What would happen IF....ALL DEBT WERE ELIMINATED.

[Straight Shooter]

Allow me to preface this question: I DO NOT advocate this, I am merely wanting ANSWERS & OPINIONS, especially from those here involved in financial work, on the following HYPOTHETCAL QUESTION. DO NOT..DO NOT come into this thread with a bunch of useless rhetoric and crap.

So- What would be the good/bad...advantages & dis-advantages if the world economy got so bad, that "they" declared all entities...from every government, corporation, ect. right down to you & I to be, from some starting point..DEBT FREE.
Would a do-over be a valid way to re-start from an economic collapse?
Ive heard this espoused as an answer to our & the rest of the worlds debt problems. So, if this happened, and America had no "National debt"..how would that change things here?
Very curious to hear what you gents have to say.

[Sensei]

It would be a disaster for the developed world. Much of our lifestyle is made possible by the fact that our government and private institutions can borrow in good faith. Creditors will suddenly lose their interest in lending as soon as a debt forgiveness package is seriously debated, much less passed.

Finally, there is the nasty question of what happens after all that debt is forgiven? Do people and institutions suddenly end deficit spending? My suspicion is that 20 years later they will be broke again looking for another bailout.

[Firefly]

There would just be new debt.

Some may be smart this time around. Most wouldn't.
There was a skit on Chappelles Show about black reparations.
Every black had a lot of money over night.

Then it got pissed away on stupid stuff.

The same opportunists would opportune. The same gullible people would get taken advantage of. But maybe a fair amount of folks would be more careful next time.

Tl;dr the king is dead, long live the king.

Worth still has worth even if just a promise or a guarantee.

[Straight Shooter]

It would be a disaster for the developed world. Much of our lifestyle is made possible by the fact that our government and private institutions can borrow in good faith. Creditors will suddenly lose their interest in lending as soon as a debt forgiveness package is seriously debated, much less passed.

Finally, there is the nasty question of what happens after all that debt is forgiven? Do people and institutions suddenly end deficit spending? My suspicion is that 20 years later they will be broke again looking for another bailout.

Great point, Sensei...So let me add a couple parameters to my original question. One- what would happen if all debt were eliminated... AND NO MORE deficit spending were made absolute law of the land?
Two- If deficit spending continued?

Also, Firefly..I saw that Chappelle skit...Cadillac stock exploded over night! That was funny as hell.
But, what if we learned from our mistakes. Not likely..just what if?
What if rules & laws were put in place to prevent deficit spending, and EVERY SINGLE DOLLARS worth of spending had to be paid for prior to being spent?
Also..Im gonna have to study awhile on your comment "worth has worth, even if it is only a promise or guarantee". That would GREATLY depend on who made the promise or guarantee, I would think.

[Firefly]

I think really if this could happen in any positive way, we'd have to revert to an actual gold standard or barter of labor, service, and materiel for anything else.

There was once a time when doctors were paid in produce, and being voluntarily indentured got you to a new country with more opportunities.

[FromMyColdDeadHand]

Everyone always looks at the people owing the money, but if you forgive all debt, what happens to the people that loaned the money? You instantly wipe out every old persons lifesavings.

Sure, there are a lot of bad debts and zombie loans out there. I'm not saying that loaners shouldn't take a haircut. The Germans bitch about Greece, but the Germans slept with whores and expected virtue. Dumbasses. Like they said in 'Animal House'- "You screwed up; you trusted us."

Debt is a HUGE problem, and any kind of bail out will just make the problem worse the next time. Look at debt rearing its head again as an issue, just eight years after the GFC.

KFC, good. GFC, BAD. Both give you indigestion.

The worse news is that 'capitalism' is going to take the blame- as if we have practiced anything near that in 50 years, and we are all going to feel the 'Bern' from the FSA.

[JulyAZ]

Would the debt/borrowing history still be accessible for review in this scenario?

Even if everyone were debt free but a credit history still following you I can see this being an issue.

The way I see it, it would end up much like the housing market bubble. people/businesses would borrow against they equity they have over night give it a few years (less than 5) and we would find ourselves in a depression like the world has never seen.

A new debt would be created over night.

[FromMyColdDeadHand]

Forgive the debt and make the lenders whole.

Inflation at a scale seen only in 3rd world countries where the primary industry is printing money. That is what really happens.

[Straight Shooter]

In my scenario...all savings and 401k and all that are already gone, Im talking a world wide DEPRESSION..ala 1929.
As for the Credit history of people..yes, you could still find that out. that way maybe these bad loans wouldn't pop up and bite us again.
And I agree with the remark on Capitalism. Done RIGHT..its the best system ever created by man. but, you are right in we haven't done that in MY lifetime at least.

[Honu]

as someone who is responsible carries almost no money owed never over extended for a home etc.. I would be pissed off that some who were bad got let off ! I think there would be a ton of others like me who would also feel that way
what would happen over that ? hard to say but if this so called collapse was that big I think the push to restore records and still make those who owe pay up which would be a mess
if the world got that bad and this was announced how many would go on a rampage when things got better hoping to repeat the cycle again

those that saved hard would loose everything and those that spent out of control would gain everything and with society that collapsed I can also see massive fighting breaking out and those who got in over are head not lifting a finger to help but more than likely do what they did before let others try to work or steal etc..


basically it would destroy the last bit of anything that was rebuildable IMHO and not sure how we would come out the other side but for sure worse than if the powers never forgave everything