America’s 2008 bank crash offered a great opportunity to write down the often-fraudulent junk mortgages that burdened many lower-income families, especially minorities. But this was not done, and millions of American families were evicted. The way to restore normalcy today is a debt writedown. The debts in deepest arrears, and most likely to default, are student debts, medical debts, general consumer debts and purely speculative debts. They block spending on goods and services, shrinking the “real” economy. A debt writedown would be pragmatic, not merely a moral sympathy with the less affluent. In fact, it could create what the Germans called an “Economic Miracle” — their own modern debt jubilee in 1948, the currency reform administered by the Allied Powers. When the Deutsch Mark was introduced, replacing the Reichsmark, 90 percent of government and private debt was wiped out. Germany emerged as an almost debt-free economy, with low costs of production that jump-started its modern economy. In the past, the politically powerful financial sector has blocked a writedown. Until now, the basic ethic of most people has been that debts must be repaid. But it is time to recognize that most debts now cannot be paid — through no real fault of the debtors in the face of today’s economic disaster.
Michael Hudson, “A Debt Jubilee Is the Only Way to Avoid a Depression” (March 22nd 2020).
