Credit As A Means Of Social And Economic Control
The struggle between us is not between parties or ideology. It is a struggle between creditors and debtors.
Years ago, I was what you might call, a compulsive debtor. I was addicted to credit cards. I spent years being chased by creditors asking for repayment, mostly for credit card debt. I had even set up my answering machine to play the “this number is disconnected” tones to throw off their autodialers. I was addicted to the feelings associated with buying stuff and being in debt.
I have since paid my debts. I got help paying off my debts, not in the form of money, but in the form of social support, much like an alcoholic would get to stop drinking. I spent years learning how to manage my money. I spent years learning how to understand and manage my feelings around money. And I remember making the last payment and the sense of relief that brought to me. I told one of my friends about my last payment and he replied in so many words, “You will realize a huge increase in buying power once you pay off your debts.”
I have kept those words with me, bouncing in my head ever since. I am leary of any offers of credit. I am cautious to only borrow as much as I know I can repay. I do my best to avoid unsecured debts. The cars are paid off, and with good care, they will last a good 250,000 miles each. I have years of equity in my home. I keep a prudent reserve at hand. I get up every morning to work, without fail, and I enjoy my weekends. I even have a humble 401k that is growing with every paycheck.
That caution and awareness have given me buying power that I could only dream of 10 years ago. Paying off my debts relieved me not only of my obligation, but also the interest charged. I have realized an increase in buying power proportional to the principal and interest I have paid off.
You might have heard of peak oil. That is the idea that we have reached the maximum output of oil that is available, that will ever be available, and that it’s only downhill from here. I have heard that we have reached “peak debt,” too. This is the idea that we have amassed so much debt, that we are approaching the point where the debt cannot be paid back. There simply aren’t enough resources in the economy to pay all of our debts back.
The federal debt is now $23 trillion, and economists forecast a federal deficit of $1 trillion this year alone. According to MarketWatch, total consumer debt, houses, cars, credit, etc, will approach $14 trillion this year. That’s a total of $37 trillion just for the debts that most of us think about. That doesn’t count state and local municipal debts, too. The economy is forecast to be about $22 trillion this year, and that’s not enough to pay back all debts in our lifetime.
With peak debt comes the rise of political polarization. I’ve been looking for a common denominator (no pun intended) that would explain the very extreme and deep political polarization in the country. Debt is the common thread throughout American politics. It seems like everyone owes some form of debt. Our “leaders” talk day and night about government and how important it is to pay that debt down and balance the budget. They are curiously quiet about private debt. And if all debts are polarizing, there is a very good reason for why they are.
At this moment, the people I’m wondering about are the people to whom all this debt is *owed* to. They are the most powerful political faction in the world. They are the creditor class.
The national accumulation of debts is accelerating with compound interest. In that same article by MarketWatch noted above, they said that student debt was $661 billion in 2008. Now it’s $1.6 trillion. The federal deficit is hitting record levels under Trump, despite his promises that the tax cuts will pay for themselves. There is no evidence that the tax cuts are paying for themselves as even the Treasury’s own records show year-over-year declines in tax revenue.
So we’ve tried social welfare programs. We’ve tried tax cuts and lower taxes. And yet, wages remain flat relative to CEO and investor income, as they have been for 40 years. The economy is not growing as fast as advertised by Trump. He said we’d see 3.0% a year, we’ve only seen 2.1 and 2.3 percent. At peak debt, I think it would be hard to grow the economy.
As we have seen, young people, burdened with student debts, are putting off buying a house. They are putting off starting a family. Weddings and babies are expensive. Houses are expensive. I got lucky and bought at the bottom of the market. I know people who bought and held onto their homes since another bottom the 90s, and their homes have multiplied in value. Unless we make some changes, most young people will not see this kind of prosperity any time soon.
All of this debt is paid back with interest. That means that repayment requires far more than just the principle. The interest alone can compound over time as some people with student loans have shown — making payments for a decade without getting very far. Credit card interest rates are typically 23–27% per year. Car loans average around 4.9% with good credit, 11% with poor credit. Total interest paid on a $300,000 loan over 30 years is 216,000 at 4%. It’s the interest that shrinks the economy.
Why? The loan is only for the money created by the banks and doesn’t include enough money to pay the interest. And because most people take a loan for consumption, not for investment. Poor people take loans for consumption, wealthy people take loans for investment. Poor people take loans to pay their utility bills, they pawn off their treasures to pay the rent, they often must choose between food and paying the creditor. Wealthy people use loans to build the tall buildings we work in. They build the homes we buy.
Moving into the middle class, we see people take out huge loans for homes, cars and small businesses. We see people taking out huge loans to send their kids to a good school to start a career, to earn more than enough to pay all of their bills. The vast majority of Americans are in debt, in one way or another, and they owe money to other people, very wealthy people, who themselves are not very likely to owe anyone any money.
The principal is money already created by a bank by virtue of fractional reserve banking, and interest shrinks the economy because no money was created to pay the interest. The money to pay the interest on a loan must come from somewhere, and if it’s not created, then it must come from money already in circulation.
Our debts reduce our purchasing power. First, they reduce your credit rating so that when you want to buy a house, your borrowing capacity is limited by the debts you already have. Second, if you’re making a payment on a loan, you’re not buying something else. And since most loans are made for consumption rather than investment, those loans are not producing anything other than interest payments to the creditor. The economy expands when we create something of value. Credit, in a very strict sense, does not expand the economy by virtue of the interest paid on the obligation.
Early in written history, the leaders of ancient civilizations figured this out. They understood the struggle between the creditor and the debtor. They also understood that there were men who wanted to make loans not just to become wealthy, they made loans to foreclose on the collateral. That collateral was property required by the debtor to live, his land, his chattel, his tools, and even his labor. The creditors didn’t care as much about being repaid as they did about the collateral.
The early leaders of human history made a habit of canceling debts to restore balance to the economy. They knew that usury leads to instability. They knew that debts could grow so large that their people could flee to other regions, leaving their debts and their kingdom behind. They knew that creditors could use their wealth and power to compete against royalty. So they had debt jubilees to free their people from the creditors. They canceled debts to remove power from their competitors.
When we are young, we are taught to believe that we must pay our debts first. We are taught that the power of the creditor is supreme. We are raised to believe that there is a great shame in not paying your debts. When I got the help that I needed so many years ago, they taught me to pay myself first. They taught me to take care of myself first. Then when I have a surplus, I can start paying back my creditors. I paid my creditors last, but I used written correspondence to assure them that I would pay all of my obligations back. And I did.
The moneychangers and lenders figured out early on in history how to eliminate the debt jubilees and instituted fines and foreclosures. They used their wealth to buy politicians that would make laws that favored the creditors. They assassinated leaders who promoted laws that favored the debtor. They organized revolts against politicians who continued to exercise or promote the debt jubilee.
In modern times we have seen this. We have seen bankruptcy laws changed over and over again, to favor the creditor. We have seen leaders assassinated for promoting the debtor over the creditor. We have seen social and political upheaval over debts. I see our country now, at peak debt, with millions of people bonded by loans that they have little hope of repaying. Inequality is greater now than it has been since the Great Depression. We have forgotten the debt jubilee.
The struggle we are engaged in has been conveniently framed as one between Democrats and Republicans, liberals vs conservatives. We are made to believe that trivial policy choices divide us, from reproductive choice to gun rights to marriage equality, we are distracted from quite possibly the greatest issue of our time. Who will pay this debt, and more importantly, to whom are we paying it to? Do we even know who they are?
The struggle we are engaged in is not just a struggle of political parties or ideologies. It is a struggle between creditor and debtor, as it has been for 5,000 years. Our oppressor is not Donald Trump, or Democrats, or Republicans. Our oppressors are the creditors. How do we remove their power to restore peace, civility, and order to our country?
We do so by living within our means. That means we only borrow what we know we can pay off in the foreseeable future, or we borrow nothing at all. We learn to live on cash on hand or in the bank. We learn to forgo the fancy shiny things and take interest in our fellows, our families, and ourselves. Those things don’t love you, no matter how much you might wish it so. The people in our lives love us.
There is another way to restore the order our society so desperately needs. We have a debt jubilee where and when all debts are canceled. Debt jubilees were a very successful and common practice for more than 2 millennia, and then the creditors got hold of the politicians. And that was the end of the debt jubilees.
Ancient rulers used debt jubilees as a check on plutocratic power. Ancient rulers even forgave tax debts for fear of the people fleeing. In this modern world, there is nowhere to flee to, and the creditors know this. The creditors have foreclosed on millions of homes while being bailed by the government, this is the extent of their power. But the one thing that creditors are hoping we will never ever consider, is the debt jubilee or cancellation of loans.
If we look around us, we are enticed into credit or loans everywhere, yet we are not easily given the means to repay our loans. The creditor wants the interest, he wants the bonded labor, he wants political control. But the last thing he wants is for powerful political leaders to give serious thought or god forbid, an honest discussion of the debt jubilee.
The vast majority of the people in this nation are Christian. They believe that Jesus came to us and that he will forgive us of our sins. Jesus taught forgiveness from his first sermon. Most of us think he’s talking about forgiving others who trespass against us. He was also talking about forgiving debts owed to us.
A familiar symbol of our nation is the Liberty Bell and inscribed on the Liberty Bell are the following words:
PROCLAIM LIBERTY THROUGHOUT ALL THE LAND UNTO ALL THE INHABITANTS THEREOF LEV. XXV X.
That citation at the end is from the Bible, Leviticus 25. That passage of the bible talks about the jubilee and that kind of jubilee is a debt jubilee, directing us to cancel all debts every 50 years. I think it’s interesting that most Christians don’t know about or talk about this aspect of the teachings of Jesus. But when the founders of our country used the word liberty, they were talking about freedom from debt. Conveniently, we didn’t learn that in school.
We deserve this freedom, this “liberty”. Liberty could be ours to have and to hold. We need only act on the wisdom of our forebears. And then we might have peace once again.