The good kind of avalanche

We’ve seen an avalanche of collapse as financial systems drag each other down. Now some Occupy folks are experimenting with a different kind — a really big “debt snowball”. What is the next step?

The debt snowball is a way of paying down debt in which you start with the smallest debts and then move on to the larger ones. If you use your increasing surplus (due to reduced payments) to pay off debts more quickly, you make ever-faster progress through your debts. Like a snowball rolling down hill, you pick up momentum and have an ever-larger ability to pay off debts.

Recently, Cory Doctorow of Boingboing.net (and scifi-writing) fame described an Occupy campaign to apply these tactics to debt on a much larger scale (quoting David Rees of How to Sharpen Pencils):

Now OWS is launching the ROLLING JUBILEE, a program that has been in development for months. OWS is going to start buying distressed debt (medical bills, student loans, etc.) in order to forgive it. As a test run, we spent $500, which bought $14,000 of distressed debt. We then ERASED THAT DEBT. (If you’re a debt broker, once you own someone’s debt you can do whatever you want with it — traditionally, you hound debtors to their grave trying to collect. We’re playing a different game. A MORE AWESOME GAME.)

This is a simple, powerful way to help folks in need — to free them from heavy debt loads so they can focus on being productive, happy and healthy. As you can see from our test run, the return on investment approaches 30:1. That’s a crazy bargain!

Now, after many consultations with attorneys, the IRS, and our moles in the debt-brokerage world, we are ready to take the Rolling Jubilee program LIVE and NATIONWIDE, buying debt in communities that have been struggling during the recession.

We’re kicking things off with a show called THE PEOPLE’S BAILOUT at Le Poisson Rouge on Thursday, November 15. It will also stream online, like a good ol’-fashioned telethon!

This is great — it combines the “DIY with no government help required” spirit of libertarians with the “help your neighbour” spirit of communitarians: typical Occupy.  What if we do this on a large scale?

Currently, the global financial system cannot work without debt.  Money is literally loaned into existence; because every debt grows, this means that the amount of money in the current monetary system must always be dwarfed by the amount of debt, and the debt can literally not be paid off by the amount of money in circulation.  Pay off all the debt, and the money goes away.  But if you forgive the debt?  This brings the level of debt closer to the amount of money in circulation.  In a very real way, this Jubilee reduces the risk of catastrophic collapse that must always be present in a system which relies on debt for the creation of money (the medium of exchange).

Despite all this, even if the OWS Rolling Jubilee becomes a giant debt snowball, a positive avalanche of debt reduction, we will still be using money that is loaned into existence.  In order for a monetary system to work well, the amount of money in circulation must be roughly related to the number of transactions people want to make with it.  The debt mechanism is truly problematic (because of the risks of systematic collapse, and because of the ability of the bank owners to skim vast sums of wealth from the economy while contributing little).  But it cannot be abolished without a better replacement.

That is the challenge, folks.  There are numerous initiatives to replace currency – time banks, LETS, local currencies, reputation systems, commodity-based currencies like the Brazilian Real or the notional Terra, fiat currencies like airline miles or virtual goods in online games or BitCoin — but we need one that can truly offer a medium for global trade if we want to help our global civilization make the transition out of debt-based currency.  Which one will work? Or are we seeing the emergence of an array of trading media that can co-exist? I look forward to seeing the next step.

Posted: November 10th, 2012 | Author: nate | Filed under: Uncategorized | Comments Off

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