Can we forgive and erase all debt in the world today?
I’ve pondered on this questions for years. Before entering in the world of banking & payments, every time I tried discussing this topic with others who were more educated than me, I was waived off, with a brush of the hand, as I don’t get it how the financial system runs!
I keep asking myself, if I can forgive debt that others owe me and vice versa, why can’t society in itself forgive debt and start with a clean slate.
I was obsessed with this. Truth be told, still am.
Fast forward a couple of years, I’ve spent countless hours of reading economics, banking, origination of payment, finance, lending, credit establishment in the formal banking system, the bond market, derivatives, hedge funds, sovereign lending, etc. I’ve watched 100s of videos and talked for hours with experts.
I’m certainly not an economist by any measure, but I am well informed. Better than what I was yesterday.
So, coming back to the Debt question.
Neoclassical economics will tell you that debt is good. Common sense and classical economics will tell you it is not.
Neoclassical economists will cite trickle-down-effect but don’t be fooled. The people at the bottom are certainly not benefitting from the wealth coming their way. By the time the effect happens, the value of money has seriously been eroded.
Research and on-ground surveys will prove, that the gap between the rich and the poor is getting wider, not narrower.
One need not be an economist to understand that debt, in any shape, manner or form is a burden. Much of society today is debt ridden. So ingrained we’ve become since inception, that debt is actually considered a good thing.
If you have the patience and an open-mind to listening (rather watching) another view point, then I would definitely recommend 97% Owned — a documentary that is worth watching and will open your mind:
Why is debt forgiveness considered against the laws of economics?
I have asked this question. Many times. The answer is always gibberish wrapped in fancy terms. Deconstruct the argument given against debt forgiveness, and you will discover (in plain English), the explanation is downright weak if not sprinkled with protectionism for the rich.
The downside of any debt forgiveness is the elimination of all the savings one might have. But that is okay, in the greater scheme of things.
Let me discuss this by example. Three people owe me money! Say, US$ 1,000 each. If I forgive their debt, they can move on with their lives in a better way. Less anxiety, more money to spend on their wellbeing, etc.
Now at the same time, I owe someone US$ 5,000. If that debt is forgiven, not only do I not have to worry about the money people owe me, but I don’t have to worry about the money I owe people. Regardless of the numbers (and I ran them through a spreadsheet, modeling it), the situation becomes better. Sure, it is hard to fathom that savings would be eliminated, or income due is gone, but the over all picture looks much, much cleaner.
Think of it as a blackboard being erased. There is relief in that.
However, debt forgiveness alone with not solve the problem. Much more needs to be done. Before we discuss the theory of what would happen if all debt was erased today, it is a good idea to revisit history.
Germany & its marriage to debt.
Towards the end of the World War II, Germany was devastated in all aspects. Finance included. In fact one could argue, because the German currency was so weak before the war, that could very well have been the catalyst of frustration that led Germany to go all out with war paint.
The Hyperinflation in the Weimar Republic was at its peak in 1923. How bad was it?
Pretty bad. Here are some examples…
To give some semblance on the deterioration of currency, here is what the German Mark looked like through the years of hyperinflation.
Want to send a post card to your mother? Well, stamps were priced in the Billions!
Currency Reform of Germany
The Currency Reform of Germany (1948) was one of the first examples in history where the debt of a country was forgiven. All debt except wages for the last few weeks so that employers can pay their workers, who can then go on and buy food/living essentials.
It also lead to the birth of the Deutsche Mark.
Monetary reform was urgently needed to facilitate the introduction of the Marshall Plan, eliminate the black market, and create a more favorable ratio between available goods and the amount of money in circulation. The currency reform of June 20, 1948, introduced the Deutsche Mark (DM) in the Western occupation zones. As part of its launch, every resident was given start-up money in the amount of 40 DM. (A second installment of 20 DM was paid out later.) The photograph below shows the initial allotment being handed out at a disbursement site in a Carmelite school in Munich.
Simultaneous to the introduction of the reform, Ludwig Erhard, director of economics in the Bizone, announced measures lifting price and production controls on many items. Products appeared on shelves, and the black market disappeared virtually overnight. Two days after the Western reform took effect, the Soviets announced a currency reform of their own; it was to apply to their occupation zone and to all of Berlin. Western leaders were opposed to the inclusion of Berlin, however, and they introduced the DM in their sectors. On June 24, 1948, the Soviets responded by blockading the Western sectors of the city. Photo by Hans Hubmann.
These paragraphs adequately sums it up:
Clearing debt and starting over, gives economies (especially the government and the people) renewed hope. As it did with Germany.
Here is a newsreel from 1948 aptly titled Handle With Care.
Debt is Modern Day Slavery
Today’s debt is the equivalent of Modern Day Slavery. Have no doubt about it. Every Dollar note that is printed (or electronically created) is a form of debt.
Think about that for a minute. Every currency note that is created today is debt.
The answer to our problems is not just restricted to the elimination of debt, via forgiveness, but rather to address the general problem at hand: i.e. the fiat money system with fractional reserve banking.
The exit from the gold standards (via Executive Order 6102 for Gold, and Executive Order 6814 for Silver) will forever be the defining moment in history.
On 15th August, 1971, President Nixon formally broke away from the Bretton Woods System (also known as Nixon Shock), by deciding to formally abolish the requirement of backing the US Dollar with gold and replacing it with a free-floating Fiat Money system.
The Congress/Federal Reserve were free to print as much money as they want.
If you and I were to print money in any shape, manner or form and use it to openly trade, it is a federal crime in many countries. However, if the government does, it is not. It is perfectly legal, and to do so without any asset or resources to back it up — creating money out of thin air, is where the problem lies.
Now some may argue there is nothing wrong with our banking system today. Here is where they are wrong. Our current system cannot sustain itself without debt.
Read that again: Our current banking system cannot sustain itself (keep functioning) without debt!
The whole money supply is inflationary.
We need to have in play a system that cannot be exploited, i.e. where unilaterally money cannot just be made, thus lowering the value (purchasing power) of money already in circulation.
We need to resort to some commodity back monetary system, preferably gold.
Conclusion
Debt can be forgiven.
It is a bad thing and not a good thing as you have been led to believe.
This is not a question of being a conspiracy theorist or this versus that. It is a matter of simply opening up your eyes and reading more. Being better informed. In this blessed day and age of connected communication and access to information via the Internet, it is a marvel that the masses still cannot stick their necks out from the noise and see what is really going on here.
Its pretty simple. We now conclusively can agree that we have a flawed banking system in play and this needs to be stopped, and a more trusted, alternate financial system be put in its place.
There are 1000s of sources on the internet from where you can learn and read about economics: banking and money. Don’t take my word for it. Do your own research and see.
Modern day slavery is a terrible thing.
Recommended Reading:
Here are some books & articles worth reading regarding the whole debt forgiveness vertical and some must read articles on the German economic miracle after World War II.
A much recommended read is The Economic Consequences of the Peace by John Maynard Keynes.
About the Author: Hi!, My name is Faisal Khan and I am a banking & payments consultant active in the fintech space. I am also the co-host of Around the Coin, a weekly podcast on banking, money and payments.
He is also a frequent contributor to popular Q&A site Quora. Faisal helps clients think, strategize and execute plans that can have a direct positive impact on money transfers, be it P2P, B2C or C2B.
His official website is at www.faisalkhan.com & the blog can be accessed at https://blog.faisalkhan.com
