Debt as Power explains the dangerous connection between the rate at which economies must grow and the enormous debts owed by governments, corporations and consumers. Globally, that debt now exceeds $200 trillion, or over $27,000 for each of the 7.4 billion men, women, and children in the world, and it has continued to grow at a rate of about 342 percent since 1990.
What if nothing can stop it, much less reverse it?
Debts come with interest payments. Since 1980, 25 percent of the U.S. national income (GDP) consisted of interest payments on debt; or, put another way, an average of 25 percent of the cost of every good or service included someone’s or somebody’s interest payment. Interest is, in effect, a tax on money. In the United States, interest exceeds the total amount paid in federal income tax.
In Debt As Power, we show that paying off the debt, as desirable as it sounds, is not a solution.
Our flawed financial system was born in 1694 when, in exchange for a £1.2 million loan, the British crown granted the private owners of the Bank of England the exclusive right to issue money as interest-bearing debt. This act essentially capitalized the national debt and the tax collecting power of the state. It also created a financial system that helped transform England into a dominant world power and stimulated advances in medicine, manufacturing, communication, and food production. Other countries followed suit, with varying degrees of success.
Granting private parties the right to issue and manage the national money supply turned out to be a Faustian bargain. While banks create the principal when they issue a loan, interest comes from the future. Consequently, if the economy doesn’t grow to create the required interest, loans cannot be repaid. We must produce and spend more this year than last, and more next year than this, in perpetuity.
Economists typically set the necessary growth rate at 3 to 5 percent yearly, while also telling us that growth rates in wealthy countries will slow over the 21st century, and debt will increase. For countries such as Spain, to begin repaying only its national debt, would mean growing about 5 percent a year. Spain is struggling to reach 3 percent.
The need to maintain economic growth exhausts irreplaceable environmental resources such as water, forests, and clean air. Our energy use and production promotes climate change and pollution. Growth gradually becomes more difficult, and the risk of loan default and financial collapse increases. That is the price we pay, and the dilemma we created, by granting to private interests the right to lend money into existence as interest-bearing debt.
It’s an ill wind indeed that doesn’t blow money in someone’s direction. Because lending and debt continue to increase (as they must to avoid a total economic collapse) and economic growth continues to slow, some must be repaid before others. Who is getting more interest than they pay out? Who are net debtors, and who are net creditors?
The answer is that the top 1 percent pay about 6 percent of the total interest, but collect over 50 percent; the bottom 90 percent receive about 12 percent and pay over 76 percent. Our analysis shows that the bottom 99 percent are essentially working to earn the interest on their debt, and that this interest goes to the 1 percent. Governmental “austerity programs” take from the bottom and give to the top, paying off net creditors, and leaving less and less for health, education, labor, environmental remediation and other programs that benefit net debtors.
In conclusion, our present financial system, by lending money into existence as interest-bearing debt, necessitates the massive accumulation of debt that can never be repaid. The original loan to the British Crown has never been repaid, for to repay it would destroy the foundation of the British monetary system. Furthermore, debt divides society into net debtors and net creditors and promotes a new form of debt servitude. Debt as Power suggests a political strategy to address the increased risk of economic collapse and the hardships now imposed on the vast majority of the global population.
By Richard H. Robbins, Department of Anthropology SUNY at Plattsburgh Plattsburgh, NY
Debt as Power: https://www.manchesteruniversitypress.co.uk/9781784993252/