According to David Graeber, an anthropologist at Goldsmiths, part of the University of London, the first act of many successful rebellions was to annihilate the records of debt owed. In his book Debt: The First 5,000 Years, Mr Graeber describes how “cancelling the debts, destroying the records, reallocating the land, was to become the standard list of peasant revolutionaries everywhere”. Is this time different?
After more than four years of trudging through a global financial crisis, the road that seemed to lead to recovery is taking another turn for the worse. Most rich economies are bracing themselves for stagnation at best in 2012. The crisis has many causes but they all have to do with credit and debt: too much of it.
As the boom went on, households and financial companies gazing out on to a seemingly endless horizon of low interest rates and rising asset prices gorged themselves on debt. From 2000 to 2007, the average mortgage debt of US households went from two-thirds of disposable income to more than 100 per cent. British households raised their mortgage indebtedness from 83 per cent to 138 per cent. Among other Group of Seven leading economies, smaller debt binges took place in France, Italy and Canada – but not in Japan, still deflating after its 1990s debt crisis, nor in Germany, where labour market reforms were depressing workers’ wage packets.
The greatest build-up of debt was within the finance business. In the eurozone, total financial sector debt doubled from 1999 to €20tn on the eve of the credit crunch, or from 155 per cent to 222 per cent of the monetary union’s annual economic output.
Today, “debts exceed what can be paid”, says Michael Hudson, an economics professor at the University of Missouri. This is at the bottom of most of what has gone wrong in the crisis: the sum total of debt claims is greater than the worth of what was directly or implicitly pledged against the debt – whether the price of a house, the value of banks’ assets or the economic growth of countries.
If this seems like a new problem, it is only because we have forgotten the past. The importance of debt management throughout human history is evident in how the main religions contain often detailed regulations such as debt cancellations and prohibitions on usury. The biblical jubilee demanded that every 50th year indentured slaves should be freed and foreclosed land returned to the ancestral owner.
Such rules “tell us that the build-up of debts – collective and individual – should always send warning signals through the system because they are unsustainable”, says Lord Jonathan Sacks, Britain’s chief rabbi.