Trillions in Bad Loans May Sap World Economy for a Long Time

Re:Trillions in Bad Loans May Sap World Economy for a Long Time by sbierwagen on Thursday February 04, 2016 @12:00PM (#11035298)

  Imagine you're a bank calculating the interest rate to 
  offer on a loan. Do you think that rate will be lower or 
  higher if you believe there are circumstances wherein the 
  government would unilaterally allow your borrower to cease 
  payment?

It is unquestionably true that a debt jubilee would result in higher interest rates. It is somewhat disingenuous to spin this as a negative for people with marginal credit: you only have bad credit if you are very young, or have outstanding debt-- annulling a thousand bucks of debt has dramatically greater marginal utility than the ability to get a loan of a thousand dollars at 15% APR instead of 25% APR.

I also question how long the effect of a jubilee-premium would last. Five years? Ten? Brazil, Argentina and Mexico all defaulted on their sovereign debt in the 80s-- (https://en.wikipedia.org/wiki/Latin_American_debt_crisis ) and they certainly weren't locked out of the bond market forever-- Mexico's 30 year bonds are standing at about 6.8% right now. Gold was illegal to own in the United States from 1933 to 1975, (https://en.wikipedia.org/wiki/Gold_Reserve_Act ) yet investors aren't acting like they're afraid of the government taking their gold again-- it's at $1,155 a troy ounce right now.

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Re:Trillions in Bad Loans May Sap World Economy for a Long Time by forgetsusername on Thursday February 04, 2016 @01:36PM (#11036109)

>weren't locked out of the bond market forever-- Mexico's 30 year bonds are standing at about 6.8% right now

6.8% represents quite a bit of risk in this environment of historically low rates. How is Argentina doing?

I mean, I agree that people will eventually "forget", but that's always with the assumption that the "last time" was some unique set of circumstances.

It's amazing to me that people still believe that the best way to reap the benefits of capitalism is to seize or extort the capital from the capital owners. Of course, everyone thinks that those capital owners are some mysterious "other", and they'll be unscathed by the wealth grab. I wonder what people would think if they were told by the government that their savings and investments were being reset to zero so some students could get a free education? Probably wouldn't be so impressed...

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