Debts That Cannot Be Paid Will Not Be, T Sabri Öncü Argues



An excellent review of global debt in the Economic and Political Weekly last month concludes that capitalism is probably insolvent. The article by T Sabri Öncü is entitled Debts That Cannot Be Paid Will Not Be. The author makes the excellent observation that whilst total global debt has increased to USD 217 trillion or about 327% of global GDP, there has been no GDP growth globally since the Global Financial Crisis of 2007. Non-financial sector debt, meaning the debt of governments, non-financial firms and households, is 225% of world GDP. The author argues that global deleveraging accompanied by increasing delinquencies and defaults will accelerate. As Indians and Italians know quite well, he says, their banks are already suffering from bad loans severely, and India and Italy are not the only two countries where this is happening… China’s total debt to GDP now surpasses 300%.  The total hard-currency denominated debt of the emerging market countries was slightly above $6.5 trillion at the end of 2016. Emerging markets had over $1.9 trillion of bonds and loans falling due before the end of 2018. The weird thing the author cannot explain given as he says that there are dire signs of a fast approaching global recession and possibly the third phase of the Global Financial Crisis that started in 2007, is why global stocks gained $4.8 trillion in the Q1 of 2017— the largest quarterly gain since 2012— and closed the quarter at $71.6 trillion, with emerging market economy equity markets outperforming advanced economy equity markets by at least 5%, returning more than 15% in the first half of 2017. Trying to talk up the economy, US Federal Reserve Chair Janet Yellen prophesied that the US financial system was much safer and sounder and that a crisis like the one in 2008 was unlikely in our lifetime. Yet a week later the Office of the Comptroller of the Currency of the US published its Q1 of 2017 derivatives report showing that 25 US holding companies had a total derivatives exposure of $242.2 trillion compared to $160.2 trillion one quarter before the start of the GFC in 2007 and $194.3 trillion one quarter before the Lehman collapse which made the crisis global in 2008. I can safely say that the situation is worse than it was in either 2007 or 2008, the author says.

Obviously greed drives capitalism and the capitalists are going all out for broke.

In this context, the Government of India (GoI) should be very careful with peer to peer (P2P) lending that is about to get the new regulation from RBI, as well as with micro-finance under MUDRA. A report this July by financial consultants Deloitte, reviews the issue. The report seems to start with the idea that GoI will put the 1 lakh into the Jan Dhan accounts as direct positive reserve money held by individuals – as many central banks including Bank of England and Bank of Sweden have examined – , but then quickly switches to a review of the new digital P2P lenders. The only reason the P2P lenders may not need a banking license is that they are not earning from the spread between interest on depositors’ money and interest on loans, like banks do, but as intermediaries. In any case we will know when the new RBI regulations on P2P come out which apparently is any day now. But the implicit suggestion in the Deloitte report is that the Jan Dhan account holders are being prepared by the GoI to become borrowers to private lending institutions rather than owners of their own Rupee held as high powered money themselves. This would be a horrible outcome.

As we know hitherto only banks and governments hold high powered money but many are arguing, including those central banks mentioned, that in the digital age there is no reason for this to be so. Indeed if RBI branches are sufficiently decentralised even digitisation is not a precondition for changing the rules about who may hold reserves at the RBI. So what I would like to know is why is the GoI is not instructing the RBI to look into how to fill the Jan Dhan accounts of individuals with reserve money?

One good thing and hopefully a step in the right direction is that Arvind Panagariya of Niti Aayog resigned. He had the notion that GoI “cannot afford” the Universal Basic Income for all Indians. He obviously was a fully paid up member of the FRBMA2003 club. Good riddance, I think.

Finally, at the moment I am looking into Patna based Saija micro lenders and similar institutions. They issue Mudra cards for small enterprise loans. The whole Mudra exercise of SIDBI is very worrying in the context of T Sabri Öncü’s argument that I have been myself making in various ways for many years. Global debts must be written off and the world has to start on an entirely new basis. Obviously micro lending is hardly going to get everybody or anybody out of the world wide debt hole. Debt is no longer the correct form of money for the age of climate change. The reality of capitalism being insolvent needs to dawn on politicians.

Against this backdrop, GoI must get the RBI to issue reserve money to citizens to do sustainable farming, cope with flood and pollution cleanup etc. In other words not only the Central State and third tier governments but the private sector and especially also including in that the household sector and agricultural workers all have to become properly recognised and funded social service institutions a.s.a.p. using high powered money also known as reserve money which is the only debt free money in the world, to do the work.

A human being consumes 2500 kilocalories of energy a day from plant and animal matter. Expressed in Watts for an easy comparison with electricity for example, it allows a person to do 2500 kilocalories/0.860 kilocalories = 2907 Wh of work per day. As there are 24 hours a day a living breathing person thus has the capacity of 121 Watt. So a human being who is such a complex and powerful organism is expending not much more energy than two of those old fashioned incandescent light bulbs.

Work done by humans especially women and agricultural labourers even today as it does not involve the application of labour to machines, contributes to a social system that contributes to balanced carbon cycles of sequestration and release of carbon dioxide. Compared to the labour of a person, a litre of diesel has an energy value of 16700 kilocalories. Thus a litre of diesel mined from the earth displaces the work of 16700 kilocalories /2500 kilocalories = 6.67 person days. Unless the money system puts the price of diesel at a minimum at 6.67 times that of human labour, and at equally high levels for other fossil fuels and other forms of commercial energy commensurate with their level of contribution to pollution, we will all be dead in another few decades and in the meantime more and more people will die of starvation, drought and floods. Capitalism is insolvent because it has used up the natural resource of a stable climate. Now we need a new form of money that pays the 10 billion workers on earth to reverse the situation.

Anandi Sharan was born in Switzerland, lives in Bangalore and last year worked in Araria District Bihar, India. She works on trying to find the best money system to help people adapt to climate change especially in India.


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