That doesn't work properly though when the rate of interest is low. Low interest rates both inhibit people saving and made debt less onorous. When the interest rate and inflation rate are roughly equivalent and both reasonably low, there's no great incentive to pay off debt over spending the money on short term needs.

There's a degree of 'catch-22' about our current situation. The ideal situation for the UK right now is a relatively high interest rate (not the crazy 10% of Black Monday but maybe 5%) and low inflation rate. That would encourage both saving and debt payoff while dis-incentivising (ugh, sorry) people from further credit. However we can't have that kind of interest rate because the debts are so big that any interest rate at all to speak of will see debt spiral out of control as people struggle to keep up with it. Osborne's solution isn't working even by his own measures but he apparently doesn't have any other plan so he's going to carry on with it regardless. While banging on about the feckless unemployed who, in fact, are a very small part of the problem.

*dons flameproof suit*

How about a debt jubilee? Cancel all personal debt. Wipe it out completely. Start again.

Suddenly, instead of servicing payday loans, mortgages or maxed out credit cards, people have that money available to spend in the economy.

Equally, I don't understand why the Bank of England didn't give everyone in the country £30,000, instead of moving cash into the high street bank coffers where it's basically stayed ever since.

Honest questions, but I expect a couple of four-footer replies.

Are there any incidents where a nation has adopted austerity measures and been able to look back from a position of wealth and power as a result, and say "Austerity! It was a roaring success, we're ever so glad we went down that route." because I can't immediately think of any?

No objection from me at all (not least as I'd get £30k out of it ). If memory serves Japan did something similar a little while back where they gave a small amount to everyone under about 25 (something like £100). It was only done to under 25s as the culture of saving in Japan is so strong that the vast majority over that age would just have stuck it in a savings account.

Moral hazard for one thing. Borrowing money implies a contract to repay that money. Just saying none of those contracts are valid any more is stealing.

Instantly bankrupting the nation is another negative point. And getting a free house is not that much comfort when you only get to put dinner on the table courtesy of cannibalism ... and even then only after you convert your gas oven to some form of twig based fuel.

I don't mean all debt should be cancelled for ever. Some debt may even have to be kept on (mortgages for example). Rather, what I meant by a jubilee was that everyone's personal debt slate can be wiped clean, and then new debt can be taken on in a more manageable way.

To my admittedly simple world view, it seems we have encouraged personal debt even to people who really couldn't afford it. We've been sold this lie that we simply must have this new TV, a new car, holidays in exotic places, shiny baubles, but don't worry if you can't afford it: just take out a loan or use your credit card and pay it off later, sometime, never. Only we tended not to pay things off, and have ended up getting more and more into debt. Folk juggle credit cards to pay off against other credit cards, take on consolidating loans to clear other debts, end up with county court judgements and tarnished credit ratings.

Clearing that debt - which will hurt the lenders in the short term, but if you like it was their fault we got into debt in the first place so they can afford to suck it up for a while - would mean people would have a chance to reassess their lives and perhaps begin to learn to live within their means again.

It's just a thought. Simplistic, perhaps, but I am at heart a simple person.

(Thankfully, I was brought up to respect money. "If you can't afford it now, save up for it" was a mantra drummed into me; put money aside for a rainy day, don't owe anyone anything if you can avoid it. Aside from a credit card which gets paid off in full each month, I have no personal debt at all, but I can well understand how people find themselves in deeper than they expected when they took out a loan for something they probably didn't need but thought would make them happier.)

Well you would have to make your mind up about what debt to cancel. Does it include everybody's next gas bill or only the overdue red ones, or no bills? If mortgages aren't included then most people's slates aren't clean at this point. If they are you wipe out the entire economy and cause a famine in a country of virtually no farmers. If not, only a large portion of it goes up in smoke and people still get to eat food instead of vermin and / or lodgers. Real food would however be the last remaining luxury in your life if you wipe out any significant portion of debt in the way you describe. So make your choice wisely!


You get tarnished credit ratings by not repaying debt. If everybody doesn't repay debt, nobody's credit is worth spit. Only a moron would continue to extend credit to anyone at all (including businesses) in an environment of massive appropriations like that because it demonstrates extreme bad faith.

On top of that, to stand a chance of enacting this within the law would require extensive new legislation, which can't be done in secret. You'd need to decide what to do about all the foreign owned credit too. Are you going to allow Capital One, Santander etc to close their UK operations and withdraw assets gracefully, or are you going to nationalise their UK arms and pay massive reparations for assets that you are about to send up in smoke? If you don't do either are you prepared for them to take out court orders allowing them to seize UK owned assets all over the world?

An alternative view would be that it is rewarding profligates for running up so much debt that they became "too big to fail". It actively punishes those who kept their borrowing within reason, because all the loot goes to the biggest scroungers.


You were raised not to seek a quick fix (credit) for your unaffordable desires, that's good advice for everyone - nations and individuals alike. Those who are unfortunate enough to find themselves insolvent for whatever reason should receive credit relief, but they should also have difficulty getting more credit afterwards.

Can I assume then that nobody else can think of an example of austerity economics working then?

Canada, Sweden, Belgium all in the mid 90s. USA in the late 90s. Latvia more recently.

As before though; how, when and whether to do austerity is a controversial topic. There are resentful losers no matter how you go about it, because whatever a successful austerity program looks like, it includes a lot of hardship for many people.

What counts as austerity isn't easily defined. As a result, what counts as successful austerity is an open question. One that's liable to be interpreted according to crass ideological [LIFTED] whether you approve of or despise the concept.

As a rule, the more successful ones are done before the bond markets start to demand it, if you wait till there is no alternative it hurts a lot more.

As another rule though, you don't ideally want to be doing austerity during a recession - especially not a global one. Austerity is not a tool for fixing recessions, it is there to deal with unbalanced economies. But sometimes those imbalances contribute to quite nasty recessions, which is inconvenient to say the least.

Sweden - http://krugman.blogs.nytimes.com/2011/03/29/two-faced-sweden/ - hmm.
Canada - http://21stcenturysocialism.com/article/beware_the_canadian_austerity_model_01989.html - also hmm.

Interesting viewing here (it's only 5 minutes) - http://vimeo.com/15061570

One person's debt is other person's asset. If you take assets (loans) from banks they will still have liabilities (to depositors) and they have no assets to repay those liabilities. So if bank wipes Joe's £1,000 debt it won't be able to repay Heather's deposit. So when Heather comes to the bank and says: "I want to buy new shoes so give me £1,000 from my bank account that my employer has paid me" the bank will say: "Sorry, we lent your money to Joe but then somebody had this stupid idea of wiping out all personal debts and we can't get money from Joe anymore."

So all banks would fold instantly and the only money you would have at that point would be those in your wallet and those pennies in your sofa.


This has to be the all time low for intellectual level of a debate on this forum. No offense, but how did you get through life with the knowledge of finance and money on the level of a 5 year old? Do you have an assistant who handles all your money or is your husband a billionaire?

If the answer is so simple, then why not answer the question in simple terms instead of mocking it?

Each of the cases named took place during a global boom. Global recessions are rare. Only a few since 1945, prior to the one in 2008 it was 1979. Though the problem is that the banking sector had been allowed to get too big and blow up. In the Swedish example it was primarily a banking crisis. They let the banks collapse. They broke the banks into good banks and bad banks, forcing them to restructure. Because they did not bail out the banks the economy recovered quickly, same as in Iceland. Ireland however bailed out its banks and are still struggling with austerity. Latvia did not bail out its banks either. They were all foreign owned mainly by Swedish banks and had to restructure. Canada was a case of excessive government spending but that was during a global boom.

As for a debt jubilee there have been examples suggested. You cannot use it to pay bills but as you clear debts your income is freed up to pay bills. So if you had a loan or credit card then you clear that and the drop in interest payments will enable you to pay the other bills. If once you are debt free then you can spend it.

I think perhaps we should permit the occasional question that a 5 year old might ask, they are often quite telling.

But in this case, the main difference between spending £30,000 per person on bank bailouts and giving everybody £30,000 is transfer of ownership. In one case the state gets shares or assets in return for its cash, which it will sell later, possibly for a profit. Giving 30 grand to everyone is just a quick way to torpedo the currency and kick off a good old fashioned hyper-inflationary spiral.

Yes but those assets were created in the banks. This would not be a complete debt jubilee but a partial jubilee. Banks create loans (Assets) and then raise funds for them, but because of fractional lending they do not need to have other assets (deposits) to back them. What such a scheme would do is eliminate the debts of the creditor and some of the loans and also leverage of the banks. The banks would not lose anything because the money could be created in the same way that the Bank of England flooding the banks with liquidity, they printed it electronically.

What you described was a bank write-down as in they had to accept that the borrower Joe was bankrupt. In those cases it still has a duty to pay Heather's deposit, otherwise it would be closed itself. Also banks are required to hold sufficient liquid reserves to cover depositors demands, so if you were unable to give Heather £1000 for shoes then you would be admitting that you were insolvent and would create a run on the bank, pretty much like Northern Rock.