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It Is Time to Remove the Debt Barrier to Economic Growth
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Out of habit, American economists worry about federal debt. But federal debt can be redeemed by the Federal Reserve printing the money with which to retire the bonds. The debt problem rests with individuals, companies, and state and local governments. They have no printing press.

We have explained that the indebtedness of the population means there is little discretionary income with which to drive the economy. The offshoring of middle class jobs lowered incomes, and after paying debt service—mortgage interest, car payments, credit card interest, student loan debt—Americans’ pockets are empty.

This situation has been worsened by Covid lockdowns. In the US the federal government has sent out a few Covid payments to help keep people’s heads above water as they face expenses without income. The financial press refers to these Covid checks as “fiscal stimulus,” but there is no stimulus. The Covid checks do not come close to replacing the missing wages, salaries and business profits from lockdowns.

Corporations have indebted themselves and impaired their capitalization by borrowing money with which to repurchase their stock. This has built up their debt in the face of stagnant or declining consumer discretionary income.

We propose to deal with the debt crisis by forgiving debts as was done in ancient times. Our basic premise is that debts that cannot be paid won’t be. Widespread foreclosures and evictions would further worsen the distribution of income and wealth and further contrain the ability of the economy to grow. Writing debt down to levels that can be serviced would clear the decks tor a real recovery. Income that would be siphoned off in debt service would instead be available to purchase new goods and services.

A few economists muttered that we were overlooking the “moral hazzard” of absolving people of their debts. But leaving the economy stagnated in debt is also a moral hazzard.

Policymakers did not endorse our proposal, but, in effect, policymakers adopted our policy. However, instead of forgiving the debt itself, they forgave payment of the debt service. Individuals and businesses who cannot pay their landlords or lenders cannot be evicted or foreclosed until June. This doesn’t hurt the lenders or banks, because the loans are not in default, and their balance sheet is not impaired. The banks add the unpaid payments to their assets, and their balance sheets remain sound.

When June arrives, the prohibition against eviction and foreclosure will have to be extended as the accrued debt service cannot be paid. Extending the moratorium on foreclosures and evictions will just build up arrears. Is the implication a perpetual moratorium?

The question is: If policymakers are willing to forgive debt service, why not just forgive the debt. The latter is neater and clears the decks for an economic renewal.

The US economy has been financialized. Debt has been built up without a corresponding gain in productive capital investment in order to carry the mounting debt.


In financialized capitalism, the main purpose of bank loans is to refinance existing investments, not to expand productive capacity with which to service the debt. It is not possible to grow out of debt in a financialized economy, because too much income is used for debt service. The way to deal with this problem is to write down debts.

(Republished from by permission of author or representative)
• Category: Economics • Tags: Debt, Debt Jubilee, Government Debt 
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  1. ruralguy says:

    Anything goes, like in the old Cole Porter tune?

    Why would any lender want to lend money, if there is a chance it will be cancelled? Why would those landlords want to lease their property, if rents are forgiven? Michael Hudson: you need to get out of that academic ivory tower and work for a living. Please read this description of mine describing what it is like being a landlord. I was a landlord of an low-income apartment complex, while working a regular job, let me try to convey what it’s like to work hard for a living:

    Being a low-income landlord is like being a fish swimming in a blender — your life is never relaxing. Because the government is increasingly makes our decisions, by telling us to whom we must lease, our problems become nearly intractable. We must deal with two fundamentally different, but equally stressful problems: maintaining decrepit property that is too expensive to change and handling or fixing the tenants’ life problems – a duty increasingly imposed by the government. With a decrepit structure, you can expect to struggle with plumbing problems constantly. Like a fish in a blender, every phone call triggers apprehension and pure dread of the hours we must devote to struggle with the problem, often while drenched cold with water and muddied with sewage. Sometimes those plumbing problems are dangerous like when the sink drain is jammed with residue from cooking drugs. Flooded apartments mean not hours, but weeks spent dealing with the problem.

    While working full-time jobs, both my wife and I spent every spare minute down at the apartment building repairing things, handling issues, and trying to collect rent, usually dragging our small children with us. Collecting rent is always a problem, because very few low-income tenants plan for the future. Most will spend all of their money, such as a trip to Disneyland, without thinking about the need to pay for food, diapers, and rent. Sometimes, they spend rent money on new cars, drugs, tvs, gambling, booze, and anything other than rent. Even if you assess late fees, it doesn’t solve this uncorrectable lack of planning. They merely accumulate late payments and rent balances, until they can no longer pay. If they move out, we were almost always confronted with weeks of labor to clean and repair the unit. The damage was unrelenting, even when you screen problematic tenants. They will play loud music, fight with neighbors, party till late, etc. Their lack of respect for others and poor communication creates havoc for them, us, and their victims. This lack of situational awareness extends not just to neighbors, but to their friends and partners. Often, they often resolve the ensuing problems by assaulting them. Some of them try to solve their problems with drugs and alcohol. Their life choices often made us just cringe. One of our young tenants had a baby while a high-school student. At first it was enjoyable for her. The Government paid for her rent and expenses. Her school friends said they envied her. But, they stopped coming and so did her boyfriend. Soon, she had to deal with a crying baby, alone, with no support network, while cooped up in an apartment. She cried about missing school and normalcy. As landlords, their problems become your problems.

    They all had credit and criminal issues. Perspective tenants are often desperate, pleading and pleading with us to give them a chance. But, you can’t. It doesn’t take landlords long to discover the best tenants are older tenants and people with good credit scores (which correlates very well with good behaviors). The laws forbid discrimination based on age, race, families with children, etc.. Now, they are also forcing landlords to ignore criminal history. We ran a lower-income complex for decades, but eventually we started to let the units sit vacant, often for months, until we attracted tenants with good jobs and good credit scores. This patience was rewarded, as we became a mid-income apartment complex. But, this choice of ours was increasingly at odds with the laws that force landlords to accept any tenant. The Government thinks it is correcting an unfair situation with landlords discriminating against people. The reality is that landlords can’t handle the expense and lack the time and skills to solve these peoples’ life problems. We landlords must not only take care of our families and solve our problems, while working full-time jobs, but also spend our meager free time dealing with our rentals and the tenants’ problems.

    Voters have a long history of thinking landlords are greedy and harsh, so they stack the laws against us. In reality, we landlords are usually just ordinary people facing these unfair laws. Because of them, we can’t even evict the tenants who are a pure nightmare. Eviction is expensive and time consuming. One of my “occupants” was able to live rent free for 8+ months, because she was able to use free city-provided legal services to prolong her occupation of our unit. Her government provided lawyer saw us as evil. We were in court often during that period. The tenant (she actually wasn’t a tenant) didn’t have a job, because she felt her time was best spent on political protests, rather than solving her own problems. So, she could afford the time to engage in this war with us. We couldn’t afford it. We had full time jobs that required much overtime, with two small children, and the constant work on our apartment complex.

    In my experience, landlording is just pure stress with very little financial gain. The capitalization rate for us was about 6%, but if we included the labor hours we spent on it, it was negative. So, why do landlords engage in this crazy business? For my wife and I, we wanted the depreciation and write offs, to offset our taxes. We also hoped for property appreciation which never came. But, after we sold the building, we discovered the tax laws recoup those depreciations. Hopefully, I’ve conveyed to you the experiences of being a low-income landlord, but I’ll never convey to you the sense of gloom. You are dealing with tenants whom you often befriend, whose lives are gloomy, dead end, and confined to that small dismal neighborhood. There is nothing noble in that little corner of the world. It felt like the inscription Dante saw when entering the gates of Hell: “Abandon all hope, ye who enter here.” Selling that apartment building was one of the happiest days of my life. The lives we left behind aren’t helped by the do-gooders and government bestowing the landlords’ money, choice, and time on them. They need the tough life lessons to force them to plan their way out the gloomy path they are on. The do-gooders will likely howl at the harshness of that thought, but hey, .. I earned it that perspective serving in the trenches, .. did they?

    • Agree: TTSSYF, 789
    • Replies: @RadicalCenter
  2. Chris Moore says: • Website

    In financialized capitalism, the main purpose of bank loans is to refinance existing investments, not to expand productive capacity with which to service the debt. It is not possible to grow out of debt in a financialized economy, because too much income is used for debt service. The way to deal with this problem is to write down debts.

    I’m all for forgiving debt if it comes at the expense of the corrupt neocon/neolib government and big banks, but then who is going to start or grow the companies under a productive capitalism scenario? The moral retards created by that same corrupt neocon/neolib government and culture that spent decades pandering to Zionist grifters, parasites and organized criminals?

    Or do you propose we get rid of the Zionist grifters, parasites and organized criminals along with the debt? Because that’s the only solution that makes logical sense. And that’s going to require a revolution, not some quick-fix, neat economic trick dreamed up by a couple of burnt-out, Silent Generation/Boomer collaborators. In fact, your “solution” is just another grift that got us in this mess to begin with — just more kicking the can down the road.

    Predatory Zionist scum is the problem. Getting rid of predatory Zionist scum is the solution. Same as it ever was.

    • Agree: 789
  3. Professor Hudson: there is a way to greatly ameliorate the American people’s debt burden without letting all borrowers simply take what they promised to pay back.

    Have the US Treasury or a federal Public Bank refinance all existing housing, vehicle, education, medical, and small-business loans, for all except the very highest-income elite, at ZERO INTEREST.

    With no interest tacked on, Americans would have smaller monthly payments on each debt — sometimes much smaller — and an actual realistic chance of first lowering the balance, then ultimately paying it off in a reasonable period of time.

    I understand that you prefer a complete jubilee, cancelling principal, but wouldn’t my proposed less drastic non-confiscatory measure still greatly improve our lot?

    • Replies: @Ann Nonny Mouse
  4. @ruralguy

    THANK YOU. I heartily regret ever having tried to be a small-time landlord many years ago.

  5. Start by legislating that a commercial corporation is not a person and has no human rights including no personal ownership rights.

    Next, that all advertising must be on a hard surface or paper. Ban advertising on the Web.

    The pre-WWW Internet had a code of ethics on its use and at that time advertising was banned, was spam. Go back to that. “Monetinizing” the Internet was debated but these giants, Google, Twitter, etc made billionaires out of a few who exploited the free gift of the Internet. They don’t deserve their billions. The authors of the important RFCs deserve great admiration, but where are they? What rewards did they get when those few “Tech giants” fed off them? What palaces are they lounging in?

    Sure, let them have their “social media”, but without advertising. Look how far the Unz Review has got without advertising. And ICH, Information Clearing House, emphasize that because they won’t touch advertising they are beholden to none and so are more trustworthy than sites with advertising.

    • Replies: @Ann Nonny Mouse
  6. @RadicalCenter

    Or rule that only simple interest is allowed, compound not. Make it illegal to charge interest on accrued interest.

    • Replies: @RoatanBill
  7. @Ann Nonny Mouse

    I mean, why would corporation repurchase their stock? Who becomes the new owner? If ownership had to be by individual real persons, why do it. Admittedly I’m clueless on economics and finance but repurchase makes no sense to me.

    • Replies: @VICB3
  8. gay troll says:

    Economic growth IS the barrier and debt is what smashes us up against it.

    Economic growth is a euphemism for ecological demise. A cancer.

    Unlimited growth kills; good health requires equilibrium.

  9. That article is emotionally appealing BS. Near the start it says, it says “…indebtedness of the population means there is little discretionary income with which to drive the economy.”

    Actually one person’s interest payments are someone else’s interest RECEIPTS (and or salary at the bank which organised the loan). Ergo increased interest payments have no effect on “discretionary income”.

    But in any case, interest payments as a proportion of household incomes are at a record 20 year LOW. Doh.!!!

    Can’t be bothered with any more of this nonsense article.

  10. @Ann Nonny Mouse

    With simple interest, no one would be able to afford the first mortgage payment.

  11. VICB3 says:
    @Ann Nonny Mouse

    Stock repurchase is a way to goose/pump up the stock price. If you’re a corp. executive, that means in turn your stock options will be worth more when you exercise them. If you’re a stockholder, that means your shares are worth more when you sell them.

    In buying back stock, a corp. will typically either divert funds that might otherwise be used to grow the company, or take on additional debt. In either case, the people arranging or cheering on the buy back have no intention of holding onto their stocks. Rather, the ultimate intent is to sell the stocks at a profit and move on.

    A stock buy back is legitimate if a corporation seeks to minimize the capricious interference of an outside entity. But of late, that is rarely the case. Instead it has become a way to make a quick buck at the expense of the company’s long term prosperity.

    Hope this helps.

    Just a thought.


    • Agree: Jim Christian
    • Replies: @Jim Christian
  12. gT says:

    TPTB don’t need more growth, they got enough money and assets already, they can’t be bothered about growth, growth is just so yesterday, its for the plebs. What they now want is population reduction, so they are not going to save the Deplorables, but are going to make things worse for the Deplorables, until some sort of a dictatorship can be established to “save the day”. Then the real population reduction will begin.

    • Agree: RadicalCenter
  13. @VICB3

    They all spent their 10s of billions buying back their stock, take their bonuses and then plead poverty as they issue more pink slips. GE, GM, all the bigs do it that way.

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