[R-G] [BillTottenWeblog] How to Cancel Third World Debt

[Bill Totten]

by Michael Rowbotham

Prosperity (September 2001)

>From Goodbye America (2000) by Michael Rowbotham


Whenever Third World debt cancellation is discussed, it is
automatically assumed that somebody, somewhere has to suffer a
loss. Either banks must cover the losses, taxes must be raised or
Western governments must foot the bill.

In fact, Third World debts could be cancelled with little or no
cost to anyone. Indeed, cancellation would be not only the simplest
process imaginable, but to the general advantage of the world
economy. All that is involved is a bit of creative accountancy -
something at which the West has shown itself highly adept when this
has suited its political purpose.

To appreciate this, it is essential to recall that the dominant
form of money in the modern economy, bank credit, is entirely
numerical. It is an abstract entity with no physical existence
whatsoever, created in parallel with debt. Debt cancellation is
therefore largely a matter of numerical accountancy. This is
emphasised by the fact that only one factor prevents the immediate
cancellation of all Third World debts - the accountancy rules of
commercial banks.

Third World debt bonds form part of the assets of commercial banks,
and all banks are obliged to maintain parity between their assets
and liabilities (deposits).

If commercial banks cancel or write off Third World debt bonds,
their total assets fall. Under the rules of banking, the banks are
then obliged to restore their level of assets to the point where
they equal their liabilities, usually by transferring an equivalent
sum from their reserves. In other words, when debts are cancelled,
normally banks suffer the loss.

There are two options for overcoming this accountancy blockage.
They involve acknowledging that debt-cancellation is both desirable
and possible, and adapting bank accountancy accordingly.

The first option is to remove the obligation on banks to maintain
parity between assets and liabilities, or, to be more precise, to
allow banks to hold reduced levels of assets equivalent to the
Third World debt bonds they cancel. Thus, if a commercial bank held
$10 billion worth of developing country debt bonds, after
cancellation it would be permitted in perpetuity to have a $10
billion dollar deficit in its assets. This is a simple matter of
record-keeping.

The second option, and in accountancy terms probably the more
satisfactory (although it amounts to the same policy), is to cancel
the debt bonds, yet permit banks to retain them for purposes of
accountancy. The debts would be cancelled so far as the developing
nations were concerned, but still valid for the purposes of a
bank's accounts. The bonds would then be held as permanent,
non-negotiable assets, at face value [pages 135-136] ... The
cancellation of international debts, or their conversion to
national debts [see pages 140-143], is the sine qua non if Third
World nations are to discover a path away from poverty and decline
and towards more socially and culturally benign futures. The
acknowledged need is for Third World countries to develop their
agricultural and industrial infrastructure for their own domestic
consumption and direct less effort towards export-led growth. To
the extent that international debts remain, the export imperative
remains.

The Third World cannot be said to be in material debt to the
industrialised nations. The developing nations are in financial
debt to international banks. But whilst not actually in material
debt to the industrialised nations, because these bank debts are
denominated in dollars, they are forced to behave as if they were
in debt to the West, seeking a perpetual export surplus [page 145].

-----

Also see article here for how Third World debt is created:
http://www.prosperityuk.com/prosperity/articles/moneymake.html

Please print out, photocopy and distribute these articles. Also
copy and paste them to emails, and circulate widely, and please
include all the essential contact information below. Thank you.

Essential Further Reading:

Prosperity: Freedom from Debt Slavery is a four-page quarterly
Journal which campaigns for publicly-created debt-free money.
Prosperity is edited and published by Alistair McConnachie and a
four-issue subscription is available for GBP 10 payable to
Prosperity at 268 Bath Street, Glasgow, Scotland, UK, G2 4JR. Tel:
0141 332 2214 Fax: 0141 353 6900 Email: contactus at ProsperityUK.com
Website: http://www.ProsperityUK.com

All back-issues are still available. The forty-page Report,
Clarifying our Money Reform Proposals, launched at the 2006
Bromsgrove Conference, is available for GBP 10 payable to
Prosperity and is essential reading for beginners.

The Grip of Death: A study of modern money, debt slavery and
destructive economics by Michael Rowbotham [Jon Carpenter
Publishing, 1998], Goodbye America! Globalisation, debt and the
dollar empire by Michael Rowbotham [Jon Carpenter Publishing,
2000], and Creating New Money: A monetary reform for the
information age by Joseph Huber and James Robertson [New Economics
Foundation, 2000] are all available from Prosperity.

http://www.prosperityuk.com/prosperity/articles/cantwd.html


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