The Debt Jubilee - A Method to Reset the Debt

By: Larry Cyna | Sun, Aug 19, 2012
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The Age of Instant Communication

A feature of the revolutionary change in communications that has transformed society, is the almost instant universal awareness of every event, or concept. A recent discussion is a relatively new concept of governments printing a massive sum of money and depositing a proportionate amount of it in every citizen's bank account. The name of this lunacy is a "Debt Jubilee". Were it not for instant communication, the idea would gain little traction. But now it is necessary to mention this craziness because it sounds so good to so many people.

This would be done on the premise that this "new" money would be used to repay current debt, and in the odd circumstance that no current debt exists, then the money could be used for new purchases which in of itself would re-ignite demand for goods and services. Voila - the debt problem would be solved. How sophisticated writers would discuss this lunacy, is beyond me.

The world currently is struggling with debt. The problem is that everyone from countries, to corporations, to individuals has been able to borrow immense sums without regard for their ability to repay the debt. The supply of money was greater than the demand for money, so lenders were happy to lend their excess money, with less than proper due diligence on the borrowers. As time passed, and as this oversupply caused distortions, and then economic crises, the government was forced to step in and through quantitative easing, and government programs such as TARP, more and more of this debt is being transferred to governments.

For Every Borrower There Must be a Lender

What is always missing from the discussion of the various debt crises, is that there is so much money floating around, that it is always searching for a home.

A large factor in this oversupply of money was the energy crisis in the 1970's when oil demand in the USA exceeded oil supply and US dollars were exported in massive quantities to import oil. Out of that came the Euro-Dollar and the massive sums of US dollars beyond the reach of the US government, that were floating around Europe and the Middle East.

The Acceptance of Debt as Being a Good Thing

Governments borrowing from the future revenues of governments, to pay citizens for basic living standards became the mantra of the socialists and the left wing parties around the world. Because borrowing was so easy, and costs were not obvious, people felt that the immediate need for money was more important than some far off demand to repaid the money, which would probably never come anyway because it was so easy to borrow money.

To get elected, politicians found it painless to promise goodies to electors, and did so to a greater extent in every election. Benefits from the government, who had unlimited borrowing power, became a basic right of electors, and of do-gooders.

All of this foolishness came crashing down when the Asset Backed Mortgage borrowing collapsed in the US in 2007. All of a sudden, lending became more risky, and yet entitlements of the voters and populace became more demanding.

Now we have a situation where the excessive borrowing of governments distorted free markets to the extent that the disruption in so many people's lives through a reduction in government largess, is dramatic.

The Debt Jubilee

So now we have another brilliant (read "idiotic") idea being floated, to further exacerbate the problem. It seems that some basic educational courses in economics and the role of governments, should be taught in schools so that people would at least understand what is being said. (Wishful thinking I suppose.)

The term "debt jubilee" is called a "quantitative easing for the public". It is a procedure where the central bank instead of creating new money by buying the sovereign debt of the government, instead takes an arbitrary number, and deposits that amount in the bank account of every individual in the nation. This newly-created money is to be used to pay off debt, or "invest" as they see fit.

This, it is said, is the only way left to restart economic "growth".

The supposed benefit of the Debt Jubilee is that it provides a means out of what is called the global "de-leveraging trap", which is the trap said to have ensnared Japan more than two decades ago and which has now supposedly ensnared the whole world. It is simply the obligation assumed when one becomes a debtor; the necessity to repay the debt.

When An Idea Proves Worthless

It is surprising that consideration be given to a massive expansion of the concept of devaluing money, when such borrowing of supposed future money has proven to be such a bad idea; akin somewhat to jumping from the frying pan into the fire.

The Solution

The solution remains the same as always. We have to endure some pain to correct the abuses of the past. The natural growth of middle class population around the world will increase the demand for goods and services, and we have to give this time to evolve and develop. As the GNP of countries naturally grows, the debt will become gradually smaller on a comparison basis. Creating more debt, and creating more devaluation, only pushes the problem out further and deeper. The only solution necessary now, is to mandate governments to rationally moderate spending every year, until a parity is reached.


The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds. Larry Cyna and/or the CymorFund may have positions in the shares of companies mentioned.



Larry Cyna

Author: Larry Cyna

Lawrence J. Cyna, CA

Larry Cyna

Larry Cyna, CA, is CEO and Portfolio Advisor to Cymorfund, a boutique hedge fund. He expresses his insights several times a week on his blog and offers a free newsletter which can be subscribed to here.

Mr. Cyna is an accomplished investor in the Canadian public markets for over 20 years, and has managed significant portfolios. He is a financing specialist for private and public companies, and has expertise in real estate and debt obligations. He has assisted private companies accessing the public markets, has been a founding director of public companies and is a strategic consultant to selected clientele.

He is and has been a director, a senior officer and on the Advisory Board of a number of TSX and TSXV public companies in the mining, resource, technology and telecommunications sectors, and the Founding Director of two CPC's with qualifying transactions in mining and minerals. He was an honorary director of the Rotman School of Management MBA IMC program, has completed the Canadian Securities Institute Canadian Securities Course & Institute Conduct and Practices Handbook Course, was a former Manager under contract to an Investment Manager at BMO Nesbitt Burns, a roster mediator under the Ontario Mandatory Mediation Program, Toronto, a member of the Institute of Corporate Directors of Ontario, a member of the Upper Canada Dispute Resolution Group, and the Ontario Bar Association, Alternate Dispute Resolution section.

He obtained his designation as a Chartered Accountant in Ontario in 1971 and was the recipient of the Founder's Prize for academic achievement together with a cash reward. He became a CPA in the State of Illinois, USA in 1999 under IQEX with a grade of 92%. He is a Member of the Institute of Chartered Accountants of Ontario and the Canadian Institute of Chartered Accountants.

He holds certificates in Advanced ADR & in Civil Justice in Ontario, Faculty of Law, University of Windsor, certificate in Dispute Resolution from the Ontario Institute of Chartered Accountants. Previous accomplishments are Manager of Cymor Risk Consultants LP specializing in Risk Management Assessment; CEO of Cyna & Associates specializing in mediation and ADR; Founder & Senior Partner of Cyna & Co, Chartered Accountants, a fully licensed and accredited public accountancy firm with international affiliations; and was a partner in a large public accountancy firm.

Mr. Cyna is well known in the Canadian Investing community. He attends presentations given by public companies to the industry on a daily basis.. These presentations are intended by the various hosting companies to present their inside story for the purpose of attracting funding, or of making parties more interested in acquiring shares of those companies. Being in constant communication in this manner keeps Mr. Cyna deeply involved in the current market and leads to numerous investment opportunities.

Mr. Cyna is currently a Director of Argentum Silver Corporation and Telehop Communications Inc.

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