Biblical debt jubilee may be the only answer
Once again, Britain leads the world in the macabre speciality of saving banks.
The Treasury's £200bn plan to soak up toxic debt will be followed within days by a US variant from the Obama team. Germany cannot be far behind.
As one bail-out succeeds another at ever more inflated price tags, rescue fatigue is becoming palpable. People are bewildered, fearing that good money is being thrown after bad.
The doubts are understandable but there are tentative signs of a thaw in the global credit system. Libor lending rates in the US, Britain and Europe have fallen sharply. US mortgage rates have dropped from 6.5pc to 4.88pc since October. Companies can issue bonds again.
"It is easy to conclude that none of the Government's policies are working," said Professor Peter Spencer from York University. "We must not lose sight of the fact that they have prevented the collapse of the monetary system."
This is not does mean that recovery is imminent. Nothing can prevent a long purge as years of credit leverage give way to debt deflation.
It means only that the downward spiral – the "adverse feedback loop" feared by central banks – has been arrested.
The first three pillars of the global bail-out are in place. Government money is rebuilding the annihilated capital of banks. This has further to run. Core lenders in the US, Europe and parts of Asia will be nationalised, but that is a detail at this point. It scarcely matters who owns the banks – unless you are a shareholder – so long as they lend.
The Fed has cut rates to zero. It is buying mortgage securities on the open market, and eying Treasury debt next. Fellow central banks are exploring their own ways to print money.
The $3 trillion (£2 trillion) fiscal blitz by the US, China, Japan and Europe plugs an emergency gap. With luck, it will keep the world economy on life-support just long enough to stop recession and banking crises from feeding on each other with lethal effect, as they did in 1931.
The latest plans to "ring-fence" bad debts in sceptic tanks puts in place the fourth pillar. The UK Treasury's version involves a state insurance scheme, letting banks shuffle off their crippling loads and escape mark-to-market torture.
The US version is a "bad bank" for mortgage debt. It is more or less the old "TARP" passed by Congress, before the funds were diverted into bank recapitalisations. This method worked after the Savings & Loan crisis in the 1980s. The market found a floor. The Treasury even made a profit.
German finance minister Peer Steinbrück said he "could not imagine" a bad bank in his country. Time will tell. Der Spiegel reports that Germany's top 20 banks have €300bn (£270bn) of bad debt, booked at "illusory" prices. They have written down just a quarter of their losses.
Taken together, the rescues may make the difference between global recession and a deeper slump that causes mass unemployment and social turmoil, perhaps destroying the open global order we take for granted. We can only guess.
There is no guarantee that the measures will succeed. The vast scale of government borrowing may exhaust the stock of global capital. Markets are already beginning to question the credit-worthiness of sovereign states. The Fed may find it harder than it thinks to disengage from colossal intervention in the bond markets.
In the end, the only way out of all this global debt may prove to be a Biblical debt Jubilee.
Creditors are not going to like that.
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