Christine Lagarde: “There is Still too much Debt in the System”.

From the IMF:

There is still too much debt in the system. Uncertainty hovers over sovereigns across the advanced economies, banks in Europe, and households in the United States. Weak growth and weak balance sheets — of governments, financial institutions, and households — are feeding negatively on each other, fueling a crisis of confidence and holding back demand, investment, and job creation. This vicious cycle is gaining momentum and, frankly, it has been exacerbated by policy indecision and political dysfunction.

And she’s right — but with debt-issuers not interested in taking haircuts how can we reduce total global debt? How about growth?

From Zero Hedge:

A brand new study released by the World Economic Forum (WEF) in collaboration with McKinsey (which is a must read if only for its plethora of charts which we are certain will be used and reused in thousands of posts and articles over the next year), finds that while global credit stock doubled from $57 trillion to $109 trillion in just 10 years (from 2000 to 2010), it will need to double again to an incredible $210 trillion by 2020 in order to provide the necessary credit-driven growth (in a recursive way, whereby credit feeds growth, and growth requires additional credit issuance) for world GDP to retain its current growth rate.

So the plan is additional debt, to fund growth, to pay down debt? How is that working out?

From the Economist:

And how about next year?

Oh dear.


Does that look like debt reduction to you? Perhaps the only way off this ever-heightening global debt mountain is to look to our ancestors, and have a debt jubilee? (Though China would hate it, it seems to me like the alternative is hyperinflation, which accomplishes the same thing in a much more violent fashion).

From Wikipedia:

The concept of the Jubilee is a special year of remission of sins and universal pardon. In the Biblical Book of Leviticus, a Jubilee year is mentioned to occur every fifty years, in which slaves and prisoners would be freed, debts would be forgiven and the mercies of God would be particularly manifest. In Christianity, the tradition dates to 1300, when Pope Boniface VIII convoked a holy year, following which ordinary jubilees have generally been celebrated every 25 or 50 years; with extraordinary jubilees in addition depending on need. Christian Jubilees, particularly in the Catholic tradition, generally involve pilgrimage to a sacred site, normally the city of Rome.

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10 thoughts on “Christine Lagarde: “There is Still too much Debt in the System”.

  1. Yes, China will not like it. And certainly a jubilee can’t simply be implemented just like that – without any guarantees or restructuring, or receiving collateral etc. China’s reaction will be worse if they (the others) simply impose a jubilee onto them. How would you feel if after 30 years of hard work someone would come to you and take all of your savings on the grounds of a debt jubilee?

    • I agree — it needs to be carefully structured. But China seem to have a choice — direct default, or default by debasement, or managed (i.e. collateralised) default. I know which one I would choose if were running the Chinese central bank.

  2. How about giving Hawaii in exchange for debt forgiveness to China? It would immediately cut a trillion $ of debt and it would successfully prevent President Obama from getting reelected, since he wouldn’t be from an American territory anymore.

  3. Or go back to simple hunter gather economics. A tribe gains food weapons, shelter, wives, by hard work, rising early in the morning using skill, strategy, and muscle. To go back in time and improve the lives of a tribe by printing money (Debt forgiveness) is lunacy. To lend money and be told you will not be repaid (with the stroke of a pen) will cause capital to be scarce in the future. You will need a water tight business plan!

    Keynesian economics and monetary adjustments don’t work. They cause the boom bust cycles and governments mis-manage them. The Austrian school of thought needs to be re-examined as a solution.

    Generals use foot soldiers to implement their plans. As long as the soldier is fed, and compensated (Loot and plunder) he’ll follow a General.

    A one world government, currency and fiscal system is now a necessity. Perhaps it must follow the model of the Chinese, where the Party implements 5 year plans, and Capitalists operate within that plan.

    Those who don’t work, don’t eat. If you need or want a handout, you better be seriously physically or mentally incapacitated.

  4. I am not a Biblical scholar, but this extract from Wikipdia:

    Limits on debt servitudeIf a kinsman fell into straits and came under one’s authority by virtue of his debts, one was to let him live by one’s side as a kinsman and not exact from him interest. (Leviticus 25:35–36.) Israelites were not to lend money to countrymen at interest. (Leviticus 25:37.) If the kinsman continued in straits and had to give himself over to a creditor for debt, the creditor was not to subject him to the treatment of a slave, but to treat him as a hired or bound laborer until the jubilee year, at which time he was to be freed to go back to his family and ancestral holding. (Leviticus 25:39–42.) Israelites were not to rule over such debtor Israelites ruthlessly. (Leviticus 25:43.) Israelites could, however, buy and own as inheritable property slaves from other nations. (Leviticus 25:44–46.)

    A Jubilee by definition, means Debtor nations have 50 years of indentured servitude!

    • Buddy,

      The way the current system is going, debtor nations may spend the next 50 years in servitude…

      My understanding of it is that the debt jubilee frees the slaves created by a system of credit. And we all know which nations are being slowly enslaved by our global economic system. The debtors.

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