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Cancelling household debt should form part of economic response to pandemic

Cancelling household debt should form part of the response to the economic fallout of the coronavirus pandemic, an academic has argued.

Cancelling household debt should be considered as part of plans to alleviate the financial fallout of the pandemic.

Dr Johnna Montgomerie, head of the Department of European and International Studies, says that the debt write-off provided to the financial sector after the 2008 financial crisis should now be offered to households, in order to alleviate the longer-term problem of chronic debt.

Dr Montgomerie said that a “comprehensive package of debt cancellations” should be considered for the household sector, a move she argues will encourage growth and signal an end to “debt-dependent growth” in the economy.

In an article for the Sheffield Political Economy Research Institute, Dr Montgomerie said: “My argument is that co-ordinating monetary policy and making fiscal space for debt write-off for households – the same kind of co-ordination and space the financial sector received 10 years ago – will generate macroeconomic uplift.

“Eliminating targeted segments of households’ private debt stock, which reach new historic highs year on year, will bring macroeconomic renewal by freeing up household cash-flow: It will signal an end to debt-dependent growth.

“In fact, targeting the household debt stock for cancellation will generate economic growth in the same way a tax-cut would: allowing people to keep more of their income as ‘pounds in their pockets’.”

Achieving this “debt jubilee” for households, Dr Montgomerie added, would require “overt political repudiation or a small shift in the principles that govern financial regulation, or a combination of both”.

You can read the full article here.

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Johnna Montgomerie

Johnna Montgomerie

Head of the Department of European & International Studies & Reader in International Political Economy