by Nick Giambruno, International Man:
Four thousand years ago, the rulers of ancient Babylon discovered a technique to stave off violent revolts.
In ancient times, people often became hopelessly indebted to their creditors. As debts mounted, social unrest would boil over, threatening the stability of the entire ruling system.
The rulers of the ancient world understood this dangerous dynamic.
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Their solution was radical yet effective: enact widespread debt cancellation—a debt jubilee.
Debt jubilees acted as societal pressure release valves when no other options remained.
The practice spread throughout the ancient world and became codified in various civilizations.
For instance, the Book of Leviticus formalizes debt jubilees as the conclusion of a 49-year biblical cycle—seven cycles of seven years.
I believe this ancient practice is poised for a major comeback as government, corporate, and personal debt levels today have reached unsustainable heights.
The social, political, and investment implications will be profound.
Debt Jubilees: Redistribution, Not Wealth Creation
It’s important to note that debt jubilees do not create new wealth—they simply redistribute it.
Debt jubilees are government decrees that trigger massive wealth transfers, creating big winners and losers.
President Biden’s plan for student loan forgiveness marks the beginning of modern debt jubilees.
His student loan forgiveness plan is unprecedented. Unilateral executive action of this scale has never occurred during peacetime. Moreover, Congress, not the president, is supposed to make spending decisions of this magnitude.
Even Obama’s former chief economic advisor, Jason Furman, criticized Biden’s move, calling it:
“Pouring roughly half a trillion dollars of gasoline on the inflationary fire that is already burning—reckless.”
Beyond the inflationary impact—which I’ll address shortly—Biden’s student loan jubilee will set a precedent that will be hard to undo.
Consider how those who acted prudently feel.
Many avoided student debt by choosing less expensive career paths, cutting back on spending to pay for college without borrowing, or paying off their student loans entirely.
These people are probably feeling like suckers now.
Not only do they receive no relief, but they also face the burden of footing the bill for those whose loans will be forgiven.
I imagine these people will be angry and probably have considerable car, mortgage, and credit card debt, as many Americans do. So they will want debt relief, too… and I bet they will get it.
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