Today, all nations, with few exceptions, face mountains of debt and huge budget deficits that hinder their abilities to create jobs for the unemployed and help the poor, causing poverty to spread, allocations to educational and social programmes to be cut, and a sense of hopelessness to overwhelm a majority of people in many parts of the world.

To deal with the debt problem and address the social ills it has precipitated, I present below a plan that defies conventional wisdom and challenges traditional ways of thinking. The plan calls for no default by any state and asks no investor to lose a penny; it is designed to help everyone and hurt no one. The plan is as follows:

1.To designate the IMF as a global central bank, with the power to issue an international currency to be called the “Ramo”, divided into 100 cents, and to buy and sell securities issued by member states;

2. To set the value of the Ramo at the rate of the IMF Special Drawing Rights unit; this actually means converting the virtual IMF currency to a real one;

3. To give each state the opportunity to repay its debt and interest due until maturity now - by issuing money notes and credit certificates in its own currency payable to the IMF;

4. To authorise the IMF to open a trust account or an escrow account in which all such funds would be deposited and kept to meet the debt obligations of member states; the IMF would pay all debt notes on behalf of its members as notes become due;

5. To ask each state to pay an amount equivalent to ten per cent of its total public debt obligations as management fees in order to have the hard currency needed to cover the poor nations’ debt obligations and initiate programmes outlined hereunder;

6. To require each state to reduce its budget deficit by at least half a percentage point annually and balance its budget within ten years; in fact, many states would see their deficits evaporate the moment they pay their debt; some may even have surpluses because most budget deficits are caused by interest payment on the public debt;

7. To establish a $1tn educational fund to build 50 new universities, with a mission to promote peace, cultural diversity, tolerance, free speech and critical thinking, encourage creativity, innovation and environmentally friendly technologies; universities would be strategically located to serve as many regions of the world as possible;

8. To establish a $1tn humanitarian fund to help victims of war and natural disasters such as hurricanes, tsunamis, earthquakes and disease epidemics worldwide;

9. To establish a $5tn Sustainable Development Fund to assist all developing nations to grow out of poverty and dependency and join the industrialised world; and

10. To create a few international corporations and agencies under the supervision of the World Bank to help Third World nations develop and join the industrialised world.

The moment a nation pays its debt to the IMF, it becomes free of debt and the IMF assumes full responsibility for its debt obligations. Since a global economy needs a global central bank to function properly, the new role assigned to the IMF and the issuance of the Ramo would restructure the international monetary system, basing it on a “new gold standard”. Since the IMF does not have enough gold, a golden Ramo, backed by the good faith and currencies of all member states, would become the international standard against which all currencies would be pegged, making them more stable and less susceptible to speculation and manipulation.

Exporters of oil and other minerals and major commodities will be able to set the prices of their exports in Ramos, enabling states dependent on revenues from such exports to forecast future incomes more accurately and manage expenditures more efficiently. Using the Ramo to price oil will also guarantee fairness; no nation would pay less as the value of its currency appreciates against the dollar; no nation would pay more as its currency depreciates against the dollar.

As mentioned earlier, the debt obligations of all nations, including interest are estimated at $73tn. The ten per cent debt management fees would generate about $7.3tn, of which about $6tn will come in hard currencies. $2tn of the fees would be used to launch the educational and humanitarian initiatives, and $5tn to launch the Sustainable Development Fund (SDF). As a consequence, SDF would have two programmes, one to invest the balance of money it receives in national, largely unconvertible currencies, and the other to invest the balance of funds it receives in hard currencies.

The money paid by each developing state would be invested in the same state, and the money paid in hard currencies would be used to help develop all states. A societal development plan would be prepared by the World Bank for each state, and money would be spent over 20 to 25 years to build and purchase whatever is needed to foster national development plans. The following goals define the mission of SDF:

1.To help all nations build modern roads, railways and safe airports, bridges and dams, as well as electrical grids and water and sewage systems;

2. To modernise agricultural farming techniques and irrigation systems, train farm workers, and develop rural industries and communities;

3. To build enough schools, hospitals and clinics, and train enough teachers, physicians and nurses to meet the needs of all urban and rural populations;

4. To design special training programmes to enable workers to acquire the right attitudes and technical skills to keep a growing economy functioning properly and fairly;

5. To support national universities and establish specialised research institutes committed to identifying national and local problems and finding home grown solutions;

6. To increase the size and effectiveness of civil society organisations, and train judges and media professionals to help empower the courts to fight corruption, enforce the rule of law and protect people’s rights;

7. To improve the quality of education and healthcare and environmental awareness;

8. To facilitate the creation of a large and confident middle class in each state as well as a new, socially responsible entrepreneurial class;

9. To strengthen food security programmes at the national and international levels; and

10. To launch a genuine sociocultural transformation process in each state.

I strongly believe that no economic restructuring plan can succeed in a traditional society without being preceded by or accompanied with a genuine sociocultural transformation plan. Development is a comprehensive societal process, not just an economic, political, educational or infrastructural programme.

Spending about $7tn over a 20-25 year period should create hundreds of millions of jobs and expand world demand substantially to absorb almost all excess supplies of goods and services; it, therefore, should vastly reduce the chances of worldwide economic recessions. SDF should also lift more than one billion people out of poverty and train millions of scientists, engineers, thinkers and artists to keep the world economy growing and enrich the lives of all peoples.

This sounds like a really bad idea to me (and like really unfeasible) but I'm just a bumpkin so I wanna hear some educated opinions.

babyfinland posted:
why not just Forget the Debt

that's a legitimate option. iceland did that and it isn't performing worse than ireland who wrecked themselves to keep up payments, at any rate. i think that government assuming or partially annulling private debts will probably expand over time.

babyfinland posted:
it has Historical Precedent

it sort of works for everybody because the rich are like ok fine whatever we dont lose any of our privileged station in life and we get to start the game all over and get even richer! and the poor are happy for obvious reasons

it might work in a social sense, sure, but in a narrow economic sense it might not, it is a matter of debate. that's because the main cost of defaulting on debt isn't much of anything to do with that specific default. like if it were just a bunch of bankers losing out then the government would probably let it happen a lot (seriously). the problem is that each default carries with it an additional risk premium - people might get more scared to lend - and modern economies depend on people being really excited to lend. this is especially true for small economies and it is why they accept grinding poverty to pay their debts.

getfiscal posted:

babyfinland posted:
it has Historical Precedent

it sort of works for everybody because the rich are like ok fine whatever we dont lose any of our privileged station in life and we get to start the game all over and get even richer! and the poor are happy for obvious reasons

it might work in a social sense, sure, but in a narrow economic sense it might not, it is a matter of debate. that's because the main cost of defaulting on debt isn't much of anything to do with that specific default. like if it were just a bunch of bankers losing out then the government would probably let it happen a lot (seriously). the problem is that each default carries with it an additional risk premium - people might get more scared to lend - and modern economies depend on people being really excited to lend. this is especially true for small economies and it is why they accept grinding poverty to pay their debts.

doesnt that basically boil down to a social issue anyway? you havent described a structural problem but a social one here. I could imagine that there would be issues with just ignoring debt if that would simply compound structural problems that developed the debt in the first place, but is that actually the case? If debt was simply forgiven would the biggest risk really just be repeating the same problematic schemes again and the risk of alienating creditors?

getfiscal posted:

babyfinland posted:
independent currency didnt really help the UK. theyre not truly "independent" at all

if the uk were part of the euro they would be worse off today, although it is a bit different situation because of their size. i would also say that the uk is more an overreaction, like the US, which is connected to political goals at gutting the social system than some specific debt goal. the UK also had a major banking crisis related to bad debts and such which was the main cause of their debt woes (as did ireland). i think that spain and greece are more connected to fiscal mismanagement.

sure but my point was that independent currency doesnt ensure the ability to adjust to shocks so you cant really fault them for not pursuing it (since that might not be politically feasible within their broader plans or whatever)

babyfinland posted:
sure but my point was that independent currency doesnt ensure the ability to adjust to shocks so you cant really fault them for not pursuing it (since that might not be politically feasible within their broader plans or whatever)

independent currency does generally ensure some flexibility to shocks (in many situations). and it probably did in the uk. i'm not sure your point.

getfiscal posted:

babyfinland posted:
sure but my point was that independent currency doesnt ensure the ability to adjust to shocks so you cant really fault them for not pursuing it (since that might not be politically feasible within their broader plans or whatever)

independent currency does generally ensure some flexibility to shocks (in many situations). and it probably did in the uk. i'm not sure your point.

i dont really have a point here nevermind (i was basically just trying to say that independent currency is not a guaranteed way to avoid these shocks so criticism of the PIGS shouldnt be based on that assumption)

babyfinland posted:
i was basically just trying to say that independent currency is not a guaranteed way to avoid these shocks so criticism of the PIGS shouldnt be based on that assumption

well i should say that if greece still had the drachma then it would probably be in much better shape. almost all of its present debt crisis comes from the fact the economy is collapsing because it can't adjust against its neighbours in a flexible way through devaluation or inflation. this causes the deficits to be massive because the economy is in stuck in a trap but wages and expenditures are sticky for various reasons. so it has to take an axe directly to them and public services, which causes unrest and such and harms the economy more.

but i said it was a spending problem only insofar as, if they accepted these rules under the euro, they shouldn't have been running 5% of GDP deficits for most of the last decade. basically they agreed to give up local macroeconomic instruments so they should have been more prudent. that's not the case everywhere - spain wasn't too reckless, for example. but had they -greece- shaved 2% of GDP off the deficit for a decade, like they even promised to under the euro (3% deficit cap), then their debt-to-gdp ratio would be 20 points lower just there.

Edited by getfiscal (Sept. 25, 2011 06:14:20)