E We Must Redirect Our National Credit

We are living under the pall of a bleak future. If we do not change our practices, the future will surely be bleak. Here are two changes to consider.

1. Cancel all debt, systematically, every seven years

Money lent out by the Fed to sustain the market is not productive, therefore the loan cannot be repaid. The web of debt currently created is like a bomb due to explode. The entire system is in danger.

In the past, the rehabilitation of the financial system was achieved with substantial injections of public money through combined efforts of the Congress and the Federal Reserve System (the Fed). This time around such a solution is unlikely to be available. First, Congress is so divided that it might not agree in time on any rescue package. Second, the volume of debt has grown beyond recognition: The combined debt of private and public entities is no longer in the millions but the trillions of dollars. The debt is uncollectable.

If the financial system collapses, credit is no longer available to the real economy. This time around, effects are going to be more deleterious than the hardships imposed by the Great Depression, mainly because most people had a recent relation with the land. Today’s generations have to be instructed on how to live off the land.

The rational solution, the Jubilee Solution, is to Defuse the Bomb. The rational solution is to legislate a systematic reduction of all debt, not only student debt, down to zero over the course of seven years. And repeat the cycle over and over again. Moses did it. Most Kings and Emperors were able to declare a debt jubilee upon coronation.

Through a systematic reduction of debt, what is being destroyed is not wealth but an accumulation of zeros. Human and economic relationships will remain undisturbed; people will be as rich in relation to each other after as they were before the cancellation of debts. What we have to prevent is the possibility that one individual or one group of people somehow evades the cancellation of zeros. An imbalance will then be created, and some people will automatically and unjustly become richer than the group of people who obeyed the law of the jubilee.

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Disclosure: Carmine Gorga is president of The Somist Institute and a former Fulbright Scholar.

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