Summary of my new book 'Should We Abolish Household Debt?' out with Polity

1. Book Summary
Dr. Johnna Montgomerie
Reader in International Political Economy
King’s College London
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2. "This book is for those readers who
are puzzled by the new inequality
that debt creates and want concrete
ideas on how to end debt-
dependent growth.
The aim is to start a conversation
about transforming monetary
governance in ways that ensure
that credit serves a useful purpose
in the economy and, importantly,
does not generate harm”
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3. Hacking the Global Financial
System
How Credit ‘makes money’ and why Debt is ‘big business’
Debt is how money is created in the digital economy of banking
(95% of £ is debt deposits)
(a) private banks create money by issuing loans, and in doing so, they make
an asset on their balance sheet linked to the anticipated revenue from
interest on repayments;
(b) BoE controls money supply with interest rates & QE, not base reserves
or ‘printing money’
(c) when new debt-money is created, the central bank expands its own
balance sheet to reflect additional borrowing
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How does this work in everyday life?
A loan is an asset for Bank - only when interest is paid, over time

4. How money, credit
and debt operate
• The majority of money in the modern economy is
created by commercial banks making loans.
• Money creation in practice differs from some
popular misconceptions: banks do not act simply
as intermediaries, lending out deposits that savers
place with them, nor do they ‘multiply up’ central
bank money to create loans and deposits.
• The amount of money created in the economy
ultimately depends on the monetary policy of the
central bank. In normal times, this is carried out by
setting interest rates. The central bank can also
affect the amount of money directly through the
purchase of assets or ‘Quantitative Easing’ (QE).
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5. UK’ debt-dependent growth
Storytelling about Austerity is about governing the build-up of debt
The mountain of household debt
amassed over the past two decades is
clear;
Yet, there is little assessment of the
negative consequences of rising debt
levels on the economy and in society.
Importantly, debt is not a problem for
everyone, this stock is unevenly
distributed across society.
Debt creates wealth for specific groups
and harms others.
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6. What is debt doing?
This of debt as a force, it is transforming economic
activity
Buy now, pay later means creating economic activity
(buy now) only to destroy it later in the pay now phase.
Household debt is pivotal in shaping wider macroeconomic
and global economic trends
• Acts as the feedstock of global financial markets
as millions of loans are pooled together & re-sold
on secondary markets
• Securitisation of debts is an extremely profitable
asset-class, global investors gobble up debt
securities
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7. Caring for Debts
Debts are socially embedded in households, they are not just contracts between a borrower
and a lender.
• Households are highly unequal. The most obvious example is income and wealth
inequalities.
• Debt inequalities are further mediated through relations of class, gender and race;
because who has access to credit and at what price maps closely on to class, gender and
racial inequalities.
Social & emotional costs of indebtedness are clear:
• anxiety and depression that cause acute mental distress, breakdown of families, as well
as wider problems of social and financial exclusion .
Typical debt advice models - household budgeting advice or bankruptcy services - do not
adequately acknowledge the severely damaging and long-term psychological distress to the
individual but also the household they live in. 7

8. Growing Inequality
Housing is single biggest cause of intergenerational inequality –
those that had access to cheap housing (mid-1980s and late-
1990s) benefited from low-cost housing stock & cheaper credit.
- £88,000 at 16% or £980,000 at 3.2% = rising wages in
secure job market, or stagnant wages in precarious labour
market
Student Debt or borrowing to access higher education is likely
to become another major cause of intergenerational inequality.
- Not just because previous generations did not have to
borrow, but because their degree was ‘worth’ more in the
labour market and lifetime earnings are much higher.
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9. Debt dependency cannot last
• A closer look at the sites where debt is entangled
in the daily lives of households, find mortgages to
access housing, student loans to access
education, consumer debts to fund spending and
to provide a safety net.
• These sites are the material connection with the
profit centres of the global financial system; and
rising indebtedness gives us a glimpse of the limits
of debt-driven expansion.
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10. The Case for & against
Abolishing Household Debt
Opponents of debt cancellation claim it will
trigger another major financial crisis.
• Another financial crisis is likely because
financial markets are dependent on
government and central bank support to
stay solvent.
Opponents claim that debt cancellation will
stop banks for lending in the future.
• After 10 years of subsidies, lenders can
still demand payment for loans they were
long bailout out for.
Abolishing household debt will:
• unravel the finance-led growth that
perpetuates crisis and imposes austerity.
• debt cancellation will create political
change by redesigning the financial
system so as to divide the harm generated
by the debt crisis evenly between lenders
and borrowers;
• Make banking an economic institution that
serves a purpose in society, removing it
from its current position, which is just to
enable rent-seeking. 10

11. PROPOSAL TO
ABOLISH
HOUSEHOLD DEBT
• Comprehensive package of debt cancellation
measures targets harmful debts to provide
relief
• Uses existing monetary measures for write-
down and write-off
• Create Household Debt Cancellation Fund
using half of the declared value of cash
outlays & full value of credit guarantees
offered to the financial sector ten years ago.
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12. Target Toxic Debts not
Debtors
Targeting specific types of debt not specific
populations of debtors will mute opposition
(what do I get?) but also better able to
amplify the positive impact of debt
cancellation across the economy and society.
• Up to £24,000 for available for 0%
balance transfer to re-finance debt
• Cancel Old-Debts, originated before 2008
because lenders already bailout
• Cancel Discharged Debts (rolling jubilee)
• Student loans eligible for combination of
re-financing and cancellation to make
affordable
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13. Hacking the Financial
Architecture to make
credit a public good
• The 21st century digital economy
begins with reforming financial markets
that keep us trapped in a doom loop of
boom, bust, bailout (for them), austerity
(for everyone else)
• Abolishing household debts offers
relief now to borrowers and disperses the
losses to lenders over the long term.
• Debt Cancellation signals the end to
debt dependency for individuals, lenders
and national economies shifts the
political economy towards a prosperous
future.
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14. Thank You
johnna.montgomerie@kcl.ac.uk
@j_montgomerie
Reader in International Political Economy,
Department of European & International Studies
Get your copy
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