Commenter Steven Shaw asks:
With a jubilee, are all debts forgiven, no matter how large they are? What is to stop folks from borrowing big just before JB-day? Who do you suspect is hurt by a jubilee? the prudent? How would private and local exceptions work and what would they look like?
Taking the questions in order:
1) All debts would be forgiven under what I have proposed, except for a) the currency – which in the US is in the form of Federal Reserve Notes, and being “notes”, are debt – and b) demand deposits, which are debts owed by banks to their depositors. Any other debts, no matter how large, would be forgiven and canceled as a matter of law, although of course anyone who wanted to pay a debt anyway could do so even if it was not enforceable.
2) The question is not whether people could be stopped from “borrowing big just before JB day”, because there would have to be a lender for that, and it’s hard to imagine there would be any. This particular problem would be more or less automatically precluded. What would be something of a problem is that there would be plenty of notice that the jubilee was going to happen and people would justifiably move into the forms of wealth that were not going to be canceled, such as currency and demand deposits. It’s important to note that although this may affect individuals for good or ill while they try to position themselves for the post-jubilee economy, system wide it will make no difference: the formula will remain the same. If there are more demand deposits this will simply result in a higher dollar-gold ratio. If there is more gold, the reverse.
In addition, bonds would be on the chopping block, but stocks wouldn’t, at least not common stocks, because they are not debt. So one might imagine a rush into cash and deposits and a significant appreciation in equities, although the latter is less certain: with liquidity so drastically reduced, what would anyone actually pay for a share of stock? This would be such a big question that I doubt any real movement into equities would take place.
3) The biggest problem with a jubilee is that certain prudent people would probably be financially hurt, although I would argue that they’d probably be hurt more, but in a different way, if we didn’t have a jubilee (with widespread civil unrest, for example, everyone suffers). Someone who owns no hard assets and has little cash or savings in demand deposit accounts would be nearly impoverished, even if they had – and I think this would be a typical example – a pension of some kind. The pension would be a debt of the pension fund to the pensioner, and would be canceled. People who invested primarily in bonds or any other form of debt would be hurt.
The most prudent people of all, of course, would be those who have invested in gold, and they would most likely do quite well, although that is by no means a lock. It would depend on how they held their gold, and what the purchasing power of the revalued gold would actually translate into. It is quite possible that at first, there would be little to purchase no matter how many dollars anyone had. This would be a huge readjustment for everyone. It is reasonable to expect that production would temporarily take a big nose-dive, because no one would have the foggiest idea what price their products would actually bring. In addition, it is also reasonable to expect that the supply of gold would rapidly increase due to its much higher valuation in dollar terms. That would essentially dilute the purchasing power of gold very quickly as well. Since there is bound to be a sort of monetary chaos at first, it would probably be best to accumulate hard assets: homes, cars, washing machines. Marijuana.
Just kidding about the marijuana.
4) As to private and local exceptions, this is a very good question, too. I’m assuming there will be relatively few people in the position of having no hard assets to fall back on, and little in the way of savings and currency. Think of an elderly pensioner who rents his flat, lives on his pension income and doesn’t really own anything. His income – the only thing he really has – would be wiped out.
Though few in number this is a terrible problem and an unjust result for such people.
Nevertheless, the governments, both federal and state, will have a sizable reserve with which to work: between them they will possess 20% of the nation’s monetary wealth, which ain’t nothing. Addressing these situations, which again would probably be very few in number relatively speaking, would be high on the priority list of things for the government to do. And this is perfectly proper: the governments and their officials are among the most culpable people now living in fostering this whole mess, which in turn requires this massive readjustment.
For any others who might unfairly fall through the cracks, I’m going to rely on people’s basic decency. Many people will have what amounts to a windfall when their debts are forgiven them. Anyone who has experienced a windfall like that – or at least someone, or some of them – would be obligated, in my opinion – perhaps not legally or by force but at least morally – to ensure that some other poor soul in their community who for whatever reason experienced the reverse, became impoverished in the course of the monetary readjustment, and didn’t fit into or qualify for whatever legislative remedy the government came up with, did not experience a catastrophe and had at least a place to live, food and clothing. This would not be so much charity as gratitude on the part of the giver(s). The entire world, in real terms if not monetary ones, will be so much better off – except for the banksters and the government employees, many of whom will have to take pay cuts and/or find another line of work.
I want to thank Mr. Shaw for these important and thoughtful questions.