A New Framework for Global Debt Deleveraging: Globally Coordinated Deleveraging Authorities

17 Pages Posted: 30 Dec 2019 Last revised: 6 Apr 2020

See all articles by Ahmet Oncu

Ahmet Oncu

Sabanci University - Sabanci University

T. Sabri Oncu

SoS Economics

Date Written: November 24, 2019

Abstract

Debt overhang of the non-financial private sector has been one of the main reasons for the ongoing global stagnation, and recent data released by the International Monetary Fund, International Institute of Finance, United Nations Conference on Trade and Development and others indicate that debt overhang of the non-financial private sector is worse in 2019 than it was in 2007. In light of history, at this level of debt overhang, a global non-financial private sector debt deleveraging is inevitable, if it did not start already. If disorderly, this deleveraging is likely to lead to deep global debt deflation, followed by a deep global recession (and possibly a global depression), thereby creating financial and economic instabilities and further tensions in international relations with dire consequences for emerging and developing countries, not to mention developed countries. Blending the German Currency Reform of 1948 and the 'Modern Debt Jubilee' of Steve Keen, we propose a globally coordinated one-off orderly non-financial debt deleveraging to address this debt overhang. It is a partial debt Jubilee financed by zero-coupon perpetual bonds. Given its focus on the entire non-financial private sector, it is more comprehensive than mechanisms that focus on either only the households or only the firms. Finally, we propose a second mechanism to extend the first to include all sectors because the high debt burdens the world suffers from are neither only private nor only public but both.

Keywords: Debt Overhang, Debt Deleveraging, Jubilee

JEL Classification: B00, F01, F02, G10, G20,

Suggested Citation

Oncu, Ahmet and Oncu, T. Sabri, A New Framework for Global Debt Deleveraging: Globally Coordinated Deleveraging Authorities (November 24, 2019). Available at SSRN: https://ssrn.com/abstract=3492749 or http://dx.doi.org/10.2139/ssrn.3492749

Ahmet Oncu

Sabanci University - Sabanci University ( email )

Orhanli
Estambul, Tuzla 34956
Turkey

T. Sabri Oncu (Contact Author)

SoS Economics ( email )

Cengelkoy Maslagi Sokak
No 10
Istanbul, 34680
Turkey
+90 538 378 5722 (Phone)

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