Envisioning A Debt Jubilee
December 10, 2011 - 4:42pm ET
A couple of days ago, my friend Lambert Strether raised this question about transitioning to a Modern Monetary Theory-based approach to fiscal policy in the United States:
“Could a "debt jubilee" be a useful demand in a transition to MMT? I think it would certainly have broad appeal. Moreover, it's Biblically based!”
Perhaps a “debt jubilee” would have broad appeal, and I guess a biblical framing for it may not hurt, but I think its reception depends on the details.
1) If the Government takes the big banks into resolution and then:
2) takes big write-downs on mortgage principal;
3) lowers credit card interest rates to a few points over prime;
4) brings about Medicare for All, takes the bankrupt health insurance companies over, while canceling debts to them and paying any remaining debts of consumers to providers;
5) allows previous owners of foreclosed homes to take them back, while it provides grants to them for fixing up the homes the big banks allowed to deteriorate.
That's not a complete debt jubilee, but it is enough to provide lots of relief, and make the majority of people very happy with the Government.
The political opposition from the 1% could be short-circuited through claw-backs of many billions in bonuses paid to financial industry executives whose companies were guilty of fraud in claiming profits on which the bonuses were based. This probably wouldn't require legislation, only careful accounting of the resolved banks showing the frauds, correcting the accounting, restating the real profits or lack of them, and then a strong enforcement effort including pursuing the money to off-shore banking havens. If all this were done many of the rich would be too busy conserving what was left of their fortunes to fund an aggressive right-wing response.
We may get the chance to apply measures like this if the Eurozone collapses in the Spring. Then the US Banks will be looking for a bailout. There will be a firestorm from the 99% directed at both the President and Congress to say no to anymore bailouts. But, if Obama refuses it, and make no mistake, he and Congress will be under enormous pressure from Wall Street not to do that, while Wall Street will be screaming at the Fed to avoid it also, then we'll able to get on the road I laid out with step 1.
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