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Why not call for a National Bankruptcy?

Declare a national bankruptcy as a Reset tool. Allow all citizens and companies to participate. Set the issues for discharge and the amounts. Relieve the nation of unmanageable debts. This will result in a better financial situation for most, except the financial industry for it holds most of the uncollected debt. But then again it is insolvent anyway, so let us reorganize it.

Why not declare national bankruptcy? That is, why not allow every individual and firm the chance to declare bankruptcy. It can be made easier and we can have the debt discharges accomplished in a short space of time, rather than having this long and drawn out, excruciating process. This then speeds up the process of recovery.

By making this process deliberate, conscious and planned we can use it more quickly and more widely as a national financial tool. Presently debt is reduced by the random process of bankruptcy filing, through inflation which gradually lowers old debt, and by firms writing off uncollectable debts.

The economic problem is very simple -- consumers owe debt to firms, and firms owe debt to other firms. It is likely that much of this debt will never be paid. Instead of waiting for a magical solution, we can stop dreaming and accept reality and get swiftly to the next stage.

This loop of debts drags down the whole economy. In boom times the debt network actually buoys up the economy because businesses have faith in the ability of consumers, businesses and borrowers to pay. More things are sold and more loans are made on the faith that things will continue as they were or get even better. In a recession faith is lost, and the debt drags the economy down. No one wants to take a risk and make a move.

In a way we have a simple mathematical problem. Bankruptcy can cancel out all the debts. Consumer debts are negated, and then debts of businesses based upon consumer debt are voided too. This reset tool results in more cash available. Consumers will spend a little more and borrow a little. Firms will do the same. Slowly the economy restarts, in little steps it improves.

A national bankruptcy could have been declared in 2009, for it was clear that the crash of October 2008 was going to leave a large permanent dent in our economy. We would be that much further ahead right now.

This crisis began in the real estate/mortgage sector of the US economy. Had the government moved quickly in 2009 the recession would not have spread as widely. It could have been contained

But it is never too late, we can have a national bankruptcy this year and clear out all of the old debts to lay the groundwork for an economic recovery.

Of course, there will be winners and losers in such a collective bankruptcy, consumers and businesses will win, but banks unfortunately will be the losers for the present problem is mainly of credit.

But since banks created the problem in the first place with their abominable lending practices and their addiction to selling mortgage backed securities, we should not pity them. This sector over-lent -- there were too many mortgage loans, secondary mortgages and too many consumer loans. With too much money in the system, we had a bubble and a collapse.

A national bankruptcy would certainly shrink the size of the financial industry and this is just what it is needed – to reduce the proportion of debt so that it fits realistic household budgets.

Cage Innoye

Axxiad News