In 1997, Norway instituted Debt Forgiveness and “Wrote Down” 90% of the Countries Mortgage Debt.
It’s been done, documented, and completely hidden from the World, through the World Media, until 19 April 2012.
Complete and Total Censorship of anything Debt Forgiveness Related, World Wide.
Here is a link to radio Interview of a Lawyer from Norway instrumental in bringing Mortgage Debt Forgiveness to Norway.
[ Broadcast on: 19 April 2012
Morning Ireland: Conference on ways to tackle personal debt – Norwegian lawyer Egil Rokhaug ]
The IMF has said that targeted household debt reduction policies can deliver significant economic benefits.
Latest IMF report notes link between high levels of household debt and the effect on economic recovery
The IMF has said that targeted household debt reduction policies – including mortgage write-downs – can deliver significant economic benefits.
The International Monetary Fund made the comments in its latest World Economic Outlook.
The IMF said such policies can substantially mitigate the negative effect of household deleveraging on economic activity.
The report noted the well established link between high levels of household debt run up during a housing boom, and the effect of a high debt overhang on economic recovery.
It found that countries, like Ireland, that saw house prices and household borrowing skyrocket, saw a longer than average period of recession after the bursting of the housing bubble.
A large part of this protracted recession it said is due to households trying to reduce their debt levels, which in turn leads to less spending in the economy, driving the recession deeper and further.
“Because debt is acting as a brake on economic growth, it is important to unstick the brake” said the report’s author Daniel Leigh.
The IMF has studied the response of a number of countries to situations where large parts of the population are burdened with high mortgage debt in a recession, and finds that such programmes can help prevent self-reinforcing cycles of falling house prices and lower aggregate demand.
“Such policies are particularly relevant for economies with limited scope for expansionary macroeconomic policies and in which the financial sector has already received government report”, notes the conclusions. Ireland meets both these criteria.
The report highlighted what it calls the “bold ” household debt reduction programmes implemented in the US in the 1930’s and in
Iceland in this crisis, which it said can “significantly reduce the number of household defaults and foreclosures and substantially reduce debt repayment burdens”.
It contrasted these examples with others that have not been successful, such as the current response to the crisis in the US and Hungary, and the policies pursued in Colombia and the Scandinavian countries in the 90’s.
As well as the “bold” approach, it said that ensuring a strong banking sector is crucial during the period of household deleveraging. It stated that the policies in Colombia and Hungary were not a success as they placed too much burden on an already fragile banking sector.
It also said the policies must be designed to have incentives for both banks and borrowers to participate, notably by offering a viable alternative to default and foreclosure.
The IMF noted that government support for household debt restructuring programmes involves clear winners and losers. “The friction caused by such redistribution may be one reason why such policies have rarely been used in the past, except when the magnitude of the problem was substantial and the ensuing social and political pressures considerable”,’ it stated.
It cited another study which found that political systems tend to become more polarised in the wake of financial crises, and raised the question of collective action problems – that distressed mortgage borrowers may be less politically organised than banks – and this can hamper efforts to implement household debt restructuring.
In the US in the 1930’s the Roosevelt administration introduced the Home Owners Loan Corporation, which bought distressed mortgages from banks with government bonds, with federal guarantees on principal and interest. It then restructured these mortgages to make them more affordable to borrowers.
80% of the restructured loans (some 800,000) were protected from repossession by the measure, and the mortgages were subsequently sold on over time for a nominal profit at the time the programme was brought to an end in 1951. The mortgage purchases amounted to 8.4% of 1933’s GDP in the US.
The IMF said “a key feature of the HOLC was the effective transfer of funds to credit constrained households with distressed balance sheets and a high marginal propensity to consume, which mitigated the negative effects on aggregate demand” caused by the recession and need for household deleveraging.
The main mechanism to make loans more affordable was to extend the term of the mortgage – sometimes doubling the term – and converting it from a variable to a fixed rate. In a number of cases the HOLC also wrote off part of the principal to ensure that no loans exceeded 80% of the appraised value of the house.
In the case of Iceland the situation was more difficult, due in part to the much bigger proportion of the population that was affected, and to the wide presence of foreign currency mortgages.
The government and the newly constructed Icelandic banks developed a template to be used in case by case restructuring discussions between borrowers and lenders. The templates facilitated substantial debt write-downs designed to align secured debt with the supporting collateral (i.e bring the loan into line with the value of the house) and align debt service with the ability to repay.
The IMF found that such case by case negotiations safeguard property rights and reduce moral hazard, but they take time. As of January of this year, only 35% of the case by case restructuring applications had been processed. To speed things up, Iceland has introduced a debt forgiveness plan which writes down deeply underwater mortgages to 110% of the households’ pledgeable assets.
It noted that only when a comprehensive framework was put in place and a clear expiration date for relief measures announced that debt write-downs finally took off. As of January 2012, 15 to 20% of all Icelandic mortgages have been or are in the process of being written down.
However, it said the jury is still out on Iceland’s plans, and said the extent to which Iceland can put its citizens back on their feet and minimise moral hazard remains to be seen.
WHEN DEBT IS FRAUD, DEBT FORGIVENESS IS THE LAST AND ONLY REMEDY – Zeus Yiamouyiannis, Ph.D.
Endgame: When Debt Is Fraud, Debt Forgiveness Is The Last And Only Remedy
Charles Hugh-Smith from Of Two Minds.
Today I present an important guest essay by long-time contributor Zeus Yiamouyiannis, who suggests that when debt is essentially fraudulent, then debt forgiveness is both the logical and the only remedy.
Endgame: When Debt is Fraud, Debt Forgiveness is the Last and Only Remedy, by Zeus Yiamouyiannis, Ph.D., copyright 2011.
Finally serious economists are considering a position I have been maintaining and writing about since the 2008 financial meltdown. Whatever its name— erasure, repudiation, abolishment, cancellation, jubilee—debt forgiveness, will have to eventually emerge forefront in global efforts to solve an ongoing systemic financial crisis.
“On a grand scale the only way to erase counterfeit money and (counterfeit) assets of hundreds of trillions of dollars is to erase the debts associated with those fake assets. (Let me underscore again, these are not “toxic” assets, they are fake assets.)… Forgiveness in general, and forgiveness of debt in particular, stand as virtues if they free us up to acknowledge, address, and learn from our culpability, start anew, and create forward.” (The Big Squeeze, Part 3: The Quiet Rebellion: Civil Disobedience, Local Markets, and Debt Erasure (January 29, 2011)
Debt forgiveness, therefore, accomplishes two important things. It eliminates the increasing and outsized portion of productive enterprise to pay off unproductive obligations, and it clears the ground for new opportunities, new thinking, invention, and entrepreneurialism. This is why the ability to declare bankruptcy is so essential in the pursuit of both happiness and innovation.
Currently we are mired in a “new normal” and calls for “austerity” which are nothing more than the delusional efforts of a status quo to avoid the consequences of its own error and fraud and to profit evermore. So bedazzled by the false wealth created by debt multiplication and its concomitant fantasy of ever-higher returns, this status quo continues to be stupidly amazed that people are not spending and that the economy is not picking up. But how could it be otherwise?
Productive wealth has been trapped in a web of parasitic theft, counterfeiting, liability evasion, non-regulation, and prosecutorial non-accountability. All the fundamental attributes of a functioning exchange economy have been warped to reward creative criminals. I spoke extensively about this in my posts from 2008. (Imaginary Worth, Empire of Debt: How Modern Finance Created Its Own Downfall (October 15, 2008)
The unsustainable nature of debt
Two observations: 1) Fabricated/parasitic so-called “wealth” destroys value by diluting the value of productive wealth. 2) Debt/credit that cannot be paid back is never an asset and is always a hot-potato liability (needing to be foisted to a greater fool to garner “profit” and transaction fees):
“The models [modern debt are] based upon had no contact with reality. They assumed unlimited growth and ability to pay. When matched against the reality of people paying ten times their salary for mortgages that actually added more money owed to their principal (i.e. with negative amortization), required no money down, and set up “balloon payments,” large step-ups in payments after a few years) there is no possible way they could NOT default in a predictable span of time.” (Part II: How the Credit
Default Swap Scam Works (October 13, 2008)
Systemically, all debt that charges a percentage (“usury”) originates in delusion. Debt grows exponentially indefinitely, growth (income and otherwise) cannot. This leads to a widening condition where the fruits of productive “growth” devoted to interest payments increase until those fruits are entirely consumed. (The Elephant In The Room: Debt Grows Exponentially, While Economies
Only Grow In An S-Curve (Washington’s Blog)
Once this happens, stores of wealth (hard assets) begin to be cannibalized to make up for the difference. You see this in Greece with its sale of public assets to private companies, and in middle-class America where people are liquidating retirement accounts to pay for their cost of living.
This problem is compounded by a private Federal Reserve that lends money into circulation at interest, and then allows the multiplication of this consumer debt-money liability through fractional reserve banking. The money in circulation today could pay only a small fraction of the total private and public debt. That fact alone is evidence of a kind of systemic fraud. “If you just work hard enough, save, and make sensible decisions, you can get out of debt” could only physically work for a bare fraction of the population, given the money-to-debt ratio. The rest would have to simply default to clear the boards.
This is why debt forgiveness makes not only moral but rational, mathematical sense. Finances require balancing to be coherent.
There must be some way to redress systemic imbalance. One has to be able to “zero the scales” to get an accurate weight of value and to re-establish healthy value creation.
Voices in the debate
Some analysts are beginning to see the forest through the trees in terms of debt forgiveness. Steve Keen, Australian economist and current deflationist, and Michael Hudson, American economic contrarian and prescient essayist, are both using clear-sighted reality-based financial analysis to debunk accounting games that obscure the untenable debt situation and to call for debt forgiveness.
How can selling sovereign assets and imposing austerity on Greek citizens (taking money out of their hands through higher taxes and lower benefits) do anything other than hollow out value and contract the Greek economy in the face of a deep global recession? Michael Hudson: It can’t. Greece’s debt needs to be written off.
“It seems unreasonable and unrealistic to expect that large sectors of the New European population can be made subject to salary garnishment throughout their lives, reducing them to a lifetime of debt peonage… (T)he only way to resolve it is to negotiate a debt write-off…” (The Coming European Debt Wars: EU Countries sinking into Depression (Michael Hudson, Global Research, April 9, 2010)
(“[We’ll Have] a Never-Ending Depression Unless We Repudiate the Debt, Which Never Should Have Been Extended In The First Place” (Washington’s Blog)
Why isn’t “quantitative easing” and flooding the U.S. economy with debt-money working to prime borrowing and lending? Steve Keen: Because the money is going into deleveraging in a time of overextension:
“Bernanke is throwing (a) trillion dollars into the system. Rather than that leading to ten trillion dollars of additional credit money, creating the inflation people are expecting, that trillion dollars is all that goes in, and people deleveraging actually reduce their level of spending by more than a trillion dollars by trying to pay their debt down, and it cancels out what the government is trying to do… We need a 21st century jubilee.” (On the Edge with . . . Steve Keen (Max Keiser, video)
Other well-known commentators are not seeing the debt forest at all. In their contentious debates over deflation and inflation, neither Rick Ackerman nor Gonzalo Lira seem to be aware of the overwhelmingly fraudulent nature of present global debt– including the 600 to 1,000 trillion dollars of fabricated notional wealth represented by the derivatives markets, fraudclosure, and a host of other sources.
Rick Ackerman: “’Ultimately, every penny of every debt must be paid — if not by the borrower, then by the lender.’ Inflationists and deflationists implicitly agree on this point… and we differ only on the question of who, borrower or lender, will take the hit.” (Let’s Think This Through Together….)
I posted a pithy response in the comment section:
“Both Rick and Gonzalo left out the obvious third way–debt forgiveness. No… debt does not have to be paid by someone; it can be absolved, especially debt created upon fraudulent and/or counterfeit-ridden practice… (D)erivatives are not real wealth, and neither was the ostensible climb in the values of housing resting in large part on those phony-wealth derivatives.
The only “real wealth” here revolves around ability to produce real and needed goods (to allow us to survive), and the ability to create something that increases one’s quality of life (to promote our thriving). Precious little of the present global economy involves either one of these. Yeah, if we use FASB standards and Goldman Sachs accounting, we can pretend our worthless junk is
all really simply very rare, “unique condition” collectibles worth trillions of dollars.
I’ve got a better idea. Take our financial junk out of the global attic in boxes, put them out on the front lawn, and see if
anyone wants to pay a few bucks for the various items, give away the leftovers to anyone interested passing on the sidewalk, and recycle, donate, or dispose of the rest. It’s a moving sale, and if our economy is going to get moving, maybe we ought to have one.” (Zeus Yiamouyiannis April 6, 2011 at 4:11 pm)
How it might play out
This subtle debt extortion creates a system of never-ending debt-slavery for a vast majority of the population. When this “manageable” slavery is aggravated by a desire to use hardship to extort ever greater assets from the overburdened at ever cheaper prices (what Naomi Klein calls “disaster capitalism”), by open and unapologetic widespread fraud, and by the unjust offloading of risk and liability to taxpayers who had nothing to do with poor decisions of private banks, then the systemic abuse is revealed in the daily lives of citizens.
Debt creates scarcity, which stimulates fear, which drives manic competition, which favors opportunism, collusion, and concentrations of power, which translates to abuse, which results in a collapse of legitimacy for the economic system. Overreach causes a breaking point, and we are getting close to it. Will the response be warfare, taxpayer revolt, political upheaval, mass default, debt forgiveness, something other, some combination? I have predicted pockets of violence would be mixed with some softer combination of taxpayer revolt, mass default, political upheaval, and debt forgiveness, along with a return to community exchange to meet basic needs. (The Big Squeeze, Part 3: The Quiet Rebellion: Civil Disobedience, Local Markets, and Debt Erasure
(January 29, 2011)
This possibility of epic reprisal may very well compel banks to come to the table around debt forgiveness to avoid violent backlash and criminal prosecution, even over preserving their gravy train companies. The bitter irony of these companies and their galloping greed is that they ended up victimizing each other by selling junk to each other and extracting all the real value in salary and bonuses. Their assets rest on notional values, that when unmasked would drive each into immediate insolvency. They have simply been scam artists, producing little value and extracting mountains of money.
What might this look like? Looking at present trends and using the very useful framework of Kubler-Ross’s stages of grief, it might go something like this…
1) Denial: Liquidate savings to pay for over-priced house and cost of living.
2) Anger and fear: Exhaust resources, experience want, compounded by austerity measures.
3) Bargaining: Attempt to negotiate with bank through HAMP and other mechanisms to lower payments. Banks don ‘t bite and even
have incentives to foreclose.
4) Depression: Lose/default on the house and move in with family or cheap rental.
5) Find out life is better without being a debt slave and spend more time with community and the ones you love.
1) Denial: Collect 144 billion in bonuses after financial collapse and laugh as not a single trading day loss arises for zombie TBTF banks completely subsidized by governments.
2) Anger: Express false righteousness, indignation, and hubris over even modest/toothless demands/regulations attempted to be placed on them by governments. Exhibit sadistic zeal at being able to simply claim you own and liquidate properties they have no clear title to.
3) Bargaining: Experience dawning awareness that may have just cooked your own gooses as strategic defaults skyrocket, populist demands to prosecute fraudclosure gain traction, and quantitative easing ad infinitum dwindles and fails to keep stock prices artificially aloft. Improvise panicked attempts to “be reasonable” and actually negotiate, once the asset and money flow well runs dry.
4) Depression: Contemplate and realize possible bankruptcy by big banks. Retreat to the Hamptons to hire criminal defense lawyers, contemplate empty life, and shoulder the abuse of media and contempt of a global citizenry.
5) Acceptance: Trying to regain “good guy” status and avoid criminal prosecution by agreeing to be part of debt forgiveness.
Once defaults happen in increasing numbers and certain asset prices plunge (i.e. real estate), what will initially look like a bonanza for capitalist parasites could easily get out of hand, with people either unable or unwilling to buy inventory even at greatly reduced prices. Profits would tank at banks, liabilities would skyrocket even with most of it transferred to government guarantee. Because no one plays the game anymore, banks could go under as well, as people rise to vote out bank-friendly politicians and simply refuse to pay. This unraveling could easily force exposure of the notional value of derivatives in banks as worthless, meaning they are as bankrupt as the people they exploited. At this point, there will be a common desire and need to simply “forgive” the debts and try to find some way to distribute these empty homes.
Debt forgiveness simply calls out either the inherent systemic inability to make good on debts or the recognition that debt was produced through fraudulent means. In the present situation, both conditions obtain. There has likely been no point in world history where debt forgiveness has been so comprehensively merited. The only speculation from my point (barring world-wide global feudalism and eternal debt slavery) is whether we will initiate such forgiveness or be forced into it.
Thank you, Zeus, for this prescient and insightful analysis of debt and debt renunciation.The Kondratieff Cycle can only turn to Spring after debt renunciation completes the Winter cycle. Let’s stop pretending we’re still in Summer, and that the Fed’s puny “quantitative easing” and monetary cargo-cult machinations can reverse the seasons.
A two part column/exposition on the concepts of a Debt Jubilee and Public Credit
April 13, 2012
Debt Jubilee for New Zealand – The Great Reset
Australian economist Steve Keen is amongst a growing group of economic renegades who believe things are so far gone with the global economy that a debt jubilee and a total reset of the financial system is required. He proposes nationalizing the banks and wiping the slate clean because he contends that it is now mathematically impossible for most countries to repay the combination of their sovereign and private debt. He also contends along with economic historian Michael Hudson that the mortgage and consumer credit that western banks have extended is verging on odious, lent recklessly for short term gain by banks more concerned about their profits from the resultant interest and fees than the effect it would have on not just individual consumers but also the nations they are citizens of. As Hudson says,
“This is why relinquishing policy control to a creditor class rarely has gone together with economic growth and rising living standards. The tendency for debts to grow faster than the population’s ability to pay has been a basic constant throughout all recorded history. Debts mount up exponentially, absorbing the surplus and reducing much of the population to the equivalent of debt peonage.”
Even Alan Bollard admitted in his book Crisis that banks may extend more credit than is good for individuals and nations. Have banks and the rest of the financial sector so grossly distorted capitalism that it is on the point of collapse?
The concept of a debt jubilee is not new. It dates back to biblical times and the Book of Leviticus where the Hebrews would every 50 years free slaves, prisoners and forgive debts. In modern times the concept of jubilee has been applied to the debt of third world nations. If Keen and other proponents are correct the time has arrived for a general debt jubilee to be applied to western democracies including New Zealand.
But why should people be absolved from mistakes in their personal financial decisions? What about the prudent amongst us who have paid off their debt or refused to accumulate any of it at all? Surely you cannot reward the reckless, for what kind of message does this send to people and how does it distort future behaviour if everyone thinks they will be bailed out at some point down the track.
These are all valid points and not without irony given the biggest opponents to jubilee would probably be the big creditors like the banks who have had the same criticisms leveled against their own bailouts. What the jubilee does is give the money to the debtor to repay their debt rather than to the creditor to maintain the debt. One is consumer/citizen friendly, the other bank friendly.
The way Keen gets around the moral hazard problem is to give everyone a large chunk of cash whether they have debt or not. The proviso is that anyone with mortgage, student, consumer or personal debt would have to have the money applied towards that debt. They would remove or radically reduce their debt and thus free up more of their current earnings for consumption or savings. They could not use their money to leverage more debt or speculate. There would be no incentive to load up on debt before a jubilee. The people without debt would be able to use their unencumbered money to spend or invest in the economy immediately, unlike borrowed credit with no interest attached, jump starting economic activity again. Keen doesn’t mention a figure but consider how your own and the nation’s situation would change if say every adult over eighteen got $100-200 000.
This leads to the other major criticism of this jubilee concept, that it would be hyper inflationary. After all we are talking in New Zealand’s case about the government creating hundreds of billions of dollars out of thin air. This would not necessarily be inflationary if a number of other things were done concurrently. The idea isn’t just to pay off debts and restart the current credit system – it is to completely reform and re-regulate credit to prevent the same lunacy of the GFC happening again.
Keen talks about nationalizing the banks. The government would use its newly “printed” money to expunge debts it had assumed in the nationalization. Debts wiped out are deflationary rather than inflationary given that in the current system the vast majority of all “money” in the system comes into being from the banks as interest bearing credit. One would cancel out the other so in the case of the indebted the new money cannot increase the money supply.
Nationalisation might not be necessary. As debts were paid off the private banks would either shrink dramatically or withdraw from the market without needing to be taken over. They are not being forced to take a loss on their loans, only having their future income stream from interest radically reduced. Yes there would be large job losses in the banking sector but people would in theory be reabsorbed by a newly stimulated low debt economy.
Of course the people without debt would now have much greater spending capacity and this would be potentially inflationary without strict regulation. Keen’s suggestion is that the level of all types of credit available to the economy from the reset point be reduced by an amount equal to or greater than the new money created. There would be no getting your cake and eating it too.
For instance taking this idea further, Loan to Value Ratios on property might decrease dramatically, almost certainly below 80%. Commercial banks remaining could still lend but only at 100% reserve and depositors chasing interest with them would do so at their own risk. Customers would have government guaranteed current accounts held by the banks at the Reserve Bank. These would not be part of the banks balance sheet and non interest bearing. If a bank failure happened, current accounts and the payments system would be unaffected.
At the same time the tax system could change moving taxes away from income and towards fin