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Cancel ALL debt, or we will be slaves to banks, DARIUS GUPPY tells his old Oxford pal, Boris Johnson

This Is Money logo This Is Money 06/06/2020 Darius Guppy For Financial Mail On Sunday
Darius Guppy looking at the camera: Darius Guppy was a friend of Boris Johnson at Eton and Oxford © Provided by This Is Money Darius Guppy was a friend of Boris Johnson at Eton and Oxford

Darius Guppy was a friend of Boris Johnson at Eton and Oxford - and best man at the wedding of Princess Diana's brother, Earl Spencer. He was jailed in the 90s for his part in a £1.8million insurance fraud and is now an Anglo-Iranian businessman. 

In a speech shortly before his hospitalisation with coronavirus, the Prime Minister made an intriguing reference to 'profiteers.'

Just as in war, during the current crisis there are those who seek to benefit at the expense of the community, typically by hoarding essentials and charging exorbitant prices for them. While the rest of us suffer, such parasites grow on the back of our discomfort. Our contempt should be reserved for these traitors.

The Prime Minister's instincts are commendable but neither he nor his colleagues nor his counterparts abroad have thought this through. Who, in fact, will be by far the greatest 'profiteers' of this crisis?

The same people who always benefit from an depression, whether it is caused by conflict, economic collapse or pestilence: the bankers or, more exactly, the creditors.

This is because the only thing that retains the power to grow during times of economic contraction is debt.

Here is how it works:

You 'own' a property against which you have obtained a mortgage. The most important reason for taking on such a heavy burden, much heavier than it was for your parents, is because of an explosion of credit – owing to the ability of the banks to create money out of thin air - which drove house prices up in the first place.

Now, your politicians tell you that never have there been more people like you – homeowners – thanks to their policies, of course. But the opposite is the case; they did not make you owners, they made you debtors. Search the Land Registry and consider not the title deeds but the mortgage deeds if you require convincing.

You have not exercised your free will in saddling yourself with this debt. That decision was forced upon you because the only way to have got onto the property ladder was to borrow. Indeed, you need not have a penny of borrowing to your name, you still subsidise the beneficiaries of a financial system based on debt because in everything – from a toothpick upwards – a significant proportion of the price you pay in any item you purchase is made up not of accumulated labour, but of accumulated interest.

In short, everything in your possession would cost a fraction of what it does now, were it not for the activities of the banks and the fact that money and debt are now synonymous.

You don't own your homes. The banks do. The same with your car and the shirt on your back.

Now, moreover, house prices are likely to fall considerably and what equity you had in your home could disappear or decline sharply. But not your obligation to the bank - that's the point.

Debt enjoys immunity from Acts of God as nothing else, such immunity being possible only with the blessing of the State.

Now our politicians will respond that out of the goodness of their hearts they have encouraged banks to grant you repayment holidays on various forms of borrowings for a few months while the virus rages.

Don't be fooled. At best this is a palliative because your obligations will not contract in the same way that the community's wealth has contracted. They will accumulate. Your missed repayments on your home will simply be added to your final bill. The same with your credit cards, your car finance and so on.

In other words, the solutions on offer constitute simple variants of the oldest trick in the book: to kick the can down the street.

This was the meaning of Quantitative easing [printing extra money] – to add more debt to existing borrowings in order to defer the evil hour.

If Boris Johnson and company do not know any of this, they should. And if they do know it, they must get smart and do something about it.

But what?

Their first response will be the old canard: a resumption of 'growth,' once the disease has abated.

This is a non-starter. Yes, when there are huge continents to open up, massive increases in productivity made possible by industrialisation, room on our planet for exponential population increase to occur and so on, then real economies can indeed grow at a pace which matches the expansion of the virtual economy of finance, or debt.

But those days, which began roughly four centuries ago, are gone forever and the brick wall of environmental reality has been hit. The end of growth has been the true problem behind all our other ostensible economic woes for several decades now and it is time to acknowledge this fact.

Simply put, we cannot grow our way out of the hole.

That is the issue with Coronavirus. It has been a signal for, and not a cause of, financial meltdown because the party was over long ago. When stock markets all over the world collapsed at the outset of the pandemic, they were simply responding to a trigger that would have occurred in some form or other sooner or later – a correction to an artificial boom brought about after 2008 by Quantitative easing, interest rates that were forced to remain low for fear of bankrupting the population, and by companies buying up their shares on equity markets to bring their prices back to levels that did not reflect genuine organic growth.

When growth is not possible for whatever reason, virus or not, an economic order based on the profiteering of the banks, while the real economy contracts, cannot be allowed to continue – certainly not if the Prime Minister is being truthful when he argues that we are all in this together.

New systems must be devised and the most urgent problem of our times - one that will not go away when the pandemic recedes - addressed: how to sustain a healthy economy in the context of contraction.

But I know these politicians. They are the followers of Adam Smith, David Ricardo, Friedrich Hayek and Milton Friedman when they should be guided by Thomas Malthus; worshippers of Margaret Thatcher; best friends of the bankers.

They were happy to see the selling off of our industries and the elimination of our capacity to fend for ourselves. Brexit and the autonomy it is supposed to bring about mean nothing if you are happy to remain the slaves of the banks. But that globalised world, upon which finance thrives, is failing. The EU is nowhere to be seen and it is every nation for itself.

So if not growth, then what?

The answer should appeal to those who claim to admire the Classics and it was practised regularly by Rome's Emperors: Jubilees. Not deferral, but massive debt write-offs, as advocated by the economist Steve Keen, among others.

We must be forgiven our debts as we forgive our debtors.

This will have redistributional consequences, I grant, but not to our detriment as the politicians will tell us. For all the evidence shows that since the advent of the neo-liberal order and the expansion of finance which it heralded some four decades ago, it is only the top ten percent of the population taken on average throughout the advanced nations which benefits from the charging of interest while the bottom ninety per cent pay out.

And of this top ten percent, a further tiny fraction profit exponentially - a redistribution mechanism from the bottom to the top, in short.

This explains why the middle classes have been decimated and why they can only gain by wholescale debt repudiation.

But won't this happen without the need for political intervention? As people can no longer service their obligations, the banks will collapse and re-structuring, including jubilees, will occur as night follows day – surely?

Perhaps. But another scenario haunts, for markets follow a golden rule: to exact maximum pain.

In this way, Covid-19 could disappear with perfect timing, having caused optimum misery but leaving the financial system with a heartbeat, thereby allowing governments to continue deferring the problem for future generations to deal with; more debt for us and our children.

In such an eventuality and if the politicians remain unwilling to write off debt, there is still, happily, a solution:

Carry on defaulting.

What would the banks do then? Repossess every house in the land? Every car? What can they do to students who refuse en masse to service their loans? Shoot them?

As the saying goes: owe the bank a hundred pounds and the bank owns you, but owe it a million pounds and you own the bank.

Debts to the tune of trillions would be wiped clean. And from that base the genuine 're-set' which we are beginning to hear discussed can be brought about.

Equivalents occurred in the past. They can occur again. An opportunity for genuine reform and wealth creation is available to us if we are courageous enough to seize it.

But aren't such measures incompatible with the 'free market economics' that we were taught at school and which we didn't have the gumption to question?

a large body of water with Canary Wharf in the background: 'If people can escape the grip of banks, perhaps some good can come of Covid-19', says Guppy © Provided by This Is Money 'If people can escape the grip of banks, perhaps some good can come of Covid-19', says Guppy

Welcome to the real world - because the only measures being put forward in any case have a distinctly nationalist and socialist feel about them, to an extent that would have embarrassed Jeremy Corbyn a few months ago.

So much for efficient self-regulating free markets.

And if our government can build super-hospitals overnight, why didn't it help the NHS before the crisis? If it can house every homeless person within a few days, why didn't it do so long ago? If it can conjure up the trillions required to rescue the banks with Quantitative easing why could it not summon up the billions that will be required to protect the savers and pensioners in the scenario I have just described?

The answer is that politicians are the friends of the creditors – or the bankers – the top tiny percentile. Mass choreographed defaults would therefore concentrate their minds on the issue they ducked in 2008: how to bail out the debtor not the creditor; how to be the compatriots of the 99%, not the 1%; how to act in the interests of the nation and not of finance.

In fact, as far as the corporate sector is concerned, in circumstances of default, we already have a very civilised mechanism in place to enable re-set known as Bankruptcy or Chapter 11. Ask the world's greatest expert, Donald Trump.

If debt write-offs can happen for corporations thousands of times a day, they can happen for the general population and with respect to private debt.

None of the above is to deplore genuine conservatism. It is perfectly possible to be a Tory and to reject neo-liberalism which has nothing conservative about it and is, in fact, an extreme form of economic liberalism. Authentic conservatism is about the community, family, tradition, religion, industry, agriculture, the nation - not pampering bankers.

Our call therefore to people who should know better is to abandon heresy and return to the true faith.

If this occurs, perhaps some good could come of Covid-19 despite the misguided policies that have so far been deployed against it. 

Debts to the tune of trillions would be wiped clean. And from that base, the genuine 'reset' which we are beginning to hear discussed could be brought about.

Although I hear some say, 'Aren't such measures incompatible with free market economics?', I'd argue that this Tory Government's policies – at least when it concerns this crisis – already have a distinctly Jeremy Corbyn and Socialist feel.

In any case, for years, the world of business has had a very civilised mechanism to deal with debt write-offs. It's called bankruptcy or Chapter 11.

Ask the world's greatest expert, Donald Trump.

If debt write-offs can happen for corporations thousands of times a day, they can happen for the wider population. Such a policy would be in tune with genuine conservatism, whose values are community, family, tradition, industry, agriculture, the nation – not pampering bankers.

Brexit and the autonomy it is supposed to bring will mean nothing if we remain the slaves of the banks. If people can escape the grip of banks, perhaps some good can come of Covid-19.

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