Cosmosophy: The great debt deflation by negative rates before true hair cuts if necessary

vendredi 11 octobre 2019

The great debt deflation by negative rates before true hair cuts if necessary

Historical data on sovereign debt default is on the side of those calling for the forgiving of student loan debt. More voters will like that outcome than bondholders that don't.
And many will see it justified by supposing that most of the losses, born by bondholders, are rich people. The puzzle is why bondholders, rich or not, are so gullible.
Defaults would surely be much higher were it not for the episodes of inflation that enable governments to fleece their bondholders more gradually and less dramatically. This is how we absorbed the huge WW II debt that defeated Nazi Germany and imperial Japan. That debt was perhaps more widely held than now because of the many wartime savings bond campaigns.
So it was a way of spreading and diffusing the cost of that victory, and the government maintained its credibility.

The great recession: the "voluntary" GM debt restructuring

Case in point, remember the 'voluntary' restructuring of GM debt following the Great Recession?

Student loan debt in the US

A moderate solution to student debt would be to start by restoring bankruptcy & statute of limitations protections as before & give that debt legal parity with all other commercial debt & therefore subject to flexible settlements. Those debts that can reasonably be paid would be & the others settled out as appropriate. The inevitable billions in defaults should be shared with the colleges (the benefiting industry) so as to limit moral hazard (else they'd do it all over again).

Une solution modérée à la dette étudiante serait de commencer par rétablir les protections en cas de faillite et de prescription comme auparavant et de donner à cette dette une parité légale avec toutes les autres dettes commerciales et donc soumise à des règlements souples. Les dettes qui peuvent raisonnablement être payées seraient réglées comme il convient. Les inévitables milliards de défauts de paiement devraient être partagés avec les collèges (le secteur bénéficiaire) afin de limiter les risques moraux (sinon, ils recommenceraient).