[hnracer]

Wouldn't this just translate into higher interest rates, to make the supply of debt financially worthwhile for the lender?

We can see this market mechanism play out in the corporate lending market where companies with high credit risk must pay double or more interest rates. A debt jubilee would simply raise the default risk on all of society and thus increase rates to compensate.

[mikem170]

If the debt forgiveness event is scheduled well in advance (and I believe that's how these things worked) why do interest rates need to change drastically? Lenders would just need to be sure that loans are structured so that they are repaid before the jubilee.

I would think the bigger effect would be to dissuade lenders from lending more than the borrowers could repay before the debt forgiveness date. Also certain things that are inflated due to finance (like housing, cars, college) might see an adjustment to more affordable prices, or maybe some things would cycle, going up when people could borrow, and going down as the debt forgiveness event approached.

It's an interesting idea, to think about the pros and cons.

[hnracer]

Consider a jubilee date occurring in N years. The result would be that nobody is willing to lend with a maturity of more than N years. This is rather problematic as it means that primary debt markets can't function when N approaches zero. It would make it impossible for me to get a mortgage if N=5 for example, locking me unfairly out of the housing market for half a decade, artificially depressing house prices until N=0 when suddenly five years of pent up demand causes a demand spike/bubble.

I also don't agree that a jubilee date won't increase rates. The default risk is simply much higher now and therefore the rates must go up to compensate for the added risk. In the current system, debt isn't forgiven when repayments are late, which allows for lower rates since the default risk is lower. If late repayments automatically implies default due to the jubilee date, then rates must be higher.

[mikem170]

I wouldn't argue that rates wouldn't go up. We might not agree on how much. For example, would jubilee in 20 years have an affect on a 5 year car loan? As far as homes go, maybe we'd just do home loans like the Canadians do, renewing/refinancing them every five years or less, timed with the debt jubilee. Doesn't need to be a big deal.

I look at it as mostly a thought exercise, questioning the way we currently handle debt. I think there is a lot of room for improvement. Maybe debt jubilees would act as a check on out-of-control debt, which seems to be a thing lately.

Take student loans. Politicians are talking about forgiving those debts. Maybe it's not such a crazy idea? But then again what they plan on doing will amount to just giving the banks the money, either inflating the money supply or treasuries that future generations have to pay back. Ugh.

[missedthecue]

Most people would be unable to get a mortgage if you were closer to the 49 year mark than not.

[mikem170]

I wonder if it would work more like Canadian mortgages, that are renewed every five years.

Or maybe like in other countries, the price of housing would decrease to a three year loan instead of thirty.

[missedthecue]

The raw construction materials that make up your home are worth more than can be afforded in 36 payments, so I doubt that's a likely outcome.