Friday, February 27, 2009

A Jubilee Year?

The Jubill Centre's Alan White writes on 24 February 2009
A couple of times in the last month or so it's been suggested that we comment on a call for a worldwide Jubilee Year to resolve the current financial crisis.

The first published call seems to have been an article by Niall Ferguson in the Financial Times of 18 December '08. He suggests a conversion of homeowners' mortgage debts 'could be wholly or partly converted into long-term, low and fixed interest loans' and quotes Harvard's Martin Feldstein's proposal that the US government offer 'any homeowner with a mortgage the option to replace 20% of the mortgage with a low-interest loan from the government, subject to a maximum of $80,000. The annual interest rate could be as low as 2% and the loan would be amortised over 30 years'.

Niall points out that this would represent a loss for creditors, 'notably the holders of mortgage-backed securities and bank bonds' but that this would be 'a less extreme solution than the general debt cancellation envisaged in the Old Testament'.

(A much less comprehensive version of the Feldstein approach was announced by President Obama on February 18th when he pledged $75 billion to reduce the mortgage payments of homeowners at risk of default. And the UK government has schemes which offer assistance to some categories of people struggling with repayments.)

Another correspondent with the Jubilee Centre suggested that a year of Jubilee to cancel all debts could also be used to include the cancellation of the 'third world debt'. He queried whether 'surely the cost of giving the poor people in the USA their homes as a gift must be less than the money pledges being considered to overcome the banking problems created'.

Declaring a Jubilee Year in the sense of forgiving all debt would not be the solution to our current crisis. Paul Mills, who wrote the excellent chapters on Finance and The Economy in Jubilee Manifesto and eight Cambridge Papers, commented that the problem 'is that, in a highly-leveraged financial system, it takes very few debt write-offs to lead to the failure of many banks and some insurance companies, and large write-downs in pension fund assets'.

He explains that 'rather than allowing large banks to become insolvent and impose losses on bank creditors (bondholders and depositors), governments are borrowing to inject capital, buy assets, and inflate demand. As a result, total indebtedness is likely to rise (when it would otherwise be falling) because governments believe the economic consequences of immediate loss recognition are too severe'.

The way our debt-based economic system is structured means that from time to time the amount of debt accrued by households, companies and governments exceeds the economy's ability to service the debt. Paul Mills points out that 'bankruptcies, inflation, default or debt:equity swaps (in corporate restructurings) are then needed to rebalance the two (usually in the context of a banking/financial crisis)'.

In contrast, the biblical economic model maintains this balance through reliance on rental and equity contracts ('I share in the risk and get a share of the profit' arrangements) coupled with the periodic and predictable debt cancellation.

To be clear, the provisions of Deuteronomy 15 and Leviticus 25 have debt forgiveness (amongst the people of Israel) every 7 years while the year of Jubilee every 50 years focuses on the return of land to the families that were allotted it on entering the promised land. No matter what economic hardships were got into, even becoming a bondservant, the Jubilee ensured that subsequent generations were not cut off from their roots through the loss of the family land in a particular generation. This safeguarded identity, rootedness and access to the land as means of production. In this sense, loans, selling (or more accurately leasing) land and bonded servitude were last resorts.

Thus the Jubilee is just part (albeit a key part) of the biblical economic model that Will Hutton said 'makes Das Kapital look tame'. Forgiveness of debt might seem a radical suggestion but the truth is we need an even more fundamental and biblical reorientation of our economic principles to avoid another 'credit crunch' in the future.

To explore with us some of what such a reorientation might realistically look like, be sure to join us in Cambridge for our Open Day on Monday 4th May, when Dr Mills will be speaking on 'The Economy in Crisis: A Biblical Diagnosis and Foundation for Recovery' - For further details, visit the News section of our website.


Justin said...

A modern Jubilee makes perfect sense, and is the only thing to end our current malaise, which is caused by high debt deflation. The sooner we do it, the less economic destruction will be unleashed. If we don't do it intentionally, it will happen anyway, as the economy is ground down and mass default results. I invite you to examine the issue further:

Graham Weeks said...

I see this as totally unrealistic at best and simply theft at worst. We are not under Mosaic law. That required rural land to be redistributed back to the people. I note you are not calling for this.

sls1j said...

The first Jubilee would be horribly difficult on everyone. It would mean the utter collapse of the debt based banking and money system.

Balancing of the economy would take time, but it would happen.

Here are some reasons the government wouldn't want to do it.

1. No one would lend money to the government. They would be forced to actually live within a budget. This would be the death of federal based socialism.

2. Politicians are too corrupt. They are already accepting bribes from those with deep pockets. Banks and financers have too much to loose. I think they'd rather forgive and pay everybody than start a Jubliee cycle that would make their cash cow die.

It's a pity. For it would completely solve the debt problem in this country. The foolish would only be-able to do them selves a limited amount of damage. Those that find themselves the victims of circumstances out of their own control would be released. The economy would cease the horrible gyrations cause by too much credit and too little credit. Our economy would shift from a debt based economy to an equity based economy of controlled and sustained growth.

Or course it would have to be adapted. How would the land be redistributed? Since we aren't in ancestral families. But some sort of a redistribution does make sense. This keeps individuals from gaining too much control by acquiring all property.

Some say it would be theft. And perhaps it is. However, what of the necessity to use credit to purchase a home? It certainly hasn't always been this way. In a sense the banks have been thieves themselves for many long years. Easy credit from the banks has inflated the price of the home to make debt necessary. Perhaps it's time to take back what has been stolen, and return to a sane economy.

The Jubilee would do that. Don't get me wrong. It would be horribly painful as the economy adjusted.