There’s nothing new about debt. It has been around as long as money has been around, possibly longer.

Some research shows that before money became widely used (usually in the form of gold or silver coins), merchants would exchange goods and services for promises to pay at a future date. A caravan participant might deliver goods for such a promise and then return a year later, expecting to be repaid in some mutually agreed manner possibly consisting of other goods, food and water or money.

A “credit society” existed as long ago as the money society; growth of the two went hand in hand dating to the dawn of civilization 5,000 years ago. Of course, along with credit came bad debts when debtors found themselves overextended or illiquid.

At times, exuberance led to excessive debt creation not just by some individuals but by a society as a whole. A debt panic could result with the same dynamics as the global financial crisis of 2008. The result could be ruined enterprises, deflation and lost wealth.

We face the same prospect today with student loans, auto loans, credit cards, junk bonds and emerging-market debt as society did 5,000 years ago. But ancient societies had a solution as described in this article. The solution was called the “jubilee.”

In a jubilee, a ruler or high priest simply decreed that all debts were wiped out. This enabled debtors to get back on their feet, wiped the slate clean and enabled the economy to grow again without the debt overhang. jubilees were practiced in ancient Sumer and Babylon and are specifically referred to in the Old Testament.

One obvious objection to a jubilee is that it helps debtors and the economy, but it seems unfair to creditors. But this ignores the fact that creditors could see the jubilee coming. If a jubilee were coming every 50 years, creditors would stop making 10-year loans in year 40 and stop making two-year loans in year 48 or sooner.

In effect, the system was self-regulating with creditors pulling in their horns ahead of the jubilee to minimize losses. There was still some friction, but on the whole it was a much better system than the panics we seem to have every 10 years or so.

Some kind of jubilee is probably coming in the U.S. with respect to the $1.7 trillion in student loans outstanding. Losses will fall on the taxpayers (that’s you and me). But the results could be beneficial as student debtors might be able to buy houses, get married and purchase consumer non-durables.

Alert investors stand to gain the most.

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