Guest Post: The Road To Debt-Serfdom

Tyler Durden's picture

Via Charles Hugh-Smith of OfTwoMinds blog,

Ours is a dysfunctional debt-based Empire that buys the complicity of its debt-serfs with entitlement bread and circuses.

The road to debt-serfdom is paved by the banks and enforced by the Central State.If there is any point that is lost on ideologues, Progressive and Conservative alike, it is this: the first-order servitude and second-order tyranny of debt-serfdom can only occur if the banks' power is extended and protected by an expansive Central State.
Progressives are blind to the State's essential role in creating and empowering a parasitic financial Aristocracy, and Conservatives are blind to the tyranny of debt-serfdom imposed by the private-sector financial Aristocracy, i.e. the banking sector.
Answer these questions before reaching for your ideological blanket:
1. How many banks would loan penniless, near-zero-income students $100,000 if the State did not backstop and ruthlessly enforce its parasitic, exploitive "student loan" programs? Answer: none.
The consequence if the tyrannical State ceased to enforce the debt-serfdom of Student Loans: the Education Cartel would collapse in a odoriferous heap, and the banking Aristocracy would be stripped of a highly profitable State-run business.
2. Under what conditions would banks originate mortgages if the State did not guarantee mortgages via FHA and the other socialized-mortgage agencies? Answer: 30% to 35% down, hefty points and a higher rate of interest than FHA loans.
We can find the answer by examining the conditions banks demand for non-State backed loans. If the State wasn't backstopping the risk, what bank would be insane enough to originate a 30-year fixed mortgage at 1 point over official inflation and a negative rate when measured in real inflation? It makes no sense without State subsidies and guarantees.
What percentage of the mortgage market is purely private, i.e. not backstopped by FHA et al.? About 5%, and the terms of these private loans are considerably stiffer than those originated under the taxpayer-funded umbrella of FHA.
In other words, debt-serfdom is not possible without the State enabling and enforcing the banks' power. Blaming the banks for imposing debt-serfdom is like blaming the junkie for picking up a free bag of smack or a shark for wolfing down a seal: the banks will pursue the fattest, easiest profits out of basic self-interest, just like the rest of us.
If the banks can capture the State's regulatory and political machinery for a modest investment in bribery (oops, I mean political contributions, lobbying and revolving-door positions), then why wouldn't they do so?
The problem is thus not the banks' power, it is the State's power, as the State confers and enforces the banks' power.
There is precious little evidence that anyone in the current political Aristocracy has read the Federalist Papers, other than to pass an exam, and more's the pity. That a State run by people whose grasp of American history extends all the way back to the previous election cycle (or in extreme cases, to the Reagan era that began in 1981) is dysfunctional is unsurprising.
Madison feared both a central bank and a presidency that morphed into a functional monarchy. Madison's fears of a central bank were shared by his decidedly non-Federalist friend Thomas Jefferson, whose vision of a rural, localized America generally ran counter to the Federalists' keen awareness that a strong central state was necessary to provide for a defense of the nation and to act as an impartial enforcer of transparent markets and a prudent money/credit system.
(I say generally, as Jefferson was persuaded to execute the Louisiana Purchase, a decidedly Federal project of expansion, and he kept the Bank of the United States intact under his able Secretary of the Treasury, Albert Gallatin.)
The proper role of the Federal government in Madison's view was to act as a "disinterested and dispassionate umpire between different passions and interests."
In my analysis, the political Aristocracy running the U.S. has fulfilled Madison's nightmare, as it effectively operates a monarchical Empire on the Roman model.Though Louis XIV of France famously held that "L'etat, c'est moi"-- the state, it is me-- in the Roman and British empires, the monarchy/emperor system was a functional oligarchy in which the supposedly absolute monarchy/emperor had to consider the views and interests of the aristocracy.
A monarchical Empire is thus operated by a small aristocracy with a shared world view (i.e. Empire) and a very limited spectrum of opinions: that is the American Central State in a nutshell.
Alexander Hamilton, also a Federalist, understood the critical role of credit in fueling innovation, expansion and trade. He favored a central bank that issued sound money and prudent credit, on the 1780s Bank of England model. That the central bank would become the subservient handmaiden of private investment and commercial banks was incomprehensible.
Here is what has been lost in the debt-serf America we now inhabit: Albert Gallatin observed that America's rapid, diversified economic development resulted from "the absence of those systems of internal restrictions and monopoly which continue to disfigure the state of society in other countries."
If only our "leaders" read or understood Madison, Hamilton and Gallatin. But alas, they are supremely ignorant Oligarchs through and through, pleased to enforce debt-serfdom and then buy the complicity of the serfs with Federal entitlements and subsidies.

That too is the Roman model: a dysfunctional debt-based Empire ruled by a self-serving Elite which buys the complicity of its serfs with bread and circuses.

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GetZeeGold's picture



Progressive and Conservative alike


The Progressive Conservatives are the real wit, Newt's moon base. Sure.....we have money for that.

zorba THE GREEK's picture

Question #3....How many bankers were alive in France after the French Revolution?

GetZeeGold's picture



That's actually illegal to talk about in France. Ann Barnhardt has a hell of a presentation on it. 450K dead.....not a single banker was even scratched.

overmedicatedundersexed's picture

if you have not seen drudge this AM go there the fly and obuma is the soul of obuma - reminds one of the terror movies about evil seen with insects and such crawling over the faces of the damned

God Bless The Virtuous's picture

And for those of us who believe in God,

The Devil and

shit to!

Shizzmoney's picture

Dean Baker even compared the DOJ to the Soveit Union today, when compairing it's pursit of Aaron Swartz vs Wall St:

Swartz may have broken the law with his actions. If he did, he broke the law in the same way that people selling blue jeans on the black market in the Soviet Union broke the law. In both cases the actions could be deemed harmful to a system that relies on archaic restrictions. In the case of the Soviet Union, a system of rigid central planning; in the case of the United States a horribly archaic and inefficient system of copyright protections.

JR's picture

There’s a trick in your presentation. First, principles one can agree with are stated and then comes the knife in the stomach of the Constitution. This is the action that should be deemed harmful.

The US patent system was the critical part of America’s emphasis on property rights, the very key to the function of the country. The latest attempts to divide and conquer the true meaning of the free enterprise society have been to make a revision (overturn) of patent protections for entrepreneurs.

The banker-corporatists with their elaborate computer systems, legal teams, and political connections are drastically abusing the current patent system for their own profit while attempting to override and eliminate patent protections for smaller businesses and competitors.

Our Founders gave the spring to invention to Americans when they included in the United States Constitution the provision “to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.”

This right of inventors is uniquely American and from it America reaped the spectacular results that are now being off-shored to China with our manufacturing base and then the products they produce by low wage labor unloaded off her ships back onto our shores.  A 1997 study of the inventors honored in the National Inventors Hall of Fame in Akron, Ohio, revealed that 91% of the world’s greatest inventors worked in America and only 9% in other countries. Freedom and America’s superior patent system are what gave men the incentive to burn the midnight oil for a chance to own a property right in their own invention. Now, with the Globalists in charge of America, that is all changing.

Nor is it told of the Globalists’ plans to give away those U.S. patents for their foreign harvesting, or the fact that by 2006, the U.S. Patent Office to the detriment of US  inventors had placed 1,271,000 patent applications on the internet, creating a gold mine for China to steal U.S. innovations and get to market quickly.

 Have we grown so blind to freedom that we no longer can price its value?

SamAdams's picture

It is also illegal in France to question the holy-hoax.  6M gassed when 6M didn't exist in the entirety of the Euro-region, what didn't you read the Soviet news?  Don't ever question the tribe, they know what they are doing.  Meanwhile, liberals and conservatives throw stones in a futile attempt to convince the other who is right, irony being neither has a clue.  Same as it ever was, play both sides against each other while the real problem stands back in the shadows.  Kill those damn Muslims, Kill those damn Christians, Kill those damn jews.  Same as it ever was....

percolator's picture

It's called FASCISM.

Dick Buttkiss's picture

When the Central State begins defaulting on it "bread and circuses," as it inevitably will, the serfs will turn on it. That they will turn on themselves in the process -- looting, rioting, and worse -- is what the prudent person should prepare for. 

And guns will be needed accordingly.

holdbuysell's picture

This is why the droughts of last year that are continuing into this year could cause a tipping point with potential food shortages and dramatically higher prices.

SamAdams's picture

Looks like inflation to me.  Compare that chart with the price of Gold since '71.  But yes, your wages have not kept with the beat.  Daddy made a lot of money in the 60's and 70's.

Ignatius's picture

" If only our "leaders" read or understood Madison, Hamilton..."

They 'understand' plenty.  Money is green, for instance.

There is no principal that needs to be understood....  The thieves are in charge.

francis_sawyer's picture

 "That too is the Roman model: a dysfunctional debt-based Empire ruled by a self-serving Elite which buys the complicity of its serfs with bread and circuses"


There are certain classes [who went out of their way to NOT consider themselves 'Romans' ~ in Roman Times & who, in fact, fought tooth & nail against Romans & made every effort to distinguish themselves otherwise] that are ALL TOO HAPPY to have a prominent seat at the table this time around [& fuck everyone else]...

Some would call that 'hypocrisy'...

overmedicatedundersexed's picture

one solution is break up of mega gov..not that it would happen lincoln may he roast in hell set the mega gov in stone it only took the lives of hundred of thousands of our youth.

it is so comical the left speaks diversity but lusts at central power systems .gov is not even too big for them.

kridkrid's picture

Oh, I think it could happen.  States like Texas, the Dakotas, Utah, etc.  I don't think we'll fight a civil war over it. 

LongSoupLine's picture

In conclusion...

Fuck you Bernanke, Congress, Geithner and Obama.

Eat steaming hot shit assholes.

Ljoot's picture

Gallatin=goyim? What's up with that??


rsnoble's picture

How to become a debt serf in the US in one easy step: Be born.  You will have 95% odds of succeeding with no effort at all.

Spastica Rex's picture

"Don't blame the banks!"

Shizzmoney's picture

Look at this shitstain David Axelrod treating us like fools:

POTUS pick of tough ex-prosecutor Mary Jo White to head SEC is strong signal to those on Wall St. who would game system. Tough cop on beat!

A "tough cop on the beat."

A WOMAN, none the less. 

Only a dumb Obamabot would think a woman, who worked DEFENDING Wall St, and big corporations (like the NFL), could rangle in the likes of Jaime Dimon.

What a fraud.



rsnoble's picture

Oh and once again this explains just how unworthy the current system is and how we'll always be at risk for complete total collapse because it's all pure bullshit.

venturen's picture

Good thing there is no inflation.

bigbwana's picture

The documentary THRIVE exposes the Banks and their evil NWO. Never happen. Thank God!

polo007's picture

Oaktree Capital's Howard Mark's most recent memo titled Ditto

polo007's picture

The 2007 Federal Open Market Committee (FOMC) transcripts were released last week. Media reports have concentrated on the Fed's forbearance during the credit meltdown. Implied, but not stated (in what I have read) is the major reason for such nonchalance: The Fed only acknowledges flows, not stocks. This might sound boring. It is also very important to understand.
This approach to central banking has not changed. All of the major central banks use the same framework. The media and Wall Street spend most of their time interpreting the meaning of central-bank talk. Central banks will never mention a growing concern about loan defaults since the academics can always thwart potential catastrophes by modeling preventive flows (e.g., liquidity). The catastrophic financial failure that most of us endured in 2007 and 2008 was not a failure at all, according to central bankers. Their models still conclude there is always a central-banking solution that will prevent any catastrophe. In conclusion: when the current financial bubble topples, there will no forewarning from central bankers, the media, or Wall Street. Given their processes of thinking, they will be more surprised than the average hairdresser.
"Stocks," in this case, does not refer to common stocks, but the accounts and categories in which assets (and their liabilities) accumulate. The Fed, a creature of academia, knows everything. Knowing everything limits policy to sufficient "liquidity": flows. It - to be more precise - its DSGE model, does not care about accumulations: stocks.
The Fed was taken unaware when credit cracked up in the summer of 2007. Unlike many local realtors and carpenters, the FOMC did not understand the connection between flows (bad loans pouring into off-balance sheet Special Investment Vehicles) and stocks (of mushrooming mortgage credit going sour). The Fed presumably noticed pieces of the mortgage machine (subprime lenders, appraisers, Fannie Mae, commercial banks, investment banks, CDOs) even though it did not comprehend the artificiality of this contrived structure. Hence, the Fed missed the connection between the economic expansion of the mid-oughts and its artificial nature. (As we know now, the Fed does not blanch at running an economy by rigging its prices, so, we know now, central banks do not understand an artificial economy is unsustainable.)
All of which is to say the Fed and its FOMC did not know a loss of forward momentum would be followed by an abrupt shift to backward momentum. Again, this has not changed. Despite talk of deleveraging, the U.S. economy has continued to lever up since the non-catastrophe of 2007 and 2008. Total non-financial debt has risen from 240% of GDP in the fourth quarter of 2008 to 249% of GDP after the second quarter of 2012.
The Fed does not understand the artificial credit created by central banks that has flowed since 1971 has coagulated into unsustainable imbalances around the world. The FOMC will be in the caboose when government debt loses its imaginary, "riskless" character (e.g., banks do not need to reserve against most sovereign bonds). As in 2007 and 2008, the stated price of artificially produced assets is illusory, so the assets cannot stand on their own without ever increasing flows to support prices. The flows accumulate in stocks, the artificial composition of which will topple.

nantucket's picture

everybody should be an owner of a business or run a bank.  boom.  problem solved.

nantucket's picture

uuuuhhhhhh   it was a joke/sarcasm

Banjo's picture

YOU ARE  the government. Blame BANKS HELL YES. they lie and lobby using our money against our interest

Chump's picture

We may deserve the government ruling over us, but we are no longer that government.

polo007's picture

The minutes from the Federal Open Market Committee’s Dec. 11-12 meeting show participants were “approximately evenly divided” between those who said it would be appropriate to end the purchases around mid-2013 and those who said they should continue beyond that date. A number of policy makers are concerned the size of the Fed’s holdings “could complicate the Committee’s efforts to eventually withdraw monetary policy accommodation,” according to the minutes.

The central bank’s balance sheet has provided record windfalls to the U.S. Treasury. The Fed uses interest income from its bond holdings to cover its own expenses and sends the rest to the Treasury. In 2012, that dividend to taxpayers was $88.9 billion.

One risk from a large balance sheet is the possibility that the Fed’s interest income could evaporate in coming years as rates rise, according to a paper released last week written by researchers in the Fed’s monetary affairs division. The paper studied different scenarios and concluded that the central bank’s payments to Treasury “will likely decline for a time, and in some cases fall to zero.”


porcsale's picture

Saying that progressives are blind to the whims of aristocracy is utter ignorance.

You think black people didn't know the state was behind slavery? You think women aren't aware they once weren't legally recognized as PERSONS? There are countless more examples of these people that make up the progressive movement being at arms with the establisment.

I can show you decades of publications relating the struggle of the minorities and impoverished against the people at the top. Relatively speaking, you've been in the game for 2 minutes you whiny child.

Stop projecting the ignorance you once had onto others. You're just speaking about it. We've taken the worst hits (fiscal, physical, legal)  BY FAR.


JR's picture

Racism, out of control mobocracy, and radical progressives full of themselves like never before have this country by the throat. Who’s projecting ignorance? Who’s projecting racism? You!

In 1808 a law went into effect in the United States forbidding the importation of slaves.

And “there were white slaves long before any blacks were enslaved, except by the own people," according to author Louis L’Amour. “Even the word slave came from ‘Slav” because some of the early Roman slaves were from Slavic countries. “

The re-election of Barack Obama makes the progressive movement, literally, an enemy of the state for those they propose to financially rape for their constituencies, giving Obama and the investment bankers the power to select progressive ideas and push them into national policy: gay marriage, open borders, women in combat, unrestricted support for teachers unions, opposition to English only programs, high taxes for universal health care, removal of all restrictions on abortion...but they won't select the progressive movements good ideas such as opposition to banker-controlled government.

Early on, opposition to the slave trade, whatever color, began in Britain, America, Portugal and in parts of Europe, According to Wikipedia on the Atlantic Slave Trade:

"Opposition to the trade was led by the Religious Society of Friends (Quakers) and establishment Evangelicals such as William Wilberforce. The movement was joined by many and began to protest against the trade, but they were opposed by the owners of the colonial holdings.[114] Following Lord Mansfield's decision in 1772, slaves became free upon entering the British isles.[115] Under the leadership of Thomas Jefferson, the new state of Virginia in 1778 became the first state and one of the first jurisdictions anywhere to stop the importation of slaves for sale; it made it a crime for traders to bring in slaves from out of state or from overseas for sale; migrants from other states were allowed to bring their own slaves. The new law freed all slaves brought in illegally after its passage and imposed heavy fines on violators.[116][117] Denmark, which had been active in the slave trade, was the first country to ban the trade through legislation in 1792, which took effect in 1803. Britain banned the slave trade in 1807, imposing stiff fines for any slave found aboard a British ship (see Slave Trade Act 1807). The Royal Navy, which then controlled the world's seas, moved to stop other nations from continuing the slave trade and declared that slaving was equal to piracy and was punishable by death. The United States Congress passed the Slave Trade Act of 1794, which prohibited the building or outfitting of ships in the U.S. for use in the slave trade. In 1807 Congress outlawed the importation of slaves beginning on January 1, 1808, the earliest date permitted by the United States Constitution for such a ban..."

Et cetera….

Porcsale, better think twice before you put into words an attack on one of the latest, greatest defenders of the American common man, Charles Hugh-Smith, who has always given fair play to workable progrssive ideals.

porcsale's picture

As if those laws had prevented police and local courts to continually overlook citizens' rights. And attacking Charles Hugh-Smith? That's not anywhere near addressing my point.

el Gallinazo's picture


CHS, I am usually a fan of yours, even bought one of your books, but this is a really dumb ass article.  You separate the banking cabal from the government and this lies at the core of this misdirected article.  The government is simply, with incredibly rare exception, the (when convenient) lethal coercive force executor of the elite's interest. It is Chairman Mao's power from the muzzle of a gun.   If one cannot see from Ron Paul's last campaign how the moneyed interest has divorced the so-called government from any semblance of responsiveness to the will of the people whom lie under its heavy hand, then one is truly blind.  The agenda of the global elites is quite clear and probably best summarized in kingfish David Rockefeller's memoirs.  The government and the banking interests are one, and any attempt toward a mythical separation is disinformational - whether intentional or otherwise.  


The elites are quite prepared to do violent battle with any libertarian revolutionary group.  They control the most powerful military that the world has ever seen and also have quasi secret additional weapons in their back pockets based on Tesla technology.  What they fear and are not prepared for is the majority of people to start to ignore them and set up peer-to-peer community relationships with each other.  As Dmitry Orlov once quipped, "Paying attention to them [as in elections], just encourages them."


falak pema's picture

the NWO is an international neo feudality that has gone trans national in its actions, planned and preprared since the monetary debacle of 1971 occured, along with Arab oil cartel pumping the riches of west to that region. Pax Americana decided then : If you can't beat them join them and use them to become "off shored" and "outsourced" selling your own down the river. We got that in Reagan-Thatcher years and have never looked back. 

The debt serfdom is now targetted for the middle class of first world as the biggest consumers of energy, goods and generators of deficits and debt; also rich ageing BBoomers, so good muppets for being fleeced.

The NWO will shed their piggy backing of this donkey to put their bets elsewhere in Africa, SAmerica and Asia.

The fact that they be citizens of these zones is no longer an impediment; their money is safe and growing as they follow the model of global growth and pump it out of first world into third world.

The fatal mistake is to think these people belong to first world; we belong to them as debt slaves.

The irony is that this model was spawned in the land of free market economy that had just defeated the centrally planned command economy of the Soviets. The timing and psychlogical mood was perfect to do an about turn behind the curtain.

You can't get more Machiavellian than that! As DOn Corleone would say : Its only business! 

disabledvet's picture

You have to have an asset to back all that debt...and that asset is oil

Pseudolus's picture

Road to serfdom?

We've always been on it, whats new?

Maybe the growing realisation that we ourselves are and have been building the road ahead...

Fed Gov, States (incorporated), Banks, MNC's, whatever. Its just a modern and sophisticated form of control: composite multi-level governance.

Ask Walter Burien: its the oldest game in town


Bob Sacamano's picture

Borrowers could stop borrowing money.  That would also take care of the problem. 

I know -- but then we might not have our cable tv, eat out, two cars, movies, vacations, pets, world-leading house size, more than 3 pairs of shoes, etc

S.N.A.F.U.'s picture


If the State wasn't backstopping the risk, what bank would be insane enough to originate a 30-year fixed mortgage at 1 point over official inflation and a negative rate when measured in real inflation?

Real inflation only matters to people who loan out money they actually have (and will have again when the loan is paid off).  Real inflation doesn't matter to banks which loan out money that they conjure out of thin air (and which will simply cease to exist when the loan is paid off).

Of course, this is just another government intervention on behalf of the banks -- the banks are granted this power to simply conjure up money while the common citizen is not allowed any such power.

That the central bank would become the subservient handmaiden of private investment and commercial banks was incomprehensible.

Only if by "incomprehensible" you mean "blatantly obvious".