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How to end world economic troubles

  1. Feb 5, 2009 #1
    How to end world economic troubles

    I was just wondering what would happen if all the Governments of the world decided to clear all business and personal debts straight away.That meaning,everyone had every car,mortgage,visa bills are wiped clean and the world starts with a clean slate.Every bank had the bad debt wiped out without repaying anyone.What you currently own is what you start afresh with without the bills.That way going forward everyone would have money to go out and buy new things.What are the flaws in my analogy if it was decided to be done.
    Someone have any ideas?
     
  2. jcsd
  3. Feb 5, 2009 #2

    Office_Shredder

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    All the money that people owe the banks would vanish.... hence everyone who had money deposited at a bank would lose (almost) all of it.
     
  4. Feb 5, 2009 #3
    Absolutely terrible idea. You can't just hit the reset button on a financial system that's based on borrowing and lending.
     
  5. Feb 5, 2009 #4
    Most people worldwide owe more to the banks than whatever savings they would have in the bank,so the vast majority of people worldwide would benefit
     
  6. Feb 5, 2009 #5
    Why exactly is it such a terrible idea?Give me a few reasons(I'm not saying it would be the right thing to do,I am just curious as to the reasons it would be so wrong, if it even was possible to do)
     
  7. Feb 5, 2009 #6

    Gokul43201

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    Specifically, the people who have been saving carefully get screwed and the people that have been irresponsible and racking up huge debts stand to gain the most.
     
  8. Feb 5, 2009 #7
    I know the idea is not perfect but still the majority of people would be up.Some more than others but not everyone ran up debts by being irresponsible,just unlucky to have lost their jobs.I for one would not care if my debts were cleared as they far outweigh my savings.I'm sure that is your position too.Some people would have more debts cleared than others but we would all(mostly) be up.

    What exactly would happen if at a click of a switch all debts were cleared(personal debts,the banking system,companies etc) and we were to all wake up debt free.We would all have our wages to go out and spend again and get the economy up and running.

    I know I may be very naive in this thinking but I am just looking for the downside(as I am sure there are).Any ideas?
     
  9. Feb 5, 2009 #8

    Ivan Seeking

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    That is what really annoys me about the notion of bailing out home owners. While I realize that some people didn't understand the loan papers signed, I also have seen first hand how it became SOP to live beyond one's means. To some extent, this crisis was fueled by greed, materialism, jealousy, and a reckless disregard for sane economic practices and personal responsiblity. Also, a lot of these people were betting on making a small fortune, but now they expect to avoid responsiblity for that bet.

    I would love to have a business that allows for excessive profits without risk, but in the real world we make money because we take risks. By definition, we sometimes lose money when we take risks.
     
    Last edited: Feb 5, 2009
  10. Feb 5, 2009 #9

    Office_Shredder

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    While I don't generally contend that the rich need to be rich for the economy to work, you would in fact have no wages to go out and spend again because the very people who have far more in assets than debt are the people who are paying you.
     
  11. Feb 5, 2009 #10

    russ_watters

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    It isn't just individuals and the here-and-now. Corporations would instantly fail and all retirement savings would vanish. No, a majority of people would not be up - those with a lot of debts would be just as unemployed and starving to death as everyone else if our economic system were to completely collapse.

    You asked that question in the first post and already got the answer! Asking it again won't yield a different answer!

    If you want a specific example, banks are the easiest: As soon as you void all debts, every bank, everywhere, fails and everyone employed by the bank is out of a job. Every customer of the bank loses every cent of savings they had.

    For an easy secondary effect, imagine you are a home builder. Home builders deal with credit a lot. They don't have cash on hand to pay workers and buy materials and land, they borrow it from banks. So the instant you void all debts and every bank fails, the home builder ceases to be able to build homes and goes out of business.

    Together, the financial and construction industries are something like 25% of the economy. *Poof*, gone.
     
  12. Feb 5, 2009 #11
    thanks for all the enlightened answers guys.I knew it was too easy:redface:
     
  13. Feb 5, 2009 #12

    Gokul43201

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    Do you know me? Probably not too well.
     
  14. Feb 5, 2009 #13

    Vanadium 50

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    Furthermore, there would never be another loan. Why loan money when you know the government may well decide that you shouldn't get it back? That means buying everything on cash - no car loans, no mortgages, no credit cards. That means buying less, which means making less, which means unemployment.
     
  15. Feb 6, 2009 #14

    mheslep

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    And any dollars that you had left in your pocket Logger would also become ... just paper.
     
  16. Feb 7, 2009 #15

    Astronuc

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    The flaw is that there are those who have been responsible and minimized or managed debt such that now or eventually, they are free of debt. Then there are those whose debt greatly exceeds their ability to earn and repay the debt. And there is a spectrum in between.

    The proposal to forgive all debt would give free ride to those who acted irresponsibly and took much more than they could afford. If their debt is to be erased, then should they not surrender that which they acquired through the debt assumed?

    When one accrues debt, there is an agreement, a promise, to repay the debt. If one does not wish to keep a promise, then please do not make a promise.
     
  17. Feb 7, 2009 #16
    Logger,

    When would this economic amnesty take place? Over time, most people have been in relative debt or indebted to. There would be great controversy over the timing of your plan (thus who would benefit). More so, if there were a continuous absolution, I believe there would be no economic stimulus at all.

    I guess that not even a socialist economy would not survive such a clearing of debts. The plan you propose reminds me of that to print more money for the poor of the world (which welfare may be occurring now - for the banking, real estate and auto industries). Similarly, what would happen in a complex society if there were no taxes, for instance? I don't know. If only these schemes would work.

    Nowadays I, too, mull over what simple financial plan would save the world's economy and what got us here in the first place. Where's Einstein when you need him?
     
  18. Feb 7, 2009 #17

    OmCheeto

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    As a philatelist, I'd always been fascinated with, but never researched the cause, effect, and solution, of an economic environment that would lead to the printing of one of my stamps:

    st2bilmark.jpg

    I'm assuming that somewhere between WW1 and WW2, hyperinflation in Germany caused price increases such that it cost 2 billion deutsche marks to mail a letter. (http://coinmill.com/DEM_calculator.html#DEM=2000000000" at the moment to $1,308,497,885 USD)

    I seem to recall second hand stories from my mother, where people would go to the store for a loaf of bread, pushing a wheelbarrow full of money, only to have to go back home to get a second wheelbarrow full of money because the price of bread had doubled in the last 30 minutes. I assume the bakers burned the money in their wood stoves to bake the bread.

    The current topic, and implied solution, although not quite as dire as the situation as I've described, seems a bit similar in nature. Does anyone remember what the solution to their problem was?
     
    Last edited by a moderator: Apr 24, 2017
  19. Feb 7, 2009 #18

    OmCheeto

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    Oh my. I just realized that the stamp hasn't been canceled, and is therefore worth full face value. I'm a billionaire. :bugeye:

    I hope I haven't misplaced it.
     
  20. Feb 7, 2009 #19
    Right indeed :biggrin:

     
  21. Feb 7, 2009 #20

    Astronuc

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    I watched newsreel footage of people pushing wheelbarrows of money.

    We're not in a hyperinflation period at the moment. The problem is deflation or devaluation of assets like houses and other real estate. The other problem is the ability of people to earn enough to service their debt, while maintaining a certain standard of living.
     
  22. Feb 7, 2009 #21

    mheslep

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    Exactly. Germany's hyperinflation is the opposite of what happened in, say, the US in the 1930s and (to a much lesser degree) now. The US and Great Britain destroyed their money supplies in the 30s (intentionally but ignorantly), while Germany exploded theirs after WWI.

    Inflation in the developed world largely faded into history beginning in 1981 thanks to Paul Volcker at the Federal Reserve, and since then with Alan Greenspan. Before Volcker central banks tried to do two opposing things at the same time: control inflation and unemployment. The consequence was non stop periods of boom, inflation, and bust since WWII. http://static.seekingalpha.com/uploads/2008/1/30/thumb_480_gdpannualized1_2.png" (w/ Reagan's backing), and since then central banks around the developed world focus only on one thing: controlling inflation (deflation) through the interest rate level on the money supply.

    Edit: this is not to say of course that running up huge deficits can not bring back inflation in the future.
     
    Last edited by a moderator: Apr 24, 2017
  23. Feb 7, 2009 #22

    Office_Shredder

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    And since then the economy has gone boom then bust, boom then bust
     
  24. Feb 7, 2009 #23

    OmCheeto

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    Ha ha! I found your quote on the first google hit for "hyperinflation in germany".
    I was too stubborn to click on your link. Silly me. I wasted 12 seconds.

    Interesting article: The Nightmare German Inflation by Scientific Market Analysis

    Originally written in 1970.
    Posted and op-ed'd in 1999.
    Still seems to be relevant in 2009.

    hmmm.......

    Bah! Sounds like Astronuc rhetoric. :wink:

    Do you think we are 10 years too late? Or is there really something we can do to avert the apparently impending catastrophe? I like the idea of letting the entire economy collapse, and then let it start again from scratch. With social welfare payments of course. We don't want another one of those silly Romanov incidents.

    I mean really, we're not savages, are we?
     
  25. Feb 7, 2009 #24

    mheslep

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    As you can see from the plot up until now, in the last ~25 years the US has had only one quick dip into low growth in '91. Until '82 they occurred every 3-7 years, and inflation was constantly threatening to run away.
     
  26. Feb 7, 2009 #25
    economic "growth" has been insane in the last few years. you didn't used to have to plot charts logarithmically. i think it's mostly a load of crap, and it's about time things came back closer to normal.
     
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