Sacred Economics: Money, Gift, and Society in the Age of Transition by Charles Eisenstein

Author:Charles Eisenstein [Eisenstein, Charles]
Language: eng
Format: epub, mobi
ISBN: 978-1-58394-398-4
Publisher: Evolver Editions
Published: 2011-07-11T16:00:00+00:00

THE DEBT CRISIS: OPPORTUNITY FOR TRANSITION

A golden opportunity to transition to negative-interest money may be nigh in the form of the “debt bomb” that nearly brought down the global economy in 2008. Consisting of high levels of sovereign debt, mortgage debt, credit card debt, student loans, and other debts that can never be repaid, the debt bomb was never defused but just delayed. New loans were issued to enable borrowers to repay old ones, but of course unless the borrowers increase their income, which will only happen with economic growth, this only pushes the problem into the future and makes it worse. At some point, default is inevitable. Is there a way out?

There is. The answer lies in a modern-day version of the Solonic economic reform 2,600 years ago: debt forgiveness and reform of the conventions of money and property. At some point, it will be necessary to face reality: the debts will never be repaid. Either they can be kept in place anyway, and debtor individuals and nations kept in perpetual servitude, or they can be released and the slate wiped clean. The problem with the latter choice is that because savings and debt are two aspects of a whole, innocent savers and investors would be instantly wiped out, and the entire financial system would collapse. A sudden collapse would result in widespread social unrest, war, revolution, starvation, and so forth. In order to prevent this, an intermediate alternative is to reduce the debt gradually.

The 2008 financial crisis offered a clue as to how this might happen as part of the transition to a negative-interest economy. When crisis threatened major financial institutions with insolvency, the response by the Federal Reserve was to monetize bad debts, which means that it bought them—exchanging toxic financial instruments for cash. It continues to monetize government debt (which is also unlikely ever to be repaid) through the quantitative easing program. At some point, to avoid total collapse, similar measures will be required in the future on an even broader scale.

The problem is that all this money goes to creditors, not debtors. Debtors do not become any more able to pay; nor do the creditors become any more willing to lend. The Fed’s action drew intense criticism because it in effect gave predatory financial institutions cold hard cash in exchange for the junk investments they had irresponsibly created and traded, whose market value was probably only pennies on the dollar. They received face value for them, and then, adding insult to injury, invested the cash in risk-free bonds, paid it as executive bonuses, or bought up smaller institutions. Meanwhile, none of the underlying debt was forgiven the debtors. The program therefore did nothing to ameliorate the polarization of wealth.

What would happen if debt were monetized into free-money? Then, although creditors would not lose their money overnight as they do with defaults or systemic financial collapse, the bailout wouldn’t further enrich them either, because they would receive a depreciating asset. As for the debtors, the monetary

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