Michael Hudson and Paul Craig Roberts
Out of habit, American economists worry about federal debt. But federal debt can be redeemed by the Federal Reserve printing the money with which to retire the bonds. The debt problem rests with individuals, companies, and state and local governments. They have no printing press.
We have explained that the indebtedness of the population means there is little discretionary income with which to drive the economy. The offshoring of middle class jobs lowered incomes, and after paying debt service—mortgage interest, car payments, credit card interest, student loan debt—Americans’ pockets are empty.
This situation has been worsened by Covid lockdowns. In the US the federal government has sent out a few Covid payments to help keep people’s heads above water as they face expenses without income. The financial press refers to these Covid checks as “fiscal stimulus,” but there is no stimulus. The Covid checks do not come close to replacing the missing wages, salaries and business profits from lockdowns.
Corporations have indebted themselves and impaired their capitalization by borrowing money with which to repurchase their stock. This has built up their debt in the face of stagnant or declining consumer discretionary income.
We propose to deal with the debt crisis by forgiving debts as was done in ancient times. Our basic premise is that debts that cannot be paid won’t be. Widespread foreclosures and evictions would further worsen the distribution of income and wealth and further constrain the ability of the economy to grow. Writing debt down to levels that can be serviced would clear the decks tor a real recovery. Income that would be siphoned off in debt service would instead be available to purchase new goods and services.
A few economists muttered that we were overlooking the “moral hazzard” of absolving people of their debts. But leaving the economy stagnated in debt is also a moral hazard.
Policymakers did not endorse our proposal, but, in effect, policymakers adopted our policy. However, instead of forgiving the debt itself, they forgave payment of the debt service. Individuals and businesses who cannot pay their landlords or lenders cannot be evicted or foreclosed until June. This doesn’t hurt the lenders or banks, because the loans are not in default, and their balance sheet is not impaired. The banks add the unpaid payments to their assets, and their balance sheets remain sound.
When June arrives, the prohibition against eviction and foreclosure will have to be extended as the accrued debt service cannot be paid. Extending the moratorium on foreclosures and evictions will just build up arrears. Is the implication a perpetual moratorium?
The question is: If policymakers are willing to forgive debt service, why not just forgive the debt. The latter is neater and clears the decks for an economic renewal.
The US economy has been financialized. Debt has been built up without a corresponding gain in productive capital investment in order to carry the mounting debt.
The main purpose of bank loans is to refinance existing investments, not to expand productive capacity with which to service the debt. It is not possible to grow out of debt in a financialized economy, because too much income is used for debt service. The way to deal with this problem is to write down debts.
...and forgive them their debts
Lending, Foreclosure and Redemption
From Bronze Age Finance to the Jubilee Year
In …and forgive them their debts, renowned professor of economics, Michael Hudson – and one of the few who could see the 2008 financial crisis coming – takes us on an epic journey through the economies of ancient civilizations. For the past 40 years in conjunction with the Harvard Peabody Museum, he and his colleagues have documented the archeological record and history of debt, and how societies have dealt with (or failed to deal with) the proliferation of debts that cannot be paid. In the pages of …and forgive them their debts, readers will discover shocking historical truths about how debt played a central role in shaping ancient societies. Perhaps most striking of all is that – in a nearly complete consensus of Assyriologists & biblical scholars – the Bible is preoccupied with debt, not sin.
In all eras – from antiquity to the present – debts have tended to mount up faster than the ability of most debtors to pay. That is a basic mathematical fact: Economic growth is arithmetic and can’t keep up with the exponential growth of debt growing at compound interest.
The big economic question is – and has always been – what will happen if debts cannot be paid? Will there be a debt write-down in favor of debtors (as has been done for large corporations), or will creditors be allowed to foreclose (as is always done on personal debtors and mortgage-holders), leading to their political takeover of the assets of the economy – and the government’s public sector?
The problem of debt backlogs was created with the invention of interest-bearing loans in agrarian 3rd Millennium BC Mesopotamia. The remedy of record was the royal Clean Slate proclamation or Jubilee Year of debt forgiveness. These proclamations had three functions: (1) They restored financial balance by annulling the backlog of crop debts that had accrued; (2) they liberated indebted bondservants (and their families); and (3) they restored land tenure rights, enabling debtors to continue living productively on the land, pay taxes, and be available for military service and corvée labor.
Clean Slate debt cancellations (the Jubilee Year), used in Babylonia since Hammurabi’s dynasty, first appear in the Bible in Leviticus 25. Jesus’s first sermon announced that he had come to proclaim it. This message – more than other religious claims – is what threatened his enemies, and why he was put to death.
This interpretation has been all but expunged from our contemporary understanding of the phrase, “…and forgive them their debts,” in The Lord’s Prayer. It has been changed to “…and forgive them their trespasses (or sins),” depending on the particular Christian tradition that influenced the translation from the Greek opheilēma/opheiletēs (debts/debtors). On the contrary, debt repayment has become sanctified and mystified as a way of moralizing claims on borrowers, allowing creditor elites and oligarchs the leverage to take over societies and privatize their public assets, especially in hard times.
Historically, no monarchy or government has survived takeover by creditor elites and oligarchs (viz: Rome). In a time of increasing economic and political polarization, and a global economy deeper in debt than at the height of the 2008 financial crisis, …and forgive them their debts shows what individuals, governments, and societies can learn from the ancient past for restoring economic and social stability today.
“Michael Hudson is surely the most innovative, and in my view, the most important economic historian of the last half century. This is the consummate product of 30 years of research on the history of a subject that could not be more important to our own situation today. We like to use the expression words “ancient history” as a code-word for “of no possible relevance to matters of consequence today.” This book clearly demonstrates that nothing could be further from the truth. If we don’t take heed, ancient history is likely to engulf us in ways that will shatter our complacency in the most disastrous of ways. Hudson is giving us a desperately needed warning, and we would do well to pay very close attention.” — David Graeber, Professor of Anthropology at the London School of Economics, author of the international bestseller Debt: The First 5,000 Years
“As someone in the leadership of the international Jubilee 2000 campaign, I have always believed that the Judaic and Christian principle of Jubilee – the periodic correction of economic imbalances – was a principle of social justice deeply embedded in the human psyche. Michael Hudson’s excavation of the ancient historical roots of the Jubilee, Sabbath or sabbatical principle, common to all the Abrahamic faiths, makes this book an essential read for those that want to deepen their understanding of the world’s great religions. His account of the evolution of creditor-debtor relationships, as well as of the development of the rate of interest in ancient Assyria makes this book of particular relevance to historians of western economic thought and practice. But above all, Hudson’s book reminds us that human history is littered with bitter struggles between debtors and their creditors, between the landed and the landless, and between workers and rentiers. And that the struggle continues.” — Ann Pettifor, Political Economist, Director of PRIME, Economic Adviser to Jeremy Corbyn and the British Labour Party
“Michael Hudson reveals the real meaning of “Forgive us our sins.” It has far more to do with throwing the moneylenders out of the Temple than today’s moneylenders would like you to know.” — Steve Keen, Economist, Head of the School of Economics, Politics, and History at Kingston University, Revere Award for Economics winner for being the economist who first and foremost cogently warned the world of the coming 2008 Global Financial Collapse
“Michael Hudson is the best economist in the world… Readers often ask me how they can learn economics. My answer is to spend many hours with Hudson’s books. You will understand economics better than any Nobel Prize-winning economist.” — Paul Craig Roberts, former under-secretary of the U.S. Treasury (Reagan Administration) and author of The Failure of Laissez Faire Capitalism and Economic Dissolution of the West
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