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Guest Post: Unleashing The Future: Advancing Prosperity Through Debt Forgiveness (Par
Started:November 28th, 2011 (01:20 PM) by Quick Summary Views / Replies:488 / 1
Last Reply:December 6th, 2011 (12:32 PM) Attachments:0

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Guest Post: Unleashing The Future: Advancing Prosperity Through Debt Forgiveness (Par

Old November 28th, 2011, 01:20 PM   #1 (permalink)
Quick Summary
Guest Post: Unleashing The Future: Advancing Prosperity Through Debt Forgiveness (Par

Submitted by Zeus Yiamouyiannis, contributor to Of Two Minds

Unleashing The Future: Advancing Prosperity Through Debt Forgiveness (Part 1)


My last article on debt forgiveness, Endgame: When Debt is Fraud, Debt Forgiveness is the Last and Only Remedy must have struck quite a chord in discussions of the future of the economy. It was re-posted on scores of websites and received over 20,000 reads on Zero Hedge. It also resulted in a reference on the Max Keiser Report and a subsequent interview with Max Keiser. This led in turn to a popularization of a term I used, “fake assets,” to denote the true nature of “toxic assets”.

The good news is that people are talking, attempting to assess the situation in real terms, and looking for an alternative to the broken system. The bad news is that this discussion has not been turned very much toward practical directions. The main contention in my original article on debt forgiveness and subsequent interview was simply that ignoring the mathematics of debt (where debt grows exponentially and real growth is limited), especially when magnified by tens, if not hundreds, of trillions of dollars of additional fraudulent debt, is a dangerous fantasy that worsens insolvency and accelerates collapse. “Extend and pretend” cannot provide an answer but can only amplify current destructive trends and delay serious preparation of an alternative.

This series outlines some of the alternatives to the current impasse.

Principles and issues in debt forgiveness administration:

Before embarking on a mission to address the standoff between people who cannot pay their debts and international economies that have been running on massive debts for the last three decades, one must do a reality check and establish sane observations and principles.

1) Debt that cannot (vs. “will not”) be practically paid is not a debt in its classical sense. It’s a default. Whether or not people want to recognize this reality is another issue. We recognize that a law that cannot be enforced is not really a law in any practical sense, so why are we dragging our feet with debt? Greece cannot pay its debt by any rational formula. It is already in default. Extending and pretending does not materially change this fact, it only delays recognition of the stark, enduring reality.

2) Debt based in fraudulent lending is also not true debt in any meaningful sense, since the loan along with its obligations originated from something (private fiat) that had no valid authority or exchange value to begin with. Much of the current worldwide debt simply stems from lending based in fraud numbering in the hundreds of trillions of dollars by institutions who did not have adequate collateral (i.e. held insufficient capital reserves, engaged in mark-to-fantasy accounting of their assets, assigned real value to fake assets like credit default swaps, etc.). A lending body cannot give effectively nothing to someone (claiming it is something) and legitimately expect to get something real back.

3) When debt systems are flooded with fraudulent currencies and claims, it is not true that someone, either the borrower or lender, will have to pay the “false value”-backed debt. You are not legally allowed to profit from crime nor legally obligated to support crime. This precludes the payment of many of the debts currently in circulation. In committing wide-scale control fraud, major financial institutions have broken laws. The laws they have broken are enforceable; they just have yet to be enforced.

However, even with successful prosecution, bankruptcy proceedings, and nationalization/receivership of offending institutions, we are left with a practical problem: Real currency has been mixed with fake currency, real debt with fake debt. Chains of title and claims to property have been so forged, electronically registered, diced up, and distorted as to make it difficult to sort valid ownership from invalid. When real money has been high-jacked and “disappeared” as with Bernie Madoff, what can be done to address this? These will be points of discussion later in this article series.

4) The mathematics of debt, even without fraud, would require periodic forgiveness or at least abatement. There must be ways for debts to be adjusted to contingencies. Economies, like families, go through good and bad times. Debt obligations are constructed as if there are only good times. Basically, the only way to pay off a debt is to outrun it in a time of relative stability. Even in eras of surplus, debt takes a big bite out productive effort, but it quickly becomes consuming as one gets behind in payments and as more and more of the fruits of effort must go to servicing debt.

At that point, loans become chains that tie people to mediocre jobs and underwater houses and no longer engines of mobile growth. Debt forgiveness recognizes this contingency and facilitates liberty, productivity, and global quality of life as the more salient indicators of vital economies. Policies and contracts ultimately must be in the interests of people’s well-being for them to be legitimate. Conversely, when debt is ring-fenced from contingency as with student loans, it will be become inherently corrupt and unjust.

5) In any rearrangement of the debt system, productivity and stakeholdership should be rewarded and parasitism should be punished. It’s easy to forget that people used to go to a banking agent to get a loan to grow their net financial worth through productive enterprise. In such a relationship the bank gained a stake in your success, not your misfortune. If we are serious about rewarding well-applied effort, then it would make sense to peg debt and debt obligations to the productivity growth curve of an enterprise or domestic product. Lending institutions, then, would essentially buy a longer term stake in the success of enterprises it funds, exert a due diligence proportional to its interest, and both benefit from and share the burden of inevitable rises and falls in growth.

In the housing-bubble debacle the incentives were exactly opposite. Irresponsibility was rewarded precisely because banks could sell off fraudulently documented loans as quickly as they could be signed. In late capitalism, bank support for productivity has been converted into support for exploitation and victimization, using repayment shortfalls to repossess assets from borrowers even though the bank loans were drawn from “money” backed by counterfeit assets. That has to be reversed—real money for real enterprise backed by real assets.

6) Things go down and not always up. “New era” rhetoric where financial gravity is suspended is a dangerous delusion. When we realize this simple fact and combine it with rewarding productivity and stakeholdership, we realize that our revenues and values will fluctuate dependent upon demand, environmental limits, and a host of other factors, some within our control and some not. Fighting this empirical fact, on the other hand, creates damaging and unsustainable living. Why not tie notions of prosperity and economic organization to optimizing our productivity, by identifying and working within the changing conditions, not distorting those conditions by taking on debt-credit to be paid by later generations?

7) The living shall not be beholden to the dead. When an individual person dies with debts, what can be collected from their remaining assets is collected and the rest is written off. Yet the opposite occurs with generational debt. Irresponsible borrowing by past generations is foisted on succeeding generations. The sins of the forefathers are preserved with interest to gouge the quality of life of younger people who neither decided upon nor benefited from irresponsible borrowing.

Certainly, we now see scorched-earth class warfare of the 1% against everyone else, but we are ignoring an even more profound unintended warfare by an entire generation of post-WWII world citizens against the wellness and interests of its own children. How could such a destructive myopia so thoroughly pervade society and bring us this critical historical inflection point? This will be examined in the next part.

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Old December 6th, 2011, 12:32 PM   #2 (permalink)
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History of Debt Serfdom and Debt Forgiveness

Democracy and Debt | Michael Hudson

Democracy and Debt
December 3, 2011
By Michael Hudson
Has the Link been Broken?
*This article appeared in the Frankfurter Algemeine Zeitung on December 5, 2011.

Book V of Aristotle’s Politics describes the eternal transition of oligarchies making themselves into hereditary aristocracies – which end up being overthrown by tyrants or develop internal rivalries as some families decide to “take the multitude into their camp” and usher in democracy, within which an oligarchy emerges once again, followed by aristocracy, democracy, and so on throughout history.

Debt has been the main dynamic driving these shifts – always with new twists and turns. It polarizes wealth to create a creditor class, whose oligarchic rule is ended as new leaders (“tyrants” to Aristotle) win popular support by cancelling the debts and redistributing property or taking its usufruct for the state.

Since the Renaissance, however, bankers have shifted their political support to democracies. This did not reflect egalitarian or liberal political convictions as such, but rather a desire for better security for their loans. As James Steuart explained in 1767, royal borrowings remained private affairs rather than truly public debts [1]. For a sovereign’s debts to become binding upon the entire nation, elected representatives had to enact the taxes to pay their interest charges.

By giving taxpayers this voice in government, the Dutch and British democracies provided creditors with much safer claims for payment than did kings and princes whose debts died with them. But the recent debt protests from Iceland to Greece and Spain suggest that creditors are shifting their support away from democracies. They are demanding fiscal austerity and even privatization sell-offs.

This is turning international finance into a new mode of warfare. Its objective is the same as military conquest in times past: to appropriate land and mineral resources, communal infrastructure and extract tribute.

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