Thursday, April 01, 2010

Debt Jubilee: $38 Trillion in Private U.S. Debt Is Wiped Clean

by Charles Hugh Smith

In our April Fool's entry, we announce that a debt Jubilee of biblical proportions has just wiped out all $38 trillion in U.S. private debt.

In a surprise move, the U.S. Government announced a "Debt Jubilee" based on the Old Testament of the Bible. All private debt in the U.S.--$38 trillion--has been written off by sweeping Federal legislation.

The overwhelming majority of Americans responded to the news with tears of joy as their vast burden of home mortgages, student loans, auto loans and credit card balances suddenly dropped to zero balances.

Later in the day, those Americans whose pension funds and 401K accounts had held mortgage-backed securities or other debt-based assets (Sallie Mae funds, etc.) were shocked to discover that the liquidation of the $38 trillion in debt also liquidated $38 trillion in assets.

While those with little to no assets cheered mightily at the "Christmas in April" gift, those who had counted on the income from the $38 trillion in assets wept bitter tears; many fortunes and retirement accounts were effectively wiped out.

"Progressives" cheered the fact that since 93% of the financial wealth of the nation is held by the top 20% of households, then the wealth destruction fell most heavily on the wealthiest households.

"Conservatives" mourned the arbitrary destruction of so much of the nation's capital even as they consoled themselves with the thought that the destruction of debt/assets was Biblically inspired.

But the happiest citizens were the bankers, who realized the destruction of the debt freed them from insolvency. Yesterday they were burdened with trillions of dollars in uncollectible bad debt which they'd held on their books fraudulently, with winks and nudges from Federal regulatory agencies.

But today, the debts are gone, as are the assets--but since their liabilities in the form of impaired debt far exceeded their actual assets, the bankers are beaming broadly, for it is a wish come true: tens of millions of Americans now own homes and other assets free and clear, meaning that the banks can now lend them new trillions based on that collateral, and rake in billions in fees and interest.

The consumer economy is also salivating at the happy thought that Americans can now borrow trillions anew and blow the money on fancy meals, sea cruises, speedboats, handbags and all the other "luxuries" which U.S. corporations have made elsewhere and then mark up 500% to sell to U.S. consumers.

Only the taxpayers are still on the hook for the government's own debt. Other nations might not look too kindly on being stiffed for trillions of dollars in Treasury and agency debt that they own.

Deleveraging the U.S. Economy (Special Report from Comstock Partners)

Over the past decade (when we believe the secular bear market started) the total debt in the U.S. doubled from $26 trillion in 2000 to just over $52 trillion presently (peaking a few months ago at $54 trillion). This consists of $14 trillion of gross Federal, State and Local Government debt and $38 trillion of private debt. We expect the private debt to continue declining in the future as the deleveraging of America unfolds, while the government debt will very likely explode to the upside as the government tries to keep the economy afloat as the private deleveraging weights it down.

No more painful deleveraging, saving, or sacrifice; it's off to the spending-freely races again.

All in all it is a wonderful day; Americans have been saved from their excesses, banks have been saved from insolvency and all the multinationals and small businesses which depend on free-spending consumers are dancing in the streets: the American consumer is free again to extract all their equity and leverage their disposable income and spend, spend, spend on the finer things in life.

Only the owners of the gargantuan asset base which has been reduced to zero--those who have been ruined or seen their pensions decimated--only they do not cheer. But they are in the minority, and in the "democracy" of the Tyranny of the Majority (aided by the ever-present bankers, MSM shills and politicos), any government largesse is always applauded, always welcomed, always cheered and always supported at the ballot box, regardless of its consequences.

Happy April Fools Day!

If you haven't visited the forum, here's a place to start. Click on the link below and then select "new posts." You'll get to see what other readers and contributors are discussing/sharing. is now open for aggregating our collective intelligence.

Order Survival+: Structuring Prosperity for Yourself and the Nation and/or Survival+ The Primer from your local bookseller or from or in ebook and Kindle formats.A 20% discount is available from the publisher.

Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle

Thank you, Ioan V. ($100), for your exceptionally generous and longstanding support of the site. I am greatly honored by your contributions and readership. Thank you, Frederic B. ($50), for your outstandingly generous donation to the site. I am greatly honored by your ongoing support and readership.

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.

Our Privacy Policy:

Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Adsense and Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative)
If you have other privacy concerns relating to advertisements, please contact advertisers directly. Websites and blog links on the site's blog roll are posted at my discretion.

Our Commission Policy:

Though I earn a small commission on books and gift certificates purchased via links on my site, I receive no fees or compensation for any other non-advertising links or content posted on my site.

  © Blogger templates Newspaper III by 2008

Back to TOP