Doug Casey on How Debt Jubilees Could Reshape Our Economy and Politics
International Man: Four thousand years ago, the rulers of ancient Babylon discovered a technique to stave off violent revolts.
Their solution was to enact widespread debt cancellation—a debt jubilee. Debt jubilees acted as a societal pressure release valve when there were no other options.
What’s your take on this concept and its relevance today?
Doug Casey: I’m opposed to debt jubilees. The reason is simple. One man’s liability is another man’s asset. If somebody owes money and defaults on the debt, it becomes a problem for the next person. A debt jubilee legitimizes the idea of defaulting on obligations that you voluntarily took on.
The idea of a debt jubilee is corrosive because it causes people to lose the idea of cause and effect, right and wrong. The word “jubilee” implies a celebration. But a celebration of what? The default of obligations, breaking one’s word, and using the State to defraud those who loaned you capital.
Most of us understand that current levels of debt in the US can’t be repaid. So I understand why some say we should have a jubilee. But if there’s to be a default, it shouldn’t affect private debt that has voluntarily contracted. I suggest it should only affect those who owe or are owed by that great predator, the US Government.
Perhaps the US government should overtly default on its debt rather than defaulting on it slowly through inflation. The debt can’t be paid off. It’s just a question of how it should be defaulted on. The honest way is to admit that it can’t pay. This would affect everyone, especially those who are enabling the State or dealing with it. You can also default on it surreptitiously, fraudulently, through inflation, which affects absolutely everyone but shields the real miscreants.
A good case can be made that an overt default by the US government is the better of the two alternatives for several reasons. It would directly punish its enablers, acting as a warning and a punishment to people who lend money to the State. It would avoid runaway inflation, which is the worst kind of economic catastrophe, by wiping out trillions of fiat dollars. It might preclude the government from borrowing again for at least a while. And most important, it might forestall future generations of Americans being turned into serfs to pay the debt off.
I realize this sounds like “crazy talk” to most people, which is why they’ll be hurt badly. But there are no really good alternatives. There are no happy endings when your government has lived way beyond its means for generations. Actions have consequences. An outright default may simply be the least objectionable form of damage control. Most of the real wealth in the world will still be here—it will just change ownership.
A debt jubilee is really a moral question, a question of what’s right and what’s wrong. A government debt default is basically a good thing at this point. Why? Because you’re saddled with an obligation that you haven’t taken on. The State has incurred it, but you have to pay it off.
You have to pay off things that politicians wanted but which mainly benefit cronies. In general, defaulting on debt is immoral and destructive—with the sole exception of government debt.
International Man: Before the midterm elections in 2022, President Biden unveiled his student loan forgiveness plan, which called for 40 million Americans to have their student loans forgiven.
The idea of a student debt loan jubilee likely helped the Democrats in the election. With the 2024 presidential election on the horizon, Biden has again unveiled another student loan forgiveness plan to help rally support at the ballot.
What are the political implications of debt jubilees?
Doug Casey: It’s pure vote buying. It’s the use of fraud to cement themselves in office. The Biden regime feels that if they cancel the debt of a class of people, that class of people will reward Biden by voting for him. This is outright Banana Republic stuff—a sign of how degraded the moral environment in the US has become.
I have no sympathy for the students; they really should have thought out the meaning of wasting four years while burdening themselves with an anchor of debt. But the universities should probably eat at least part of the debt because they’ve taken payment and, except in very few cases, haven’t delivered a viable product in return. It’s a complicated moral situation, but almost anything where the government gets involved becomes morally muddy.
For instance, if debts are canceled for current borrowers, what about previous borrowers who paid off their debt? Why should only current borrowers that get a freebie? And why should average Americans have to pay off the loans of the privileged class who go to college for four years? It’s basically a question of the poor having to pay off the loans of the rich.
International Man: Given their popular appeal, do you expect debt jubilees to expand beyond student loan forgiveness into other areas, like credit cards and personal loans?
Doug Casey: Definitely. Once people see that debt can be forgiven on one thing, why shouldn’t it be forgiven on other things? They start seeing the government as even more of a magic cornucopia. In addition, big institutions like the banks are universally (and, I might add, justifiably) hated. If the idea of a jubilee builds momentum, why stop with student loans? Why not everything else?
A jubilee is really a euphemistic way of disguising bankruptcy. Bankruptcy sounds bad—but a jubilee sounds happy and good. It’s another example of the language being corrupted. Student loan forgiveness is the camel getting its nose under the tent.
International Man: It’s important to note that debt jubilees do not magically create new wealth. They simply redistribute it. Their government decrees amount to a massive wealth transfer with big winners and losers.
Who are the winners and losers?
Doug Casey: The winners are the most profligate borrowers. The losers are the prudent savers. It encourages the wrong people and rewards bad habits.
Debt amounts to living above your means. It’s stupid, destructive, and immoral to reward the profligate while punishing the prudent who lived within their means. Forcing the country to subsidize its most imprudent citizens is destructive of the whole basis of society.
International Man: Even Obama’s former chief economic advisor, Jason Furman, thought Biden’s debt jubilees have gone too far, describing them as “Pouring roughly half trillion dollars of gasoline on the inflationary fire that is already burning is reckless.”
How do debt jubilees affect inflation and other aspects of the economy? What can speculators do to profit?
Doug Casey: First, let’s look at the nature of debt.
In principle, debt should only be incurred to finance production, increasing the amount of wealth in the world. It should never be used for consumer goods. But most debt today allows people to live above their means, not produce more. So, most of the debt in the country is very deleterious for that reason alone.
The banking system is the source of all this debt. It’s able to create consumer debt only because of a fractional reserve system—where, in effect, the dollar itself is a debt instrument, and every dollar that a bank lends in debt is redeposited in the banking system and re-lent for more debt. It’s a debt pyramid.
The fractional reserve system amounts to a Ponzi scheme that can only exist and go on because the Federal Reserve is there to bail out the banks that made the bad loans. But to go deeper, the government is the root cause of the problem. It set up the central bank and created paper dollars, fiat currency. It’s all based on debt, backed by the “full faith and credit” of the manifestly bankrupt US Government.
So, what can speculators do to profit from it?
A couple of years ago, it was possible to get a 30-year mortgage with fixed three- or three-and-a-half-percent interest. That’s a form of consumer debt, true, but it was also an excellent way to “short” the dollar, an excellent form of speculation.
However, now, with mortgage rates around 7% and housing in a bubble, it may be too late to do that.
What you should do now is get out of debt if you can and own real money. By which I mean gold and silver.
You should have a substantial cache of gold and silver coins. That’s where you want your savings. Why? Because the whole debt pyramid will collapse sooner or later—I think sooner—starting with the value of the dollar itself.
Your best bet is to withdraw your capital from the system. Start by owning gold and silver coins.
Editor’s Note: Unfortunately, there’s little any individual can practically do to change the trajectory of this trend in motion. The best you can do is to stay informed so that you can protect yourself in the best way possible, and even profit from the situation.
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