Until debt do us part

20 October 2020

The scientist Albert Einstein reportedly described compound interest as the ‘eighth wonder of the world’. That may be true for the financiers who benefit from it, but for the rest of society it is better described as one of the worst scourges of the world. The anthropologist David Graeber, who authored Debt: the first 5000 years and coined the slogan ‘we are the 99%’, observed that debt crises have occurred for thousands of years, requiring regular periods of forgiveness to prevent total collapse.

The global economy was already teetering on the edge of such a debt crisis before the coronavirus hit. The economic shutdowns have accelerated the damage. As Graeber noted in 2017, whenever there is a system of virtual money based on agreements rather than an underlying thing (known as ‘fiat money’ in the current system because it is underpinned by government dictate) the way to maintain social stability has been to have periodic debt cancellation. There is to be no relief for debtors this time, though. All the focus in the neoliberal capitalist system is instead on finding ways to protect creditors. ‘Basically we did it backwards,’ says Graeber. ‘They come up with this idea that nobody should ever default — which is absurd.’

The effort to protect creditors has led to increasingly reckless policies. The first move by the US Federal Reserve was to bail out big corporations, especially banks, by buying up not just government debt but also corporate debt, the latter often above market value. It is effectively giving free money to big companies, who then use it to buy back their own shares and pocket the profits. Meanwhile, the money intended for smaller businesses in America is not being distributed because, well, the banks consider it too risky to lend.

Australia did not go that far. The Reserve Bank has been buying back Federal and State government debt and putting it on its balance sheet (quantitative easing), but it has not been buying company debt.

The second step, as it became obvious just how economically disastrous the shut downs are (making it harder for debtors and renters to pay what they owe, which is of course the only thing that matters), is massive government spending. Japan’s stimulus package is 21 per cent of GDP, Australia’s 10.2 per cent, the US 13.2 per cent, Brazil 11.8 per cent and so on.

The thinking seems to be that if that extra

ECONOMICS

Until debt do us part

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