"Debt sharing will be good for the economy": nonsense?

Monty Burnz

It seems that the debt-sharing brigade are now claiming that sharing the debts of those who bought poorly during the bubble is going to somehow give a boost to the economy.

On the face of it, this is arrant nonsense. Would any advocate of debt sharing please explain the mechanism whereby it would increase spending and boost businesses?

RichardAnd

We've been sharing the debts of charlatans for the last 3 years, has that helped the economy?

Putting that aside, the logic behind that claim that sharing debt is that if person A's debts are shared out between persons B, C and D then A will have more income to use and thus, have more economic freedom. The incomes of B, C and D will be reduced but not to the same extent.

No there is some truth to this in some ways but it's still not right that the private debt of one person be forced upon another. I'm all for helping out my fellow man but I don't expect that alturism to involve me paying for his home. The acid bite however, is that in a democratic society, a large group of people calling for something is not an easy thing to ignor.

Remember, in a democracy, 51% of people can vote to enslave the other 49%. This isn't going to go away.

Mr. Presentable

I already have my own share of debt. I wouldn't want to inflict it on anyone else, nor would I wish to take a share of anyone else's - notwithstanding that I am already servicing the debts of the foolhardy by the USC, and increased other taxes.

jester77

Monty Burnz wrote: »

It seems that the debt-sharing brigade are now claiming that sharing the debts of those who bought poorly during the bubble is going to somehow give a boost to the economy.

On the face of it, this is arrant nonsense. Would any advocate of debt sharing please explain the mechanism whereby it would increase spending and boost businesses?

All I can see it doing is allowing those that created debt get off scot free and create new debt (there's your increased spending) while those who are prudent with their finances will be left picking up the tab.

Manach

No problems with it, assuming I get a free room in one of their mortgaged houses.

godtabh

if you could hand back your home and clear your debt would you call that debt sharing?

Personally I think that people who cant pay should be distinguished from those who wont pay. If you can show you cant pay and move out of your house and hand the keys back I think that should be the end of it. All loans should be secured on the home only. You give it back thats that.

Monty Burnz

Is there any chance an advocate of debt sharing will put forward the economic argument in favour so that we can debate that? Rather than going over the rights and wrongs of it from what you might call a 'moral' perspective for the umpteenth time...

redt0m

Manach wrote: »

No problems with it, assuming I get a free room in one of their mortgaged houses.

Exactly. Do these debt forgiveness cheerleaders believe they'd socialise the benefits if all these houses had gone up in value by 50% instead? Would they ****.

If it is forced upon us (like, oh, I don't know, Lisbon? Current bank bailout?) and if the market were to do an about turn and go all loopy again, anybody who gets debt forgiveness should then be banned from making any sort of profit if they sell (assuming this debt forgiveness means people would get to stay in their houses). If they are going to spread their folly on the rest of us, they can damn well spread the winnings too.

leonidas83

I think alot of this debt sharing has been misrepresented completely wrong in the media. I'm not for it either but I would advocate it in certain circumstances and they will be looking at it on a case by case basis. This is the way it should be done. It should only be granted in extreme circumstances (e.g. couple unemployed, up to their eyes in debt that they have no way of paying back, genuine circumstances,)

Their will not be widespread mortgage forgiveness as the government knows it would be a disaster for the country as a whole. I have very little faith in this government but even they could not miss this simple point and f**k this country for good.

Grumpypants

Monty Burnz wrote: »

It seems that the debt-sharing brigade are now claiming that sharing the debts of those who bought poorly during the bubble is going to somehow give a boost to the economy.

On the face of it, this is arrant nonsense. Would any advocate of debt sharing please explain the mechanism whereby it would increase spending and boost businesses?

Its simple if you have 800 euro coming in and 780 going on the mortgage then you have 20 euro to spend in the economy.

If you have no mortgage you have 800 to spend.

I have no problem with debt sharing we do it all the time, the healthy share the debt of the sick, the rich share the debt of the poor,, those who work share the debt of those who study.

It's called a society its how it works.

Its quite amazing that people are willing to put themselves through so much pain, drive the economy into the ground and pay huge tax hikes just so their neighbour doesn't get "something for free" which in turns shows the compelte lack of understanding of debt forgiveness.

Debt forgiveness does not involve the person simply getting 150K knocked off their mortgae and then continuing to live in the house all it means is that they can sell the house at its current value and start all over again with out being left homeless and still with a 150K loan around their necks.

PhatPiggins

Monty Burnz wrote: »

Is there any chance an advocate of debt sharing will put forward the economic argument in favour so that we can debate that? Rather than going over the rights and wrongs of it from what you might call a 'moral' perspective for the umpteenth time...

I'm not an advocate of it but I believe the party line is that if they don't have to repay mortgages then they'll spend the money elsewhere. The idea being that the multiplier effect of normal spending would in theory be better then if it went to a bank who won't be lending it back out.

The obvious downside being that the taxpayer will have make up the difference. Also if the newly debt free people decide to save the money instead of spending it, which people currently with spare cash are doing increasingly, then the whole excercise will have largely been pointless.

Basically I don't think anyone could give you a convincing economic arguement for it but there are a few moral issues I'd find hard to ignore.

JimiTime

redt0m wrote: »

anybody who gets debt forgiveness should then be banned from making any sort of profit if they sell (assuming this debt forgiveness means people would get to stay in their houses). If they are going to spread their folly on the rest of us, they can damn well spread the winnings too.

I agree with this. I have a wife and two kids and am in €150,000 negative equity on our family home, with 5 rate increases from my lender since May, we will no longer be able to service our mortgage when TRS runs out. Ideally, we'd love to stay in our home, but would have absolutely no issue with never making a cent from it. We never bought it to make a buck, we bought it to have a place that we would not be moved out of on the whim of a landlord. A secure home for our children (I Laugh about that in hindsight).

My brother bought a house back in 96 on the shared ownership scheme. Basically, he bought a house on the private market, and got half from the bank, and half from the government. Maybe using such a scheme now would be a good idea. The government get equity in the property etc. Heck, I wouldn't care if I owned none of it, as long as I have a secure home for my kids.

Though if people still kicked up a fuss about this not being fair, not being lumbered with the shortfall when we default and are evicted would be satisfactory. At least we could start again, older and wiser for it all without having such a noose around our necks.

Monty Burnz

Grumpypants wrote: »

Its simple if you have 800 euro coming in and 780 going on the mortgage then you have 20 euro to spend in the economy.

If you have no mortgage you have 800 to spend.

Ok, so you now have 800 to spend. Where is the 800 coming from to pay your mortgage?

Grumpypants

Monty Burnz wrote: »

Ok, so you now have 800 to spend. Where is the 800 coming from to pay your mortgage?

You would have sold your house at current value and had the debt written down to that value so you wouldnt have a mortgage.

Zubeneschamali

Grumpypants wrote: »

You would have sold your house at current value and had the debt written down to that value so you wouldnt have a mortgage.

Translation: free gaff at the taxpayers expense.

meglome

I get the point that less personal debt could mean more spending in the economy. I wasn't asked if I wanted to take on the banks debts and wouldn't be happy to take on other peoples excesses too. That said it might be in our interest to make it easier for people to keep paying their debts. Sure it will cost us something but still might be better than letting them go slowly bankrupt.

Godge

RichardAnd wrote: »

We've been sharing the debts of charlatans for the last 3 years, has that helped the economy?

Putting that aside, the logic behind that claim that sharing debt is that if person A's debts are shared out between persons B, C and D then A will have more income to use and thus, have more economic freedom. The incomes of B, C and D will be reduced but not to the same extent.

No there is some truth to this in some ways but it's still not right that the private debt of one person be forced upon another. I'm all for helping out my fellow man but I don't expect that alturism to involve me paying for his home. The acid bite however, is that in a democratic society, a large group of people calling for something is not an easy thing to ignor.

Remember, in a democracy, 51% of people can vote to enslave the other 49%. This isn't going to go away.

Actually don't think it would work that beneficial way.


Person A at the moment is paying 700 euro a month towards a mortgage of 1300 out of a total income of 1200, so 600 shortfall in mortgage and person A has 500 disposable income spent in the economy.

Persons B,C and D are renting at 200 euro a month out of total income each of 800 euro a month. So disposable income spent in the economy each of 600 euro a month.

Total disposable income spent in the economy is 2,300 (3x600 plus 500)

Debt forgiveness scheme. Take 200 a month off B, C and D to pay the shortfall in A's mortgage to enable A to stay in the family home. Net result is that disposable income spent in the economy falls by 600 euro to 1,500 euro, an artificial floor is put on the value of A's property, further delaying the correction in the property market, while poor old B, C and D on lesser income are supporting A on higher income, the complete opposite of income redistribution. To cap it all off, A's disposable income per month is 500 euro while the poor saps supporting him have only 400 euro. A gets to keep his SKY subscription!

Mr. Presentable

godtabh wrote: »

if you could hand back your home and clear your debt would you call that debt sharing?

Personally I think that people who cant pay should be distinguished from those who wont pay. If you can show you cant pay and move out of your house and hand the keys back I think that should be the end of it. All loans should be secured on the home only. You give it back thats that.

Handing your property to the mortgage holder should only clear the portion of debt they can raise from it's liquidation. There is no way I should be debt free if I owe 400k and surrender property worth 150k.

JimiTime

Monty Burnz wrote: »

Is there any chance an advocate of debt sharing will put forward the economic argument in favour so that we can debate that? Rather than going over the rights and wrongs of it from what you might call a 'moral' perspective for the umpteenth time...

I think the economic issue with it all is uncertainty. Whatever solution(s) are put in place, I think it should leave no room for questions. Whether its debt write off, debt for equity, bankruptcy for negative equity sufferers, a low fixed rate of interest for the duration of negative equity mortgages etc, I think it should be something that is clear and concise. If people have clarity, then they'll know what they can afford to spend. I presently have SOME disposable income, but I aint spending it, as I don't know whats coming in terms of the mortgage crisis. If nothing is done, then I forsee me going from in the black, to in the red in the space of less than 2 years. So I wont spend, AND I'll be defaulting in 2 years. Economically, is everyone defaulting better than those in negative equity being given a debt write down, and continuing to pay a mortgage? I can't imagine so, but I'm no number cruncher.

Grumpypants

Zubeneschamali wrote: »

Translation: free gaff at the taxpayers expense.

How is no house such a complex concept for people to understand.

If you have no house you do not have a free house nor do you pay mortgage for the non house.

PhatPiggins

Grumpypants wrote: »

You would have sold your house at current value and had the debt written down to that value so you wouldnt have a mortgage.

Sold your house to whom? Try selling the 300,000+ homes of the applicants that they'll get for such a scheme.

Nody

Grumpypants wrote: »

How is no house such a complex concept for people to understand.

If you have no house you do not have a free house nor do you pay mortgage for the non house.

And please do tell who owns the banks today? Who would need to pick up the tab for the difference of the wiped out loan value loss in the bank balance sheet? Would that be:

a) The magical bank fairy
b) The owners (i.e. tax payers who need to cover the hole in the bank)
c) No one because everyone are ok to take a loss as a business

Grumpypants

Nody wrote: »

And please do tell who owns the banks today? Who would need to pick up the tab for the difference of the wiped out loan value loss in the bank balance sheet? Would that be:

a) The magical bank fairy
b) The owners (i.e. tax payers who need to cover the hole in the bank)
c) No one because everyone are ok to take a loss as a business

The bank takes the hit and in most cases that means the goverment/tax payer would pay as the major investor. That is pretty clear i don't think anyone is suggesting that its not the tax payer who pays.

What im saying is the person who gets the forgiveness doesnt keep his house so he doesnt get a "free house from the tax payer" as is being suggested.

JimiTime

Mr. Presentable wrote: »

Handing your property to the mortgage holder should only clear the portion of debt they can raise from it's liquidation. There is no way I should be debt free if I owe 400k and surrender property worth 150k.

I can understand the mentality in relation to speculation, but there is a societal concern when it comes to a residential home. The fact is, in this country, if someone wants a secure home, then the only thing on offer is a mortgage. Secure tenancy does not exist unless you are lucky (or unlucky) enough to qualify for council accommodation.

In such a system such a cold approach is not justifiable IMO. The lender should always share the risk in relation to peoples homes. Such a risk share may have prevented the Banks bad practice too. Of course, you would have a point if secure tenancy was an option, but until then I don't think your position is just. In saying that, the law is unfortunately on your side. But then, law and justice have a tendency to avoid each other quite often.

Grumpypants

PhatPiggins wrote: »

Sold your house to whom? Try selling the 300,000+ homes of the applicants that they'll get for such a scheme.

300,000 homes? where is that number coming from? There are only 450,000 people out of work not everyone of them bought a house that is now in negative equity FFS

JimiTime

Nody wrote: »

And please do tell who owns the banks today? Who would need to pick up the tab for the difference of the wiped out loan value loss in the bank balance sheet? Would that be:

a) The magical bank fairy
b) The owners (i.e. tax payers who need to cover the hole in the bank)
c) No one because everyone are ok to take a loss as a business

The thing is, if the alternative is people defaulting anyway, on the FULL loan, then why are the above questions even relevant?

JimiTime

Grumpypants wrote: »

300,000 homes? where is that number coming from? There are only 450,000 people out of work not everyone of them bought a house that is now in negative equity FFS

Just so we don't relate this issue to the unemployed. My household still has an income, but with the 5 rate rises since may, wage cuts, and the addition of extra taxes and charges etc, we wont be able to service the mortgage once TRS stops in just under 2 years. i think someone called us 'The Working Poor'.

Nody

JimiTime wrote: »

The thing is, if the alternative is people defaulting anyway, on the FULL loan, then why are the above questions even relevant?

The fact that it is not seen as a good alternative? That under debt forgiveness scheme you walk away with all the toys (i.e. the tax payer pays for the trip to Bahamas, the car, the jewellery etc. since they only thing wiped out is the house)? The fact that it does not help in any way to stop the issue (see US which had such a system)?

All of the above? If you want debt forgiveness then I suggest you argue for a new default rule, instead of 12 years make it lets say 6 years with minimum income. No vacations, nothing you pay your whole salary minus the minimum you keep towards the loans that will be written off in full. Add in clauses about age on loans (i.e. has to be old loans, has to shown a history of trying to negotiate and deal with it etc.) and you've got me signing the dotted line.

Anything else and you're giving people a get out of jail card for making stupid decisions; being an adult you get to live with such decisions, that's why you're considered an adult after all.

COYW

jester77 wrote: »

All I can see it doing is allowing those that created debt get off scot free and create new debt (there's your increased spending) while those who are prudent with their finances will be left picking up the tab.

Exactly what they are aiming at in my opinion. The debt forgiveness train is really starting to move now and plenty I know who are in debt are beating the "good for the economy" drum with notions of the above. People are looking at debt forgiveness in the following way :

- I paid €400,000 for my 3 bed semi-d. It's now worth €200,000, so I am €200,000 down. I'm in debt up to my neck so I can't invest, live beyond my means, throw around cash like its confetti.

- Debt forgiveness comes in and my €200,000 debt is history. I can now approach the bank looking for a loan of x amount to do up my house, buy a new car, purchase an investment property, go on holiday, ........

- Money starts flying around the country again which in turn leads to a kick start in the property market which means their €200,000 property starts to rise again in value and those of us who didn't purchase will once again be the idiots who need to get onto the ladder.

This is how people are viewing debt forgiveness. I have said it before and Ill say it again, Irish people don't want to know about actions and consequences for some reason.

ilovesleep

For the most part some people were too comfortable with their finances and it gave them a false sense of security. Accompanied with selfish, greedy landlords and runaway, out of control banks, it encouraged people to go for a mortgage and to buy an overpriced home. Some got incredibly greedy - alison o riordan and 500,000 euro dublin apartment comes to mind.

As someone who was able to see that house prices were scandalous and too expensive I'd be against this. The only thing for many people now is to lengthen the term of their mortgage so that they have less to pay back every month but over a longer period.

JimiTime

Nody wrote: »

The fact that it is not seen as a good alternative?

There being better alternatives was not the basis of your post. The basis of your post was about who's going to pick up the tap for partial debt forgiveness. The irrelevancy being, that whoever it is, is going to be picking up the tab for a FULL mortage default anyway.

COYW

ilovesleep wrote: »

For the most part some people were too comfortable with their finances and it gave them a false sense of security. Accompanied with selfish, greedy lanlords and runaway, out of controlled banks, it encouraged people to go for a mortgage and to buy a home. Some got incredibly greedy - alison o riordan and 500,000 euro dublin apartment comes to mind. As someone who was able to see that house prices were scandalous and too expensive I'd be against this. The only thing for many people now is to lengthen the term of their mortgage so that they have less to pay back every month but over a longer period.

I think lengthening of the term is the best way to go. Apartments in the Grand Canal Dock area sold for €600,000 near the end of the boom. I remember reading an article about a young lady, who paid that for one and was complaining about being stuck with it for the rest of her life.

Monty Burnz

Grumpypants wrote: »

The bank takes the hit and in most cases that means the goverment/tax payer would pay as the major investor. That is pretty clear i don't think anyone is suggesting that its not the tax payer who pays.

Ok, the taxpayer is now paying a large capital amount to write off the debt. This amount is borrowed at an interest rate. Where does the money come from to pay this capital plus interest?

Nody

JimiTime wrote: »

There being better alternatives was not the basis of your post. The basis of your post was about who's going to pick up the tap for partial debt forgiveness. The irrelevancy being, that whoever it is, is going to be picking up the tab for a FULL mortage default anyway.

Yes but there sure will be less of them if you know you're going to be pursued for the debt for 12 years then if anyone with a negative equity can hand over their keys and walk away for free.

If you want to offer the people who're really are in above their eyeballs (for what ever reason) then see the previous post, 6 years of austerity (and only count the years that they work, not if they are claiming social welfare or similar) and suddenly there is an option out but it is not something you take until you got no other option.

Monty Burnz

JimiTime wrote: »

There being better alternatives was not the basis of your post. The basis of your post was about who's going to pick up the tap for partial debt forgiveness. The irrelevancy being, that whoever it is, is going to be picking up the tab for a FULL mortage default anyway.

Yes, but if default entails losing your home, then there will be far fewer defaults to begin with. And the people who are paying for these defaults will now have the opportunity to buy properties at more realistic prices. A side effect will be lower housing costs, increasing our competitiveness.

Monty Burnz

COYW wrote: »

I think lengthening of the term is the best way to go. Apartments in the Grand Canal Dock area sold for €600,000 near the end of the boom. I remember reading an article about a young lady, who paid that for one and was complaining about being stuck with it for the rest of her life.

Most of those silly enough to buy during the bubble had to do so with the longest mortgage terms available. You can 'save' a lot of money monthly by switching from a 20 year to a 35 year mortgage. But there are hardly any 20 year mortgages out there - most of them have 30 or 35 year terms. The difference between a 35 year mortgage and a 40 year mortgage is chicken feed. The difference between a 35 year mortgage and a 70 year mortgage (we're talking generational mortgages here, of course) is quite small.

Examples:

Assuming a (low) 5% mortgage rate, per 100,000 euros borrowed, the monthly repayments are:

20 years: 660
25 years: 584
30 years: 534
35 years: 504
40 years: 482
50 years: 454
60 years: 439
70 years: 430

Note that extending your mortage by a decade from 60 to 70 years saves you the price of two pints per month, but you have to pay it for another 10 years.

This effect is even more pronounced (worse) if we assume interest rates are more than 5% in the long term.

JimiTime

Nody wrote: »

If you want to offer the people who're really are in above their eyeballs (for what ever reason) then see the previous post, 6 years of austerity (and only count the years that they work, not if they are claiming social welfare or similar) and suddenly there is an option out but it is not something you take until you got no other option.

There is another option though. Don't have a job. That way you get rent allowance, social welfare etc AND you get lots of time with the kids. Your suggestion basically says, 'Would you like to be a slave?'. It may be some kind of warped 'Ideal' you have, but not only is it a horrible line of thinking in such unprecedented times, but I don't think its practical.

JimiTime

Monty Burnz wrote: »

Most of those silly enough to buy during the bubble

indeed. Hindsights a wonderful thing. Its just a pity that such hindsight is delivered with such harsh intellectual criticism. You predict the banking crisis too?

Do you have a solution in mind that you'd be satisfied with btw?

Grumpypants

Monty Burnz wrote: »

Ok, the taxpayer is now paying a large capital amount to write off the debt. This amount is borrowed at an interest rate. Where does the money come from to pay this capital plus interest?

Im struggling to see how you are finding this so difficult to understand

the tax payer pays it, either in a up front lump sum from the tax take of that year, or it is borrowed and the tax payer pays that back and the interest. The tax payer pays it.

Lots of tax payers would need to avail of this, whether than be the working poor as outlined above, self employed people who after paying hundreds of thousands of euros in tax can't get social welfare and as such have no income to pay the mortgage debt anyway.

Zubeneschamali

Grumpypants wrote: »

If you have no house you do not have a free house nor do you pay mortgage for the non house.

But I have no debt, and can get a new place at the now reduced market price.

Maybe I can get something a bit bigger this time...

Grumpypants

Zubeneschamali wrote: »

But I have no debt, and can get a new place at the now reduced market price.

Maybe I can get something a bit bigger this time...

Exactly you can buy a new house !! Buying a house does not = free house.

JimiTime

Zubeneschamali wrote: »

But I have no debt, and can get a new place at the now reduced market price.

Maybe I can get something a bit bigger this time...

Yeah, because the banks will be queueing up to give you credit.

Zubeneschamali

JimiTime wrote: »

with the 5 rate rises since may

Even with those rises, rates are amazingly low. I believe my variable rate was 12% when I took it out, in 1992.

jester77

Grumpypants wrote: »

Im struggling to see how you are finding this so difficult to understand

the tax payer pays it, either in a up front lump sum from the tax take of that year, or it is borrowed and the tax payer pays that back and the interest. The tax payer pays it.

Lots of tax payers would need to avail of this, whether than be the working poor as outlined above, self employed people who after paying hundreds of thousands of euros in tax can't get social welfare and as such have no income to pay the mortgage debt anyway.

The tax payer doesn't have money to pay for it. There is already a ~ €20 billion deficit per annum. Do you want to deprive a nation of health, education & other services just to pay back other peoples debt?

Mr. Presentable

JimiTime wrote: »

I can understand the mentality in relation to speculation, but there is a societal concern when it comes to a residential home. The fact is, in this country, if someone wants a secure home, then the only thing on offer is a mortgage. Secure tenancy does not exist unless you are lucky (or unlucky) enough to qualify for council accommodation.

In such a system such a cold approach is not justifiable IMO. The lender should always share the risk in relation to peoples homes. Such a risk share may have prevented the Banks bad practice too. Of course, you would have a point if secure tenancy was an option, but until then I don't think your position is just. In saying that, the law is unfortunately on your side. But then, law and justice have a tendency to avoid each other quite often.

But I am not the Lender. This is my entire point. I am not the Lender, why should I be at a loss for someone else's risk?

Grumpypants

jester77 wrote: »

The tax payer doesn't have money to pay for it. There is already a ~ €20 billion deficit per annum. Do you want to deprive a nation of health, education & other services just to pay back other peoples debt?

I presume you have a job,
I presume that job involves a product or service,
I presume your employer sells that product of service to customers,
I presume those customers need money to buy that product or service,
I presume the less customers with money = less of that product or service can be bought,
I presume the less your boss sells the less money he makes,
I presume the less money he makes the less he can pay you,
I presume when it gets to the stage that he can't pay you he will let you go,
I presume this is common place in the private sector,

If we give the customers more free money they can buy your product or service,

If more people buy your bosses product he makes more money
You get a raise,
He hires a helper,
You both are working so that = double the tax income, never mind the VAT
More tax means we can pay for more health care etc.

JimiTime

Mr. Presentable wrote: »

But I am not the Lender. This is my entire point. I am not the Lender, why should I be at a loss for someone else's risk?

Then your issue, is with the whole bank bailout system. Unfortunately, it has occurred already though, Ipso facto, now the taxpayer IS the lender by proxy

Actually, Off topic, does anyone know what would have happened to the mortgage books if the banks had been left to sink or swim?

Monty Burnz

Grumpypants wrote: »

Monty Burnz wrote: »

Ok, the taxpayer is now paying a large capital amount to write off the debt. This amount is borrowed at an interest rate. Where does the money come from to pay this capital plus interest?

Im struggling to see how you are finding this so difficult to understand

the tax payer pays it, either in a up front lump sum from the tax take of that year, or it is borrowed and the tax payer pays that back and the interest. The tax payer pays it.

Lots of tax payers would need to avail of this, whether than be the working poor as outlined above, self employed people who after paying hundreds of thousands of euros in tax can't get social welfare and as such have no income to pay the mortgage debt anyway.

I assure you, I understand what you are saying very well - I'm trying to walk you through it so that you understand it too.

Ok, so you take loads of extra cash from the taxpayers and send it out of the country to pay these debts. The taxpayers who aren't the beneficiaries of debt sharing now have much less money to spend for decades to come. How, precisely, does this benefit the economy?

johnnyskeleton

RichardAnd wrote: »

Putting that aside, the logic behind that claim that sharing debt is that if person A's debts are shared out between persons B, C and D then A will have more income to use and thus, have more economic freedom. The incomes of B, C and D will be reduced but not to the same extent.

How can you increase A's income by decreasing B, C and D's income to a lesser extent. It's a zero sum game, so you would have to take say €100 from each of B, C and D's income in order to increase A's income by €300, all other things being equal.

Of course all other things are not equal, and you have to consider the effect on spending (and consequently earnings) by B, C and D when their taxes are increased to decrease the taxes or subsidise A. To calculate this, you have to have an idea as to what A, B, C and D's respective marginal propensity to consume is, and their position on the laffer curve.

In laymans terms, if the scheme means that A's increase in spending per euro is greater than B, C and D's decrease in spending, then there will be a net increase in spending. However, I believe that a person in A's position is less likely to spend (being still in debt and in any event once bitten twice shy) than B, C and D (presumably solvent / prudent individuals) per euro. I also believe that if A is given a handout, he is less inclined to work and earn an income and if B, C and D are taxed more they are also less inclined to work and earn an income.

So on an intuitive level, the net effect of a debt forgiveness scheme will be to dampen overall spending and possibly also result in a net decrease in taxes / earnings in the economy. I may be wrong, but it would take an impirical analysis or at least some anaylsis based on existing statistics to show otherwise.

The question therefore is who to believe? Am I right that it will negatively affect the economy, or are the commentariat right that it will somehow magically benefit the economy?

Well, neither of us are inherently right. But they are the ones proposing the scheme and because they are proposing it, it is for them to prove that it will either help the economy or at least not damage the economy. That they haven't done so to date is not due to mere ommission, it is because they know that an impirical analysis will almost certainly prove that it is a bad idea.

RichardAnd wrote: »

Remember, in a democracy, 51% of people can vote to enslave the other 49%. This isn't going to go away.

Thankfully, the EU and IMF will put manners on the greedy majority. At the risk of quoting Maggie Thatcher, socialism works well until you run out of other people's money.

Grumpypants

Mr. Presentable wrote: »

But I am not the Lender. This is my entire point. I am not the Lender, why should I be at a loss for someone else's risk?

But you are already at a loss, i know i am, ive taken pay cuts, seen tax hikes, fuel & insurance prices rise and its going to get worse.

Why do you want to continue to suffer just so someone doesn't get let off a debt. Its a very bizzare situation that people will fight to drag themselves into a worse situation just so someone else has to pay back their debts.

It makes so much more sense to take a short term hit for long term gain rather than just long term loss.

Zubeneschamali

Grumpypants wrote: »

If we give the customers more free money they can buy your product or service

This would work if the Government could just print the money, at the cost of inflation and devaluation of the currency.

But we are in the Euro, and can't print money, so we'd have to use EU/IMF bailout money for this scheme, and pay it back with interest, a net loss to the domestic economy.