a consumption tax on debt-based financial transactions would stop favoring debt over equity.

When individuals and corporations are forced to pay for interest on debt behavious will change - probably by raising the value of real property (ex. owner's equity), mutual property (ex. equity, partnership, and trusts), and real asset (ex. precious metals and commodity) prices. The salubrious effect will be to emphasize cashflow over financial engineering.

If the G20 were to coordinate changes in their tax policies to enhance captial formation and punish debt formation, the changes would permanently better for a world starved of capital.

Keeping the current system of debt-centric consumption is a mutual suicide pact, though; as are any policies where debt cancellation will occur.

As pointed out - a debt cancellation policy will kill off savings - which is what all debt instruments are convertible from - both permanently and irrevocably. Who would be stupid enough to continue creating original wealth, converting that wealth to savings, then converting savings into a debt contract when the debt contract can be cancelled? Even if you convert debt into new money, you only cause monetary supply inflation as the debtor pays off the debtholder with the new currency.

The first impact of debt cancellation is to kill off fractional reserve banking systems (which use leveraged debt created from savings deposits) and the money supplies based on them, including all fiat currencies - USD, CNY, EUR, GBP, JPY, CHF, AUD, CAD, NZD, INR, etc. In a debt cancellation world, that paper money in your pocket and the digits in your bank account become.

This debt cancellation policy would then impact both real property and mutual property. All trusts, partnerships and equities are a form of mutual property. As example - In the case of a publicly traded corporation, when the corporation's savings are impacted by cancelling debt, the offset of a reduction in savings is against shareholder's equity. Trusts and partnerships would also be impacted similarly as savings are destroyed along with the debt instruments the savings created.

In the case of real property, a real property's value is matched either in owner's equity or debt. If debt is cancelled, some proportional elimination in both owner's equity and property value will occur.

Finally, real assets. As monetary inflation occurs, fiat currencies fail, savings are destroyed, and property values are destroyed; hyperinflation will occur. Hyperinflation is not high levels of inflation, but a distrust in currency -- there would in the end be no amount of fiat money that can be given as an promissory note for a real asset.

Real assets - precious metals and commodities - would inflate ridiculously in a debt cancellation world. This may seem irrelevant except that food, fuel, and shelter are all commodities that would become out of reach to a population that has no savings.

Wishful thinking like debt cancellation ought to be eliminated as a sensible solution by reasonable people.

Our only way out is to ensure that wealth creation is amplified and that current stores of wealth are maintained; while simultaneously eliminating the leverage caused by debt financing of consumers, corporations, and governments.

Sound money and better tax policy are our only hope.

 

THEBULLSS

2:47 AM ET

January 5, 2012

Taxes,regulations, legislations are in favor of the Supper Rich

Please stop supporting non-sense polices that would only benefits the Rich.
You cannot fix the problem by STOP SPENDING. It is a BS of starving the beast cowards...sorry crowds and you know it.
As long as we have the supper rich corporation, have the rich Representatives and Senators write one-sided legislations to enslave the masses we will not break out of this recession. We need something really big and out of box quickly. I suggest:
1) Reverse the Bush Tax Cut and then some, for the TOP Rich 5%.
2) Eliminate FICA payroll tax for Corp. and employees (at lease for a few years) for the people who are making under $30K of income.
3) Eliminate ceiling cap for FICA taxable amount (now at $ 109K) and make ALL incomes from all sources taxable for FICA taxable, so everybody pay the same percentage. That should include those bankers’ bonuses and Wall Street high rollers; I mean every conceivable income from every conceivable source must be FICA taxed.
4) Audit (real audit) every Gov. Agency, especially Pentagon and Federal Reserve (a Privet Bankster, and make it a real Federal Reserve Agency) for waste and corruption and so called mismanagements (playing favoritism).
5) Tax ALL Wall Street Transactions (stock, commodity, and even Derivative Instruments) say 1% on both side (Buyers & Sellers).
6) Close all loopholes on the tax codes for the rich and Corporations (is there any other loopholes? we have already stopped giving single Moms welfare.)
7) Create the biggest Depression-era Works Progress Administration for all kind of public infrastructure (hi-tech and low-tech.)
These simple steps would bring JOBS, stability to the Market, and slowly eliminates DEFICIT and will fix funding for Social Security Fund.

 

THEBULLSS

4:17 AM ET

January 5, 2012

Taxes,regulation, legislation are in favor of the Supper Rich

Please stop supporting non-sense polices that would only benefits the Rich.
You cannot fix the problem by STOP SPENDING. It is a BS of starving the beast cowards...sorry crowds and you know it.
As long as we have the supper rich corporation, have the rich Representatives and Senators write one-sided legislation to enslave the masses we will not break out of this recession. We need something really big and out of box quickly. I suggest:
1) Reverse the Bush Tax Cut and then some, for the TOP Rich 5%.
2) Eliminate FICA payroll tax for Corp. and employees (at lease for a few years) for the people who are making under $30K of income.
3) Eliminate ceiling cap for FICA taxable amount (now at $ 109K) and make ALL incomes from all sources taxable for FICA tax, so everybody pay the same percentage. That should include those bankers’ bonuses and Wall Street high rollers; I mean every conceivable income from every conceivable source must be taxable FICA tax.
4) Audit (real audit) every Gov. Agency, especially Pentagon and Federal Reserve (a Privet Bankster, and make it a real Federal Reserve Agency) for waste and corruption and so called mismanagements (playing favoritism).
5) Tax ALL Wall Street Transactions (stock, commodity, and even Derivative Instruments) say 1% on both side (Buyers & Sellers, and must be paid at the time of the transaction).
6) Close all loopholes on the tax codes for the rich and Corporations (is there any other loopholes? we have already stopped giving single Moms welfare.)
7) Create the biggest Depression-era Works Progress Administration for all kind of public infrastructure (hi-tech and low-tech.)
These simple steps would bring JOBS, stability to the Market, and slowly eliminates DEFICIT and will fix funding for Social Security Fund. I challenge any of these 13 big shot or any other economist to run the numbers with my suggestions, for at least 5 consecutive years and then tell me that these simple, yet out of the box idea will not work.

M. Hoss is a freelance journalist with a degree in Accounting and Marketing.

 

POLITICOLOGY

2:48 PM ET

January 12, 2012

AMERICAN DREAM

Watch this film, and everything will be clearer how to save the global economy

AMERICAN DREAM on youtube
http://www.youtube.com/watch?v=zlsGh_S1E2c

Paripovic Ediz

 

ADVISOR716

1:00 AM ET

January 15, 2012

Quick Fix - More Revenue

Yes a debt jubilee is in order. The US had one for many years until it choked it off by changing the bankruptcy laws. A jubilee will work but the regulations that have choked off our revenue streams need to be readjusted at the same time.

Those of you who are yelling at the computer that we must stop spending are almost right , but not totally. We have to stop "wasting". Don't stop spending altogether. There are those in real need that must be given some of the fruit of our labor. That's just the way it has to be.

But lets remember the three "C's" to every problem, the complaint, the cause, and the correction. Our governments always get the first one and the last one but inevitably leave out the middle one; the cause.

Prosperity is a balancing act between revenue and spending. We need both to have a continuing prosperity for everyone. Look at China. They have lots of revenue but no spending (for their people). Hence, they have no prosperity. They have to keep loaning to the US and Europe because without them they will have no revenue.

The US has lots of spending but have chocked off their revenue with an over burden regulatory situation. But the political environment in the US is in such a strangled hold of "us vs them" that they can't see the forest because of all those darn trees.

But we do need a quick fix but where do we find it. The US can start by looking at its two biggest non taxed revenue streams that exist within its borders; gambling and drugs.

There has been some talk of legalizing online gambling once again. There are many articles starting to pop up suggesting just that. But that legalization won't come without problems as stated in a nice article at http://pcmenterprises.com/legalize-online-gambling.html

And some states are on the verge of legalizing the drug industry but there has been too much federal resistance for them to get on board and pull the trigger to get the laws enacted.

These are not the cure all fix all remedy that will have everything hunky dory in just a few months or years. Yet, they are a quick fix that will go a long way. Just like a jump start on a diet always helps one's attitude go in the right direction when they see an good weight loss in 20 or 30 days.

So too would a shot in the arm quick fix of revenue from sources that already exist help this country and the world (for that matter) get a good push in the right direction. And there would be side effects of legalizing online gambling and drugs. Yes, there would be terrible side effects like the criminals losing there foothold on the economy by taking all the loot and not paying any taxes.

Wow! It's hard to argue with finding new streams of revenue and ridding yourself of drug lords all at the same time. Go figure!

A jubilee alone won't restart growth -- for that we will eventually require, among other things, more consumer debt. Capitalism needs debt and always will, and the lesson of bankruptcy is that lenders come back quickly afterward. But first we need a fresh start, and we need it now.

 

SUDARSHANBALAKRISHNAN

5:21 AM ET

January 16, 2012

worst option

How to Save the Global Economy: Write Off the World's Debt is the worst option of all

 

RAPID2

10:52 PM ET

January 29, 2012

Write off debt...

Agree completely that we should write off all debt and start again. Meanwhile I have a small request...could you lend me a million dollars?