“Never in history have so many nations owed so much money with so little promise of repayment,” wrote Time Magazine in the mid-1980s. Total world debt soared from approximately $100 billion in the early 1970s to nearly $900 billion dollars by the mid-1980s. (Origins of the Debt Crisis) For the developing world as a whole, in 1991, the total external debt stood at 126.5 percent of its total exports of goods and services in that year. (Global Debt & Third World Development)
Since then, the problem has gotten so much worse. Excessive debt, a long-standing problem for many developing countries, today envelops even the United States and Europe and has emerged as one of the leading causes of the global recession. Debt ratios for Japan, the United States, and the larger economies in Europe range from 200% to over 400% of the country’s Gross Domestic Product (GDP). (World Debt Guide)
The causes are many, but more importantly, the effects could be quite disastrous for developing countries. The Latin American debt crisis of the 1980s has resulted in what is known as the “lost decade” for that continent. Many countries reached a point where their foreign debt exceeded their earning power and they were not able to repay it. Incomes dropped; economic growth stagnated; because of the need to reduce importations, unemployment rose to high levels; and inflation reduced the buying power of the poor and middle classes. The way out of that hole was for the countries to build up their export capacity.
Here is the problem: To whom do you export in a world-wide credit crunch? From where do you get capital to support your business operations? Developing countries are being warned that the eurozone debt crisis may lead them to experience stalled growth and cuts in aid among other repercussions. In sum, the global reach of today’s debt crisis threatens to undermine the trading capacity, and therefore economic growth of developing countries.
Forgiveness is one of the themes of this season. Sins and transgressions are forgiven to honor the sacrifice that the Christmas holiday symbolizes for many, while grievances and old habits are forgiven to make way for the new year. A recent Financial Times article, Debt Relief: A Time for Forgiveness suggests that forgiveness could be an equally appropriate action to take, not just with respect to the debts owed by many small and developing countries, but to the richer countries whose debt overload has resulted in the current financial crisis.
The article reiterates that at the heart of the crisis, as noted earlier, is the reality that today’s debts exceed what can be paid. The sum total of debt exceeds the underlying value of what has been pledged against the debt, whether it’s a house or a country’s assets. History teaches us that this is an old problem, to which a solution just as old exists, the article explains. Apparently, the main religions contain regulations on debt cancellation and prohibitions on usury. The biblical jubilee demanded that every 50th year indentured slaves be freed and foreclosed land returned to the ancestral owner. These rules, says Britain’s current chief rabbi in the article, tell us that the build-up of debt, whether collectively or individually, should always send a warning signal as being unsustainable. Excessive debt strengthens the hold of the creditor over the borrower who falls on hard times. Therefore, the jubilees in biblical times were a way to prevent credit systems from degenerating into the enslavement of debtors by their creditors.
This is a concern whether talking about physical enslavement, as debt in the old days was sometimes repaid through loss of the debtor’s freedom to the creditor, or financial enslavement through a debtor’s note, mortgage, etc. The article details how as far back as 2400BC the Sumerian King Enmetena declared a “general debt cancellation” within his kingdom, the very first such declaration in history. Is it too far-fetched, the article queries, to think that the history of debt jubilees carries a lesson for today’s economic problems?
Food for thought as we enter 2012. Happy New Year!