A 5,000-Year-Old Plan to Erase Debts Is Now a Hot Topic in America

A 5,000-Year-Old Plan to Erase Debts Is Now a Hot Topic in America, by Ben Holland.

In ancient Babylon, a newly enthroned king would declare a jubilee, wiping out the population’s debts. In modern America, a faint echo of that idea — call it jubilee-lite — is catching on.

Support for write-offs has been driven by Democratic presidential candidates. Elizabeth Warren says she’d cancel most of the $1.6 trillion in U.S. student loans. Bernie Sanders would go further -– erasing the whole lot, as well as $81 billion in medical debt.

But it’s coming from other directions too. In October, one of the Trump administration’s senior student-loan officials resigned, calling for wholesale write-offs and describing the American way of paying for higher education as “nuts.’’ …

Steadily growing debts of one kind or another are weighing on economies all over the world.

The idea that debt can grow faster than the ability to repay, until it unbalances a society, was well understood thousands of years ago, according to Michael Hudson, an economist and historian.

Hanging Gardens of Babylon

Last year Hudson published “And Forgive Them Their Debts,’’ a study of the ancient Near East where the tradition known as a “jubilee” — wiping the debt-slate clean — has its roots. He describes how the practice spread through civilizations including Sumer and Babylon, and came to play an important role in the Bible and Jewish law.

Rulers weren’t motivated by charity, Hudson says. They were being pragmatic — trying to make sure that citizens could meet their own needs and contribute to public projects, instead of just laboring to pay creditors. And it worked, he says. “Societies that canceled the debts enjoyed stable growth for thousands of years.’’ …

Critics usually raise two key problems with debt forgiveness. One is about fairness. The other is known as “moral hazard’’: Will write-offs today lead to more reckless borrowing tomorrow? …

The fact is, debt causes instability for a society,’’ Hudson says. Another lesson he’s drawn from studying credit over thousands of years: “Debts that can’t be paid, won’t be paid.’’

Debts are always repaid, either by the borrower or the lender.

Jubilee plans are unfair because the lenders lose when an outsider (the Government) interferes. Who would lend again? And wouldn’t people game the system if they suspected a jubilee was coming?

Yet, the way money is manufactured, ever increasing debt and natural random ups and downs that cause people to end up in ruin will eventually ensure everything in the world is owned by one lucky winner, very likely a bank. So this cannot continue. The system will break well before then.