Facing the Covid-19 pandemic, the US Congress rammed through the CARES Act — which economist Michael Hudson explains is not a “bailout” but a massive, $6 trillion giveaway to Wall Street, banks, large corporations, and stockholders.

Max Blumenthal and Ben Norton discuss the enormous financial scam with Hudson, who reveals how the economy actually works, with the Federal Reserve printing money so rich elites don’t lose their investments.

Michael Hudson’s website: michael-hudson.com

Michael Hudson, “A debt jubilee is the only way to avoid a depression,” The Washington Post, March 21, 2020

Transcript

(Teaser – 0:03)

MICHAEL HUDSON: Just think of when, in the debates with Bernie Sanders during the spring, Biden and Klobuchar kept saying, ‘What we’re paying for Medicare-for-All will be $1 trillion over 10 years.’ Well, here the Fed can create $1.5 trillion in one week just to buy stocks.

Why is it okay for the Fed to create $1.5 trillion to buy stocks to prevent rich people from losing on their stocks, when it’s not okay to print only $1 trillion to pay for free Medicare for the entire population? This is crazy!

The idea is that only the rich should be allowed to print money for themselves, but the government should not be allowed to print money for any public purpose, any social purpose — not for medicine, not for schools, not for personal budgets, not for full employment — but only to give to the 1 percent.

People hesitate to think that. They think, ‘It can’t possibly be this bad.’ But for those of us who have worked on Wall Street, for 60 years in my case, that’s what the numbers show.

But you don’t have the media talking about actual numbers. They talk about just words, and they use euphemisms. It’s a kind of Orwellian vocabulary, describing an inside-out world.

(Intro – 1:58)

BEN NORTON: The world is suffering right now from one of the worst economic crises in modern history. Definitely the worst crisis since the 2008 financial crash. And many economics experts are saying that we’re living through the worst recession actually since the Great Depression of 1929.

Well joining us to discuss this today, we have one of the best contemporary economists, who is really well prepared to explain what has been going on in this global recession during the coronavirus pandemic. And specifically today we’re gonna talk about the $6 trillion bailout package that the US Congress has passed.

The Trump administration is basically taking Obama’s corporate bailout on steroids, and injecting trillions of dollars into the corporate sector. And today to discuss what exactly the coronavirus bailout means, we are joined by the economist Michael Hudson.

He is the author of many books. And in the second part of this episode we’re gonna talk about his book Super Imperialism: The Economic Strategy of American Empire. So that’ll be much more in the vein of kind of traditional Moderate Rebels episodes, where we talk about imperialism, US foreign policy, and all of that.

Michael Hudson is also a former Wall Street financial analyst, so he’s very well prepared to talk about the financial thievery that goes on on Wall Street. And he is a distinguished research professor of economics at the University of Missouri, Kansas City.

So Michael, let’s just get started here. Can you respond to this global depression that we’re living through right now amid the Covid-19 pandemic? And what do you think about this new bailout that was passed?

(3:50)

MICHAEL HUDSON: Well the word bailout, as you just pointed out, really was used by Obama and only applies to the banks. The word coronavirus is just put in as an advertising slogan.

Banks and corporations, airlines, have a whole wish list that they had their lawyers and lobbyists prepare for just such an opportunity. And when the opportunity comes up — whether it’s 9/11 with the Patriot Act, or whether it’s today’s coronavirus — they just pasted the word coronavirus onto an act, which should be called a giveaway to the big banking sector.

Let’s talk about who’s not bailed out. Who’s not bailed out are the small business owners, the restaurants, the companies that you walk down the street in New York or other cities, and they’re all shuttered with closed signs. Their rent is accumulating, month after month.

Restaurants, gyms and stores are small-markup businesses, small-margin businesses, where, once you have no sales for maybe three months and rent accruing for three months, they’re not going to have enough money to earn the profits to pay the rents that have mounted up for the last three months.

The other people that are not being bailed out are the workers — especially the people they call the prime necessary workers, which is their euphemism for minimum-wage workers without any job security. There have been huge layoffs of minimum-wage labor, manual labor, all sorts of labor.

They’re not getting income, but their rents are accruing. And their utility bills are accruing. Their student loans are accruing. And their credit card debts are mounting up at interest and penalty rates, which are even larger than the interest rates. So all of these debts are accruing.

The real explosion is going to come in three months, when all of a sudden, this money falls due. The governor of New York has said, “Well we have a moratorium on actually evicting people for three months.” So there are restaurants and other people, individuals, wage-earners, who are going to be able to live in their apartments and not be evicted. But at the end of three months, that’s when the eviction notices are going to come. And people are going to decide, is it worth it?

Well, especially restaurants are going to decide. And they’re going to say, “There is no way that we can make the money to pay, because we haven’t had the income to pay.” They’re going to go out of business. They’re not going to be helped.

The similar type of giveaway occurred after 9/11. I had a house for 20 years in Tribeca, one block from the World Trade Center. The money was given by the government to the landlords but not to the small businesses that rented there — the Xerox shops and the other things. The landlords took all of the ostensible rent loss for themselves, and still tried to charge rent to the xerox shops, the food shops, and ended up collecting twice, and driving them out.

So you’re having the pretense of a bailout, but the bailout really is an Obama-style bailout. It goes to the banks; it goes to those companies that have drawn up wish lists by their lobbyists, such as the airlines, Boeing and the large banks.

The banks and the real estate interests are going to be the biggest gainers. They have changed the real estate law so that the real estate owners, for a generation, will be income tax free. They are allowed to charge depreciation, and have other fast write-offs to pretend that their real estate is losing value, regardless of whether it’s going up and up in value.

Donald Trump says that he loves depreciation, because he can claim that he’s losing money, and gets a tax write-off, even while his property prices go up.

So there’s a lot of small print. The devil is in the small print of the giveaway. And then President Trump has his own half-a-trillion-dollar slush fund that he says he doesn’t have to inform a Congress or be subject to any Freedom of Information law. He gets to give to his backers in the Republican States.

Summary

After being attacked by monetarists and others for many decades, MMT and the idea that running government budget deficit is stabilizing instead of destabilizing is suddenly gaining applause from the parts of the political spectrum that long opposed MMT: the banking and financial sector, especially the Republicans. But what is applauded is in many ways something quite different than the leading MMT advocates have long supported.

Modern Monetary Theory (MMT) was developed to explain the logic of running government budget deficits to increase demand in the economy’s consumption and capital investment sectors so as to maintain full employment. But the enormous U.S. federal budget deficits from the Obama bank bailout after the 2008 crash through the Trump tax cuts and Coronavirus financial bailout have not pumped money into the economy to finance new direct investment, employment, rising wages and living standards. Instead, government money creation and Quantitative Easing has been directed to the finance, insurance and real estate (FIRE) sectors. The result is a travesty of MMT, not its original aim.

By subsidizing the financial sector and its debt overhead, this policy is deflationary instead of supporting the “real” economy. The effect has been to empower the banking sector, whose product is credit and debt creation that has taken an unproductive and indeed extractive form.

This can clearly be seen by dividing the private sector into two parts: The “real” economy of production and consumption is wrapped in a financial web of debt and rent extraction – real estate rent, monopoly rent and financial debt creation. Recognizing this breakdown is essential to distinguish between positive government deficit spending that helps maintain employment and rising living standards, as compared to “captured” government spending to subsidize the FIRE sector’s extraction and debt deflation leading to chronic austerity.

Origins and policy aims of MMT

MMT was developed to explain the monetary logic in running budget deficits to support aggregate demand. This logic was popularized in the 1930s by Keynes, based on his idea of a circular flow between employers and wage-earners. Deficit spending was seen as providing public employment and hence consumer spending to absorb enough production to enable the economy to keep producing at a profit. The policy goal was to maintain (or recover) reasonably full employment.

But production and consumption are not the entire economy. Modern Monetary Theory (MMT) was formally developed in the 1990s, with roots that can be traced by Abba Lerner’s theory of functional finance, and by Hyman Minsky and others seeking to integrate the financial sector into the overall economic system in a more realistic and functional way than the Chicago School’s monetarist approach on the right wing of the political spectrum. A key point in its revival was Warren Mosler’s insight that a currency-issuing country does not “tax to spend”, but instead must spend before its citizens can pay tax in that currency.

MMT was also Post-Keynesian in the sense of advocating government budget deficits as a means of pumping purchasing power into the economy to achieve full-employment. Elaboration of this approach showed how such deficits created stability instead of the instability that results from private-sector debt dynamics. At an extreme, this approach held that recessions could be cured simply by deficit spending. Yet despite the enormous deficit spending by the U.S. and Eurozone in the wake of the 2008 crash, the overall economy continued to stagnate; only the financial and real estate markets boomed.

At issue was the role of government in the economy. The major opponents of public enterprise and infrastructure, of budget deficits and market regulation, was the financial sector. “Austrian” and Chicago-style monetary theorists strongly opposed MMT, asserting that government budget deficits would be inflationary, citing Germany’s Weimar inflation of the 1920s, and Zimbabwe, and portraying government deficits (and indeed, active government programs and regulation) as “interference” with “free markets.”

MMTers pointed out that running a budget surplus, or even a balanced budget, absorbed income from the economy, thereby shrinking demand for goods and services and leading to unemployment. Without government deficits, the economy would be obliged to rely on private-sector banks for the credit needed to grow.

That occurred in the United States in the final years of the Clinton administration when it actually ran a budget surplus. But with a public sector surplus, there had to be a corresponding and indeed identical private sector deficit. So the effect of that policy was to leave either private debt financing or a trade surplus as the only ways in which economic growth could obtain the monetary support that was needed. This built in structural claims for interest and amortization that were deflationary, ultimately leading to the political imposition of debt deflation and economic austerity after the 2008 debt crisis.

Republican and financial sector opposition to budget deficits and MMT

If governments do not provide enough purchasing power by running budget deficits to enable the economy to grow, the role of providing money and credit will have to be relinquished to banks – at interest, and for purposes that the banks decide on (mainly, loans to buy real estate, stocks and bonds). In this respect banks are competitors with government over who will provide the economy’s money and credit – and for what purposes.

Banks want the government out of the way – not only regarding money creation, but also for financial and price policies, tax policy and laws governing corporate behavior. Finance wants to appropriate public monopolies, by taking payment in natural resources or basic public infrastructure when governments are, by policy rather than necessity, short of their own money, or of foreign exchange. (In times past, this required warfare; today foreign debt is the main lever.)

To get into this position, banks need to block governments from creating their own money. The result is a conflict between private bank credit and public money creation. Public money is created for social purposes, primarily to maintain production and consumption growth. But bank credit nowadays is created largely to finance the transfer of property and financial assets – real estate, stocks and bonds.

Opposing the logic for running budget deficits

The Reagan-Bush administration (1981-82) ran budget deficits not to pay for social spending, but as a result of tax cuts, above all for real estate.[1] The resulting budget deficit led to proposed “cures” in the form of fiscal cutbacks in social spending, starting with Social Security, Medicare and education. This aim became explicit by the Clinton Administration (1993-2000), and President Obama convened the Simpson-Bowles “National Commission on Budget Responsibility and Reform” in 2010. Its name reflects its recommendation that “responsibility” meant a balanced budget, which in turn required that social spending programs be rolled back.

Host Jim Vrettos interviews Professor Michael Hudson, Economist, Wall St. Analyst, Political Consultant, Commentator and Journalist; who offers his views in the way finance works and

Welcome, welcome once again to the Radical imagination. I’m your host, Jim Vrettos. I’m a sociologist who’s talked at John Jay College of Criminal justice and Yeshiva university here in New York. Our guest today, on the Radical Imagination, is one of only eight economists named by the financial times who foresaw the credit crisis and ensuing great recession erupting in 2008. It was conventional wisdom at the time to say that no one saw the gravity of the crisis coming, including almost every leading economist and financier in the world.

In fact, many had seen it coming. It was seen by everyone except economists from Wall Street; as our guest put it. They were ignored by an establishment according to then, the Federal Reserve chairman Alan Greenspan that watched with innocent quote-unquote shock disbelief as its whole intellectual edifice collapsed in the summer of 2007.

Official models missed the crisis not because the conditions were so shockingly unusual, they missed it by design because the world they lived in was not a world of how finance really works. They missed it because their mathematical models made it impossible to warn against a debt-deflation recession.

Their innocent model worlds were worlds where debt simply did not exist. It’s a world that most of our economic policymakers still live in, and it’s no wonder that everyday people see most economists far removed from their practical economic concerns and interests their everyday concrete reality. Our guest today is an internationally renowned economist who’s followed a much different path of interest and concern.

Michael Hudson is a distinguished research professor of economics at the University of Missouri, Kansas City, a researcher at the Levy Economics Institute at Bard College, a former Wall Street analyst; political consultant to governments on finance and tax policy, a popular commentator sought after speaker and journalist.

He identifies himself as a Marxist economist. But his interpretation of Karl Marx that differs in most other major Marxists. He believes parasitical forms of finance have warped the political economy of modern capitalism. History has regressed back to a neo feudal system. He’s also a contributor to the Hudson report, a weekly economic and financial news podcast produced by Left Out.

His many books include Killing the Host, J is for Junk Economics, The Bubble and Beyond, Super Imperialism, and “… and Forgive Them Their Debts.” Michael has devoted his entire scientific career to the study of debt —both domestic and foreign, loans and mortgages, and interest payments.

In 2006 he argued that debt deflation would shrink the real economy, drive down real wages and push our debt-ridden economy into a Japan-style stagnation or worse. And just for reference, the typical American household now carries an average debt of over $137,000 up from $50,000 or so in 2000. The average American has about $38,000 in personal debt, excluding home mortgages.

The average credit card debt per U.S. household is $8,500, and outstanding student loans are at an all-time high, in 2019, of $1.41 trillion, a 33 percent spike since 2014, and a 6 percent increase from 2018. Only 23 percent of the population say they carry no debt. As Hudson presciently puts it, debts grow and grow, and the more they grow, the more they shrink the economy.

When you shrink the economy, you shrink the ability to pay the debts. So, it’s an illusion that the system can be saved. The question is, how long are people going to be willing to live in this illusion? Every day people have to face reality. Our economic policymakers urgently need to get it too.

So welcome Michael to The Radical Imagination. Thank you very, very much for coming here and being with us. Your work is so interesting; it’s so new and different. You’re a Marxist economist and yet…

[Michael] I’m a classical economist…

[Jim] You are classical, ok.

[Michael] Marx was the last great classical economist. Classical economics basically runs from the French Physiocrats through Adam Smith via John Stuart Mill to Marx.

[Jim] Along with Ricardo.

[Michael] Yes, they were all talking about the rentiers. In their time the landed aristocracy were the main rent recipients. But Adam Smith also talked about monopoly rent. And finance was the major monopoly. And today, the role of the landlords played in the 19th century of stifling industrial capitalism is being played by the banks and the rest of the financial sector. Right now the collectors of land rent, which was the main focus of the labor theory of value to isolate what was unnecessary, is being paid to the banks as mortgage interest.

[Jim] Right

[Michael] So, we no longer have a small privileged private landlord class when you have 80 percent of the European population and two thirds of the American population being homeowners. However, they have to pay the equivalent of the rental value of their housing to the bank, in the form of mortgage interest.

[Jim] To the banks, right!

[Michael] My analysis follows from classical economics, as did Marx’s analysis. So Marx is simply the last great classical economist. They were all talking about how industrial capitalism sought to free itself from unnecessary costs of production, and hence how its political fight was against the landlord class and other rent extractors. Where Marx went beyond his predecessors was in looking at the laws of motion of industrial capitalism. He saw these as leading toward socialism. Later, Rosa Luxemburg said that if it’s not towards socialism, it will be toward barbarism.

[Jim] So capitalism would evolve into the possibility of socialism.

[Michael] Yes.

[Jim] Did he foresee the sort of predatory financial system that you worked out?

[Michael] No one described it better in his time than Marx, in Volume III of Capital.

[Jim] Volume III. Ok!

[Michael] Marx analyzed the “real” economy’s circular flow between employers and wage labor buying the products they produced. But then, in Volume III, he said that rentier debt claims by the financial sector was a separate dynamic, independent from the economy of production and consumption. This industrial capitalist economy is wrapped in a financial sector composed of debt and property claims. These are external to the economy. They slow it and ultimately cause a crash. Marx was one of the first to talk about business cycles of about 11 years and the internal contradictions that led to a market collapse. He pointed out that the financial sector had different mathematics of growth – the mathematics of compound interest. These are exponential and inherently unsustainable. In Volume III of Capital and also of his Theories of Surplus Value – which was Marx’s history of economic thought and the theories leading up to him – he collected everything from Martin Luther to other analyses pointing out that debts grew so rapidly at compound interest that it is impossible to pay them.

[Jim] You have a great chart where you talk about compound interest, a penny that was invested at 5% interest from Christ’s time to 1776.

[Michael] Richard Price was an actuarial accountant. He calculated that a penny saved that at the time of Jesus’s birth at 5% interest would become a solid sphere of gold extending from the sun out to the planet of Jupiter.

[Jim] Amazing.

[Michael] Obviously, many people did save pennies at the time of Christ, and the annual interest rate then in Rome was 8 1/3%, one twelfth per year. But of course nobody has a sphere of gold extending out to Jupiter. That’s because debts that can’t be paid, won’t be.

Even before the Covid-19 crisis had slashed stock prices nearly in half since it erupted in January, financial markets were in an inherently unstable condition. Years of quantitative easing had loaded so much money into stock and bond prices that stock price/earnings multiples and bond prices were far too high by any normal and reasonable historical standards. Risk premiums have disappeared, with only a few basis points separating U.S. Treasury bills and corporate bonds.

The Fed’s Quantitative Easing since 2008 plus large companies using their earnings for stock buybacks drove the prices of financial assets into a realm of unreality. The result was that markets already were teetering on the brink of fragility. Any rise of normal interest to more normal conditions, or any external shock, was bound to crash the artificial values at which financial markets were priced. The Fed’s policy was to perpetuate this situation for as long as possible by pumping in yet more credit. But at near-zero interest rates, there was little that could be done.

A close parallel to this situation was the state of Third World debt in the mid-1980s. Mexico’s announcement that it could not meet its foreign debt service was the shock that brought ugly financial reality into conflict with the assumption that somehow any government debt could be paid – even debts denominated in a foreign currency. (Mexico and other countries had denominated their bonds in dollars in order to obtain lower interest rates than bonds denominated in their own currencies would have to pay. The assumption was that export earnings would provide hard currencies with which to redeem the bonds.)

The international financial system was rescued by the issue of Brady bonds – “good” new bonds for old “bad” ones. The capital value of these bonds was still far below the original debt, but they had the virtue of setting realistic levels by bringing the debt balance more in line with the actual ability of debtor countries to earn the dollars or other hard currencies needed to service bonds denominated in foreign currencies, mainly the US dollar.

The current crisis requires a similar write-down and recognition that fictitious price levels must give way to reality at some point. In fact, we have reached the end of an illusion – the illusion that bond (and stock) prices could be sustained indefinitely simply by financial engineering, without an economic base capable of producing enough surplus revenue to justify existing bond and stock prices.

So attractive were the former unrealistic bond and stock levels that the markets are still in the “denial phase” hoping that the Coronavirus bailout may be used as an opportunity for yet further infusion of money into the financial markets. But that merely postpones the inevitable adjustment to bring financial asset prices back in line with real economic capabilities.

There certainly is a financial panic, and prices are not necessarily more realistic in a panic than they were in the bubble leading up to it. The question is, what is a sustainable asset-price level? What needs to be supported is a realistic value of stocks and bonds. Bad debts should be taken off the books, not supported in an attempt to recover the unrealistic pre-virus levels.

A successful way of coping with overpriced bonds and other debts

Our situation is similar to Third World debt in the early 1980s after Mexico triggered the Latin American debt bomb by explaining that it did not have the money to service its foreign bonds. Prices for Third World bonds plummeted as investors calculated the dollar-earning power of countries that had to export goods and services (or sell off their assets) to pay their foreign-currency debts. But their export proceeds simply could not cover the debt service that was owed.

The Sovereign Debt market was trading at such low prices that these foreign government bonds had become illiquid. Unable to obtain further credit, countries confronted by this financial state of affairs were threatened with political instability.

The Federal Reserve’s long Quantitative Easing and support of the financial markets has provided the appearance of stability. This artificial life support has been viewed as saving banks and large companies, pension funds and state and local finance from insolvency. But in doing this the Fed has been fighting what looks like a losing battle against reality. The Fed has been supporting illusory values that cannot be sustained.

The reality is that large swaths of the post 2008 corporate bond market boom have seen a proliferation of corporate bonds that cannot be paid. The fracking industry is only the most visible example. Airlines, entertainment, hotels and retail companies are facing losses that threaten their solvency.

The Fed fears a free market when it comes to asset prices. Or at least, it fears the political and economic consequences of withdrawing artificial support. Reality forced the Fed into the mid-March support and already a larger intervention has been announced. According to the New York Times, for the first time in history, the Federal reserve announced that it would buy corporate bonds, including the riskiest investment-grade debt.[1] In a March 17 statement it seems the Fed also intends to purchase stocks.

This is the “Denial stage” of the illusion that has resulted in crisis– the illusion that the stock and bond run-up could be turned from government manipulation into an actual market reality.

Where is this supposed to end? The Fed could buy up all the bonds – from corporate junk to state and municipal bonds as a way to prevent their prices from falling. At an extreme, this business-as-usual scenario would lead to the Fed owning the junk bond market, municipals, and a large swath of the stock market.

This could have a silver lining: having concentrated the debt in its own hands, the Fed would then have a free hand to write off the debt, privatize the companies and start all over again with a lower debt overhead. That is what China’s central bank has been doing: simply forgiving debt that is owed to itself. The Fed would swap “good” public debt (good in the sense that the government can print the money to pay) for bad (meaning unpayable) debt.

Bringing financial markets in line with reality would mean writing off a large swath of corporate debt and realizing that much corporate equity “wealth” has been created by decapitalizing corporations in stock by-backs instead of investing in the country’s productive capacity, including decent wages for workers. The American airline industry over the last decade has spent as much as 96% of its cash on stock buybacks – giving financial wealth to their CEOs and share holders rather than investing in their business. Such financial wealth, if not underpinned by real wealth, is built on quicksand, and it is now disappearing as asset markets plummet. So stock buybacks and other artificial ways to “create wealth” were “investments” that have had drastically negative returns.

To implement a rationalization of bond and stock prices bringing them in line with reality, it has to be in the interest of holders of these securities. Acknowledging that bonds are not worth as much as the price at which the Fed is supporting them will not appeal to bondholders as long as prices are artificially supported. A bond-swap (new good bonds for old bad bonds) can only be achieved in a situation where it is more realistic and less risky to have a sound good bond than a low-priced (or fictitiously high-priced) bad bond.

Even before the coronavirus appeared, many American families were falling behind on student loans, auto loans, credit card balances and other payments. America’s debt overhead was pricing its labor and industry out of world markets. A debt crisis was inevitable eventually, but covid-19 has made it immediate.

Massive social distancing, with its accompanying job losses, stock dives, and huge bailouts to debt-strapped corporations, raises the threat of a depression. But it doesn’t have to be this way. History offers us another alternative in such situations: a debt jubilee. This slate-cleaning, balance-restoring step recognizes the fundamental truth that when debts grow too large to be paid without reducing debtors to poverty, the way to hold society together and restore balance is simply to cancel the bad debts.

The word Jubilee comes from the Hebrew word for trumpet — yobel. In Mosaic Law, it was blown every fifty years to signal the Year of the Lord, in which personal debts were to be cancelled. The alternative, the prophet Isaiah warned, was for smallholders to forfeit their lands to creditors: “Woe to you who add house to house and join field to field till no space is left and you live alone in the land.” When Jesus delivered his first sermon, the Gospel of Luke describes him as unrolling the scroll of Isaiah and announcing that he had come to proclaim the Year of the Lord, the Jubilee Year.

Until recently, historians doubted that such a debt jubilee would have been possible in practice, or that such proclamations could have been enforced. But Assyriologists have found that from the beginning of recorded history in the Near East, it was normal for new rulers to proclaim a debt amnesty upon taking the throne. Instead of blowing a trumpet, the ruler “raised the sacred torch” to signal the amnesty.

It is now understood that these rulers were not being utopian or idealistic in forgiving debts. The alternative would have been for debtors to fall into bondage. Kingdoms would have lost their labor force, since so many would be working off debts to their creditors. Many debtors would have run away (much as Greeks emigrated en masse after their recent debt crisis) and communities would have been prone to attack from without.

The parallels to the current moment are notable. The U.S. economy has polarized sharply since the 2008 financial crisis. For far too many, the debts in place leave little income available for spending on goods and services or in the national interest. In a crashing economy, any demand that newly massive debts be paid to a financial class that has already absorbed most of the wealth gained since 2008 can only further split our society.

This has happened before in modern times — after World War I, the burden of war debts and reparations bankrupted Germany, contributing to the global financial collapse of 1929-31. Most of Germany was insolvent, and its politics polarized between the Nazis and Communists. We all know how that ended.

America’s 2008 bank crash offered a great opportunity to write down the often-fraudulent junk mortgages that burdened many lower-income families, especially minorities. But this was not done, and millions of American families were evicted.

The way to restore normalcy today is a debt writedown. The debts in deepest arrears, and most likely to default, are student debts, medical debts, general consumer debts and purely speculative debts. They block spending on goods and services, shrinking the “real” economy. A debt writedown would be pragmatic, not merely a moral sympathy with the less affluent.

In fact, it could create what the Germans called an “Economic Miracle” — their own modern debt jubilee in 1948, the currency reform administered by the Allied Powers. When the Deutsch Mark was introduced, replacing the Reichsmark, 90 percent of government and private debt was wiped out. Germany emerged as an almost debt-free economy, with low costs of production that jump-started its modern economy.

In the past, the politically powerful financial sector has blocked a writedown. Until now, the basic ethic of most people has been that debts must be repaid. But it is time to recognize that most debts now cannot be paid — through no real fault of the debtors in the face of today’s economic disaster.

The coronavirus outbreak is serving as a mind-expansion exercise, making hitherto unthinkable solutions thinkable. Debts that can’t be paid, won’t be. A debt jubilee may be the best way out.

Michael Hudson, author of “… and forgive them their debts” and “Killing the Host,” is president of the Institute for the Study of Long-Term Economic Trends and is Distinguished Research Professor of Economics at the University of Missouri–Kansas City.