Wicked debt
Because all money comes into circulation as an interest bearing debt there is a constant need to keep borrowing. If borrowing were to stop the money supply would contract until only notes and coins were left. Since paper money represents less than 5% of the total money supply in first world nations, their economies would soon grind to a halt. To reiterate: this system exists because it does, not because it needs to, or because it is some sort of unchangeable economic law. It is simply a device created to serve narrow corporatist interests. Liberal politicians, drooling before their corporate benefactors, are too naive or perverse to see past the ruse.
While a credit with interest system benefits banking cartels it creates chronic economic problems. There is a constant demand for new debt, competition for market dominance (not market share) and jobs becomes intense. Governments, bent on the liberal big-state model, find it impossible to operate without going into debt. All of this happens because there is an unbridgeable gap between the cost of goods and services and purchasing power. This gap exists because prices cover all costs, including the interest cost of debt-inducing borrowing, while the amount of money released into the economy as wages and salaries does not equal the total price for all goods and services.[1] Wages cannot be both a cost of production and the major source of effective demand for goods and services. This problem is compounded when consumers commit to debt obligations, in the form of personal loans, hire purchases and mortgages. Therefore they cannot consume all the available goods and services, without going into debt and a huge Bernays’ inspired marketing machine screams at them constantly to do so. Behind it all is a banking system that draws into itself more money than it dishes out because both principle and interest must be returned to it. It is a totally unnecessary racket, causing immense on-going harm.
Orthodox economists often dispute this analysis, but the evidence of ubiquitous and crushing debt is now undeniable. Read the Wikipedia article on Social Credit to gain a better understanding of what has just been described. Take some time, based on your own experience, to think about what life might be like without the huge levels of interest bearing debt we all endure. Think of all the lost opportunities for individuals to grow their full life potential. Think of all the terrible harm done to people and nations by debt – especially third world nations. If the corporate banking sector knows their system of credit for interest-bearing debt is unnecessary what does that say about their humanity and integrity? Then there is the fact that this system has been able to develop over centuries because all dissent has been effectively silenced. It bears mute witness to the ability of those with the power to hide the real self-serving nature of this system of financial enslavement. It is only the advent of the internet that has opened the subject up, but even then it is a difficult to see anything changing. People are so enmeshed in the system as either its victims, or its beneficiaries, to do much about it. The truncated, carefully controlled nature of our democracies also prevents debate and change.
As a consequence this credit for interest-bearing private and public debt madness extends into an unremitting search for growth in exports and production to absorb the ever increasing need to grow economies to keep up with the cost of servicing debt. It fuels further demands for credit and resources. Given the doubling time principle this whole merry-go-round becomes unsustainable, on both a debt and a finite resource depletion basis. Our usury besotted system channels wealth into the hands of financial institutions and their associated money markets where fortunes can be made without producing anything economically useful. Meanwhile, the technological advances that have reduced the need for labour are rendered meaningless in employment and quality of life terms, because the preferred way to support surplus labour is to grow a taxation based welfare system. In this way the banking sector sidesteps the social cost of its activities by passing them onto the taxpayer. They also manufacture the right environment (Hegel’s antithesis) to justify calls for an anti-democratic world governing order. The wage earner foots the costs in ever increasing taxes and governments run faster and get larger. Economies must also look for new ways to create growth to absorb labour which in turn fuels the demand for ever increasing growth.
The reason for burgeoning international debt, glutted markets, resource depletion, cheap products that do not last, constant re-branding, environmental degradation, poverty, globalisation and the rise of large monopoly corporations is now apparent.[2] Because debt and interest are loaded into prices and the neo-liberal global economic system has depressed incomes in the West, demand goes up for cheap mass produced goods. The best business model for producing these things, including large-scale food production, is large mass production corporations, operating from nations with low wages and few suitable controls. Small local business, the backbone of local economies are the first to suffer. Goods are made with a short life requiring more production. Again this benefits the large corporations but puts unnecessarily demands on natural resources, and energy. The environment, both human and natural, suffers and the constant pressure to access raw materials bumps up geo-political tensions. Mass produced food may be cheaper but it is also less nutritious. To even afford food and commodities at lower prices people are working longer hours thanks to the debt-loaded financial system. That and the quality of the food affects lifestyle, health and family life at enormous social and economic cost.
The liberal’s love affair with paternal state control and corporate demand for growth rubs salt into our debt created wounds. By assuming a cradle to grave responsibility for a raft of services, including supporting those who want it, the state must levy heavy taxes. Industries include these taxes in prices and consumers fail to save, raise loans, or rely on high interest credit card debt. This just exacerbates the whole problem still further, making it as mad as the Hatter’s perpetual tea party. Corporations also apply constant pressure on consumers to spend more and, under the spell of the Toynbee Effect, they tend to loan to buy, leading to extremely high levels of private debt, exacerbated by high compounding interest.
To ensure the whole debt situation is insurmountably worse, western governments have chosen to spend more than they take in – deficit spending. A never ending supply of books have been written on the irresponsibility of western leaders in lavishing money they do not have on innumerable programmes that are not really needed. Future generations have been pawned to make this vast expansion in government spending possible. This impossible situation has perhaps reached the zenith of absurdity and irresponsibility with the U.S. government’s pillage of its pension fund. By 2011 the federal government owed the fund 2.7 trillion. By 2017 the U.S. Social Security Board of Trustees, which manages the fund, will have to spend the reserve it has maintained in government bonds. By 2033 that reserve will be exhausted and the 84 million Americans expecting to draw on the fund will receive nothing. How will the American government fund this unsecured liability? Boston University’s Laurence Kotlikoff has been called the $200 trillion man because he has computed U.S. state and federal present and future unsecured liabilities for pensions, social welfare and medical costs at over 200 trillion. There is little chance that the federal or state governments can meet these obligations given the reducing numbers of workers able to support it via taxation and the monstrous debt that already exceeds 100% of U.S. GDP.[3] The magnitude of the debt problem, both private and public, is unprecedented and unconscionable. Yet our ruling classes continue to treat our current financial system like it is the only game in town. An economic and social train wreck appears to be inevitable. The fact that this whole situation has been allowed to develop in the first place bears all the hallmarks of a Ponzi scheme designed to benefit a financial and political elite at the expense of everyone else.
It gets worse…
The corporate elite are well aware of how their banking system, created by private interests for their own advantage, works. They have no reason or desire to change anything despite the monstrous harm it causes. Those who work for them either fail to understand what is happening, or have too much to lose to blow the whistle. The average Western consumer assumes that the current economic system has to be, as if it were an immutable law of nature and not an invention of Man. The Fuehrerprinzip, vacant expectation and the will to power all operate to create a dance of economic death. People assume their leaders will work it out and cling to the Normalcy Bias while pursuing their lemming-like pursuit of happiness. The corporate world takes advantage of the whole situation, accumulating wealth and power as they press for stronger global systems that sceptics believe will do little more than benefit corporate interests alone. The Trans-Pacific Partnership (TPP) is widely believed to further entrench this whole system, hiding behind ‘free trade’ nomenclature.
The neo-liberal globalised system makes it possible to move operations to poorly regulated, low labour cost nations. This is an ideal spawning ground for monopoly corporate growth aided by the suppression of western economies. The larger the corporation the more power it has to raise share capital, service loans, keep prices low, hard sell cheap products, mount takeovers and relocate to global locations where they can exploit low cost economies. Local production for local markets is supplanted by production at a distance, requiring otherwise unnecessary investment in transport infrastructure with its huge demands on money and resources. More than 60% in the growth of demand for oil comes from the transport sector and over half of all oil production goes to fuel vehicles of all types.[4] Western labour finds itself priced out of international labour markets, cheap and often unnecessary goods flood consumer markets and the props for this whole global pantomime are made to look as rational as possible.
Worse still, a debt fuelled economy makes slaves of both producers and consumers. Businesses have to relentlessly push their wares and develop new product lines in an endless drive for market share. Consumers are constantly pressed to satisfy desire and want rather than genuine need. Their need for work also drives them to submit their lives to the demands of employment. They are thus caught in an employment slave market made necessary by an economy inflamed by indebtedness and unrelenting consumerist pressure.
The perversity of the credit for interest system is also evident in other areas. The demand for growth and consumption, at the lowest possible cost, forces industries to cut corners. Food production on a large monoculture scale to lower costs, using synthetic fertilisers and other additives, has reduced food quality and is creating downstream health problems; as is the fast food industry.[5] The factory farming of animals creates effluent problems damaging to the environment. In all of this the ethics of social responsibility takes a back seat to profit and the maintenance of health and safety standards can no longer be taken for granted. Complex and administratively costly regulatory regimes must be devised to protect the public.[6] All of these costs are not met by the industries that created these problems, neither are they necessarily effective. The public is saddled with the bill. So, when we look to health problems, indebtedness, long working hours, unemployment, the exploitation of third world labour markets, pollution and poverty the dead hand of neo-liberalism lies behind it all. Add the weight of government taxation and over-regulation and the reasons behind economic and the social problems besetting the West become apparent. We are all being played by a liberal and corporate plutocracy resolutely trying to impose its will on the rest of us for reasons that are both perverse and entirely self-serving.
[1] The conventional wisdom used against this point was that money circulates (the velocity of money) to make up for this imbalance but events have now confirmed this cannot be true. Debt has just kept increasing with curbing it only possible by massive economic contractions, restrictions or debt repudiations.
[2] See David Korten’s 2001 book, When Corporations Rule the World (2nd Edition). Korten states (p.43) that 70% of the growth in labour productivity has happened in the 30% of economic activity that most damages the environment and uses up finite resources. Examples: Mining, petroleum, petrochemical, agri-business and transportation.
[3] The figures here are taken from Dr Matt Buttsworth’s book (2012), The Fall of the West.
[4] See Maxton, Chapter 10 in The End of Progress.
[5] Read Michael Pollan’s The Omnivore’s Dilemma: A Natural History of Four Meals.
[6] When business operations have harmful effects, outside the industry itself, economists call them ‘negative externalities’.