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Why Is Debt The Source Of Income Inequality And Serfdom? It's The Interest, Baby

Tyler Durden's picture





 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

"Governments cannot reduce their debt or deficits and central banks cannot taper. Equally, they cannot perpetually borrow exponentially more. This one last bubble cannot end (but it must)."

I often refer to debt serfdom, the servitude debt enforces on borrowers. The mechanism of this servitude is interest, and today I turn to two knowledgeable correspondents for explanations of the consequences of interest.

Correspondent D.L.J. explains how debt/interest is the underlying engine of rising income/wealth disparity:

Here is a table of the growth rate of the GDP.

If we use $16T as the approximate GDP and a growth rate of, say, 3.5%, the total of goods and services would increase one year to the next by about $500B.

Meanwhile, referencing the Grandfather national debt chart with the USDebtClock data, the annual interest bill is $3 trillion ($2.7 trillion year-to-date).

In other words, those receiving interest are getting 5-6 times more than the increase in gross economic activity.

Using your oft-referenced Pareto Principle, about 80% of the population are net payers of interest while the other 20% are net receivers of interest.

Also, keep in mind that one does not have to have an outstanding loan to be a net payer of interest. As I attempted to earlier convey, whenever one buys a product that any part of its production was involving the cost of interest, the final product price included that interest cost. The purchase of that product had the interest cost paid by the purchaser.

Again using the Pareto concept, of the 20% who receive net interest, it can be further divided 80/20 to imply that 4% receive most (64%?) of the interest. This very fact can explain why/how the system (as it stands) produces a widening between the haves and the so-called 'have nots'.

Longtime correspondent Harun I. explains that the serfdom imposed by debt and interest is not merely financial servitude--it is political serfdom as well:

As both of us have stated, you can create all of the money you want, however, production of real things cannot be accomplished with a keystroke.

Then there is the issue of liberty. Each Federal Reserve Note is a liability of the Fed and gives the bearer the right but not the obligation to purchase — whatever the Fed deems appropriate. How much one can purchase keeps changing base on a theory-driven experiment that has never worked. Since the Fed is nothing more than an agent of the Central State, the ability to control what the wages of its workers will purchase, is a dangerous power for any government.

If a Federal Reserve Note is a liability of the central bank, then what is the asset? The only possible answer is the nations productivity. So, in essence, an agent of the government, the central bank, most of which are privately owned (ownership is cloaked in secrecy) owns the entire productive output of free and democratic nation-states.

People who speak of liberty and democracy in such a system only delude themselves.

Then there is the solution, default. That only resolves the books, the liability of human needs remain. Bankruptcy does not resolve the residue of social misery and suffering left behind for the masses who became dependent on lofty promises (debt). These promises (debts) were based on theories that have reappeared throughout human history under different guises but have never worked.

More debt will not resolve debt. The individual’s liberty is nonexistent if he does not own his labor. A people should consider carefully the viability (arithmetical consequences) of borrowing, at interest, to consume their own production. The asset of our labor cannot simultaneously be a liability we owe to ourselves at interest.

Thank you, D.L.J. and Harun. What is the alternative to the present system of debt serfdom and rising inequality? Eliminate the Federal Reserve system and revert to the national currency (the dollar) being issued by the U.S. Treasury in sufficient quantity to facilitate the production and distribution of goods and services.

Is this possible? Not in our Financialized, Neofeudal-Neocolonial Rentier Economy; but as Harun noted in another email, Governments cannot reduce their debt or deficits and central banks cannot taper. Equally, they cannot perpetually borrow exponentially more. This one last bubble cannot end (but it must).

What we are discussing is what will replace the current system after it self-destructs.

 


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Wed, 11/27/2013 - 16:02 | Link to Comment eatthebanksters
eatthebanksters's picture

What I find truly deplorabe is not that we are a credit based economy, but that in the face of evidence showing the effect of too much credit, lenders still figure out how to issue more debt, only to be bailed out by the taxpayer.  Wealth redsitributon plan?

Wed, 11/27/2013 - 16:07 | Link to Comment MillionDollarBogus_
MillionDollarBogus_'s picture

Interesting to read about debt servitude on a web page that has ads offering to sell me stuff I don't need..

Right...

Wed, 11/27/2013 - 16:15 | Link to Comment superflex
superflex's picture

Either you can just surf your own blog and smell your own farts (I assume these are one in the same), or quit your bitching.

Wed, 11/27/2013 - 16:19 | Link to Comment darteaus
darteaus's picture

Both of those options sound better than my current gig.

Wed, 11/27/2013 - 17:29 | Link to Comment 0b1knob
0b1knob's picture

??????????????   Interest is the cause of inequality?

Then Zero Interest Rate Policy = Zero Inequality Policy?   Somehow I don't think that's what you mean.

And what about the trillions of dollars stolen from savers, IRAs, pension funds etc. by zero interest rate policy?

 

Thu, 11/28/2013 - 02:31 | Link to Comment 0z
0z's picture

Can they stop posting from this Facist's blog already?

Wed, 11/27/2013 - 16:23 | Link to Comment MarsInScorpio
MarsInScorpio's picture

Dear MDBogus:

 

Just because you don't need them, doesn't mean nobody needs them.

 

You are equating your needs as monolithically identical to those of all people.

 

That takes a lot of ego . . .

-30-

 

Wed, 11/27/2013 - 16:35 | Link to Comment eatthebanksters
eatthebanksters's picture

Elitists think they are uniqely qualified to understand the needs of the masses versus the letting the masses speaking for themselves.  Example: Obamacare.  Do you think it would have ever passed if they had been truthful from the beiginning?  Nah,  it's just that Obama, Reid and Pelosi know whats best for all of us.

Wed, 11/27/2013 - 17:33 | Link to Comment James-Morrison
James-Morrison's picture

Obama, Reid and Pelosi knew what was best for themselves and their handlers.

We were just brought along for the ride, as in mules and sheeple.

Wed, 11/27/2013 - 17:24 | Link to Comment TheGardener
TheGardener's picture

Interest used to be the arbitrage upon the lazy.

They work, no more, as they are paid and unwillingly stay on course.

They work to live, so make life as unattractive to leave
them on the score.

Advance them money to make their future life worth while,
have `em an unpaid home, not cared for wife and children.

Make them fell guilty for their dependents and you have perfect slaves.

Wed, 11/27/2013 - 16:03 | Link to Comment bugs_
bugs_'s picture

those who have access to ZIRP

and those who do not

Wed, 11/27/2013 - 16:13 | Link to Comment Againstthelie
Againstthelie's picture

ZIRP is only the final stage, when the real economy can't grow fast enough anymore, to produce the compound interest, to rescue the compound interest debt slavery.

Wed, 11/27/2013 - 16:04 | Link to Comment JoBob
JoBob's picture

After the current system self-destructs, the last thing i'm going to be worrying about is what financial system the next central government is going to impose. That solution will be so far in the future after the apocalypse none of us will be around to see it.

Wed, 11/27/2013 - 16:34 | Link to Comment HardlyZero
HardlyZero's picture

Lambay Island (Irish) may be safe.  New business venture...list of ancient inhabitable islands.  Foundation laid 1000 years ago.

Woman: Dennis!  There's some lovely filth down 'ere!
(noticing Arthur) Oh!  'Ow'd'ja do?
Arthur: How do you do, good lady.  I am Arthur, king of the Britons.  Whose castle is that?
Woman: King of the 'oo?
Arthur: King of the Britons.
Woman: 'Oo are the Britons?
Arthur: Well we all are!  We are all Britons!  And I am your king.
Woman: I didn't know we 'ad a king!  I thought we were autonomous collective.
Man: (mad)  You're fooling yourself!  We're living in a dictatorship!  A self-perpetuating autocracy in which the working classes--
Woman: There you go, bringing class into it again...
Man: That's what it's all about!  If only people would--
Arthur: Please, *please*, good people, I am in haste!  WHO lives in that castle?
Woman: No one lives there.

Wed, 11/27/2013 - 16:05 | Link to Comment scrappy
scrappy's picture

"Usury, economic rent, and taxation of labor are causes of poverty and political turmoil. If the institutions of usury and rent are used to provide for the public good rather than the taxation of labor, poverty and political turmoil can be ended."

"Fractional reserve banking should be replaced with public debt-free notes. Ending fractional reserve banking with public debt-free notes would enable the government to pay off the national debt and end income taxation. The banking lobby would be rendered ineffective. Those who lobby for interest-bearing national debt would be rendered ineffective. There would be no boom/bust cycle if the banking industry could not expand and contract money supply through fractional reserve banking. Nobody could collect interest on monetary expansion and receive bailouts during a credit crunch. There would be no wasteful, deficit spending if nobody could collect interest on such. Government would regulate the supply of money to allow for economic growth without the need for interest-bearing money created out of credit. Government would engage in inflationary printing to provide emergency spending rather than sell interest-bearing bonds to the wealthy and powerful interests."

Source: To read the full article go to...

https://libertyrevival.wordpress.com/2011/01/09/ending-poverty-and-polit...

Wed, 11/27/2013 - 16:05 | Link to Comment ILLILLILLI
ILLILLILLI's picture

Damn money-changers...

Someone should do something about it.

Wed, 11/27/2013 - 17:26 | Link to Comment chemystical
chemystical's picture

 

publican: 1.  a Jewish tax collector for the ancient Romans

http://www.merriam-webster.com/dictionary/publican

"Get your denarius and drachma here.  Can't pay your taxes in shekels." 

Kinda like needing to pay your taxes in USD.   Btw, if the Fed printed only $1000 in USD, and then lent me that $1000 at 10% interest, where oh where could I ever get $1100 USD to pay that back??  "Oh, I understand now; you'll print the other $100.  And exactly how can I get that other $100?  Oh, I see, you'll lend it to me."

Some things never change.

"And Jesus went into the temple of God, and cast out all them that sold and bought in the temple, and overthrew the tables of the moneychangers, and the seats of them that sold doves".  Found in all 4 Gospels.

...and that didn't end too well for him.  Despite THAT particular ending, I wonder whether that Jesus guy plans to return anytime soon for a repeat performance.

 

 

Wed, 11/27/2013 - 17:29 | Link to Comment chemystical
chemystical's picture

...this time instead of the kosher crowd clamoring for the Romans to release Barrabus, they'll probably be shouting for the release of Jonathan Pollard.

Wed, 11/27/2013 - 18:57 | Link to Comment DeadFred
DeadFred's picture

I hear the solution has already been ordered up and its delivery will be very soon. Cant wait to see the surprised looks when it shows up on the doorstep.

Wed, 11/27/2013 - 16:09 | Link to Comment CheapBastard
CheapBastard's picture

"If you like your Serfdom, you can keep your Serfdom."

Wed, 11/27/2013 - 16:14 | Link to Comment lolmao500
lolmao500's picture

The more money you have the more you can make.

When you're poor, the system is designed so you stay poor or even get even poorer.

The whole system is made by the rich for the rich.

Wed, 11/27/2013 - 16:18 | Link to Comment darteaus
darteaus's picture

Debt is NOT!! the problem. Using it to buy something that does not generate a return or-worse yet-something that goes down in value or-worst-something that requires additional cash IS THE PROBLEM.

Borrowing money to buy something that goes up in value or generates cash above the cost of borrowing IS BENEFICIAL.

PRUDENT use of debt is a route to wealth.

Wed, 11/27/2013 - 17:05 | Link to Comment ForTheWorld
ForTheWorld's picture

Based on your logic, purchasing a car is the worst thing someone can do, because unless you're using a car (or some other vehicle) as part of a business venture, then all the extra cash you require to maintain it makes it the worst thing you could purchase.

The larger problem though - if you borrow money to purchase something that goes up in value (even if there is no interest attached), then extra money has to be created somewhere down the line, because when you sell the item to pay back the lender, you've got extra money. Of course, the money came from someone else, but they would have done the same thing as you, and so on. Money needs to be created to pay you, and everyone else their profit. Then, repeat the cycle over and over.

It's the unbridled creation of money (and indirectly through interest) that's the problem, which, as I read it, is what the author wants to say.

Wed, 11/27/2013 - 16:20 | Link to Comment dick cheneys ghost
dick cheneys ghost's picture

This ''plantation script'' that we are forced to use is not a law of nature.......one day it will die and so discussing what will replace it is a very important exercise......

~~~

Wed, 11/27/2013 - 17:40 | Link to Comment dick cheneys ghost
dick cheneys ghost's picture

 

''The following are excerpts from Lincoln’s Monetary Policy from Senate Document No. 23. It’s sourced from uhuh.com. “The monetary needs of increasing numbers of people advancing toward higher standards of living can and should be met by the Government. Such needs can be served by the issue of national currency and credit through the operation of a national banking system. The circulation of a medium of exchange issued and backed by the Government can be properly regulated and redundancy of issue avoided by withdrawing from circulation such amounts as may be necessary by taxation, redeposit, and otherwise. Government has the power to regulate the currency and credit of the nation. Government should stand behind its currency and credit and the bank deposits of the Nation. No individual should suffer a loss of money through depreciated or inflated currency or bank bankruptcy. Government possessing the power to create and issue currency and credit as money and enjoying the right to withdraw both currency and credit from circulation by taxation and otherwise, need not and should not borrow capital at interest as the means of financing governmental work and public enterprise. The Government should create, issue, and circulate all the currency and credit needed to satisfy the spending power of the Government and the buying power of consumers. The privilege of creating and issuing money is not only the supreme prerogative of Government, but it is the Government’s greatest creative opportunity.” As you now know, the Government didn’t listen to Abraham Lincoln as it has illegally farmed its Money Creation Duties out to a private bank called the Federal Reserve.''

 

http://www.zerohedge.com/article/stuff-conspiracy-theories-are-made-emer...

can someone explain to me why this would not work???

Wed, 11/27/2013 - 18:35 | Link to Comment debtandtaxes
debtandtaxes's picture

The question is not "will it wor?" but "who will it work for?" The answer tells you why the suggested system has not been permitted to be put in place.

Wed, 11/27/2013 - 16:28 | Link to Comment ultraticum
ultraticum's picture

Fiat combined with fractional reserves = serfdom for the masses and riches for the banksters.  Simple formula:  If I can lend something, at interest, which I created out of thin air, my actual interest rate on capital hold I own is astronomical.  If the poor schmuck on the other side defaults . . . . guess what?  I get the assets - for which I created the money to lend/foreclose out of thin air.  Oh . . . and I also get bailouts when F-E-A-R grips the country and its corrupt officials.  What a great system.  /s

Wed, 11/27/2013 - 16:35 | Link to Comment csmith
csmith's picture

"This very fact can explain why/how the system (as it stands) produces a widening between the haves and the so-called 'have nots'."

Default or jubilee solves all of this. Let it happen and we'd be better off for Chrissakes...

"Bankruptcy does not resolve the residue of social misery and suffering left behind for the masses who became dependent on lofty promises (debt)."

Depends. If default happens en masse through the banks (with no basic level of insurance), then massive suffering ensues. Much different from the SELECTIVE honoring of obligations (i.e.; bank bonds paid 100 cents on the dollar) which occurred in 2008. If these had failed, no massive suffering whatsoever; just a bigger decline and eventual rebound. BUT WE WOULD HAVE BEEN GROWING BY NOW!

Wed, 11/27/2013 - 16:37 | Link to Comment Goldilocks
Goldilocks's picture

KC & The Sunshine Band - That's The Way (I Like It) [HQ with lyrics]
http://www.youtube.com/watch?v=q3svW8PM_jc (3:04)

Wed, 11/27/2013 - 16:39 | Link to Comment kevinearick
kevinearick's picture

Thanksgiving

You have to learn to look at the data for your self. The majority always chooses stupid, until it can’t, seeking security in self-serving numbers, exploiting each other. All you have to do to blow up the system is set your distance. Don’t waste your time. Life is not a leisure activity.

If you look, you will see that we are going to reboot with a 24 hour workweek, transparent government and the means to your privacy. Educate your self. Multiply your God-given talents and you will prosper.

Your fate will be determined by how you discount money and property among yourselves, not by majority vote. Government fiscal and monetary policy nets out to legacy capital, so what? Monetary policy in and of itself is a reductive process, irrelevant to labor except as the ground.

Invest beyond the horizon of capital and collect your return when capital grows and contracts its middle class to meet it. Always work two bridges ahead, so you have a motor ready to go. For labor, democracy is about enabling your children to make their own choices, not certifying their outcomes, circumscribed by replication of economic slavery in a ponzi economy.

Choose a spouse that multiplies your effectiveness, timing, not your efficiency. Appreciate what you have and more will come your way, by process of addition by elimination. The saddle rotates with expansion and contraction, leaving the empire behind, working against itself until the load drops. The critters have no idea what’s going to blow up in their face next. Ruminate on that while you wire up.

The Parable of Talents is the mirror. It takes two to climb. You have responsibilities associated with the integral development of life. You are not responsible for the decisions of others; let God sort them out. If you defer responsibility, you may only become a slave to derivatives; choice matters not. Your children belong to God, not to the State.

Empire is not your enemy. A derivative spy education controller does not increase vision; it maps the inside of an irrelevant box. You are your only enemy, if you allow your body to tell your brain to short your spirit. Be thankful; go right when the bondsman avoiding risk goes left. It’s as simple as that.

Don’t’ listen to stupid. You are inheriting the greatest labor advantage in history, driven by the greatest middle class implosion in history. Of course the middle class is crying crocodile tears for labor, and trying to define itself as labor or capital, as its participants throw each other under the bus. Look at the remarks. History is only a guide to the past. Always build out the kernel, by listening to your children as the first step.

 

Before this is over, I will show you that I can touch anyone hiding behind the code, at the time of my choosing. Cut once: London Bridge…Silver & Gold…A Tisket a Tasket...World Hanging by a Thread.

Wed, 11/27/2013 - 17:14 | Link to Comment FredFlintstone
FredFlintstone's picture

What?

Wed, 11/27/2013 - 17:08 | Link to Comment JR
JR's picture

And on that ringing note I head for the slopes. Thank you Charles Hugh-Smith, and Happy Thanksgiving!

Wed, 11/27/2013 - 17:49 | Link to Comment My Days Are Get...
My Days Are Getting Fewer's picture
No one compelled anyone to borrow money. "Debt slavery" is voluntarily assumed.  These borrowers want to enjoy today, that which they can not afford to pay in cash.     My friend, a thrice divorced medical doctor, stated that quite eloquently:  When asked about his $85,000 BMW, Doc told me this:  "You lease what you can not afford to own."   People rent homes which they can not afford to purchase.  Students lease their financial souls for an earthly eternity, in order to learn something that does not repay the "investment".   Does anyone remember when a taxpayer could deduct consumer interest on his income tax return - I do.  Today, unless you are a business (even a one-man business), you get no help from the Government with your interest payments.  

 

Simply stated, stay out of debt - you know what to do and how to do it.
Wed, 11/27/2013 - 19:07 | Link to Comment Solon the Destroyer
Solon the Destroyer's picture

No one compelled anyone to borrow money.

You can't possibly be serious?  Every time the government issues debt it is doing it in my name and yours and the name of our unborn generations to come... with no recourse or way to opt out.  Doesn't matter who I vote for, they all do it.  Doesn't matter that I didn't have the vote 20 years ago, they still saddled me with it. Doesn't matter that the unborn generations have yet to vote, they will still suffer from it.

And in times of consumer credit contraction, which threatens the entire Ponzi scheme, the government borrows even more in your name and mine and those of the unborn... because god forbid the Ponzi be exposed or governments shrink.

Thu, 11/28/2013 - 00:33 | Link to Comment bilejones
bilejones's picture

"1


Vote down!

0

No one compelled anyone to borrow money. "Debt slavery" is voluntarily assumed. "

exept for the fact that the government does it for you..


Wed, 11/27/2013 - 18:18 | Link to Comment layman_please
layman_please's picture

"So, in essence, an agent of the government, the central bank, most of which are privately owned (ownership is cloaked in secrecy) owns the entire productive output of free and democratic nation-states."

and

"A people should consider carefully the viability (arithmetical consequences) of borrowing, at interest, to consume their own production. The asset of our labor cannot simultaneously be a liability we owe to ourselves at interest."

slavery never perished and that is the real human tradegy. democracy is just cleaver marketing to deflect from real issues. freedoms without financial independence are a joke.

Wed, 11/27/2013 - 23:13 | Link to Comment NMC_EXP
NMC_EXP's picture

 

 

"slavery never perished and that is the real human tradegy. democracy is just cleaver marketing to deflect from real issues. freedoms without financial independence are a joke."

If you're happy, rattle your chains.

Jim

 

Wed, 11/27/2013 - 18:40 | Link to Comment Darth Sidious
Darth Sidious's picture

the asset is the productive resources of the population, i.e., labor i.e., sweat & blood.  the liability will be paid off in blood.  thats the way it always happens.

 

 

Wed, 11/27/2013 - 23:48 | Link to Comment rosario
rosario's picture

Kucinich introduced HR2990 which would end the FED creating debt and end fractional reserve lending.  All debts to be paid and full employment initiated as the US Treasury resumes its constitutional duty to create and distribute money. This is a completely credible and viable plan that would end debt-slavery - all it takes is votes... http://en.wikipedia.org/wiki/NEED_Act

Wed, 11/27/2013 - 23:57 | Link to Comment cynicalskeptic
cynicalskeptic's picture

Our current system depends on continual growth.  That is neither possible or even desirable in a closed system with limited resources.  Our planet is already showing signs of stress from too many people demanding too much.  It is impossible for all the people in the developing world to have the same standard of living that exists in the west (or perhaps I should sat it is impossible for the west to maintain its current standard of living).

The 13 Colonies - and other examples throughout history - suffered from a shortage of 'money' needed to facilitate commerce.  They issued notes in proportion to increases in overall economic activity (and NO more than that) leading to an econiomic boom.  Britain did not like losing control of their colonies (they were supposed to exist to benefit the mother country, providing raw materials and a market for manufactured goods) and stopped this practice, leading to an economic depression.   This was one of the causitive factors of the American Revolution.   After independence there was a continual shortage of gold and silver money in circulation,  much of it going overseas to pay for imported goods.  A bastardized system of paper 'notes' issued by private banks existed until the Civil War when 'standard' paper notes (still issued by PRIVATE banks) were in use backed by gold held by the Treasury.  Supplies of gold and silver increased with finds in California and Nevada - with 'too much' silver threatening the bankers with inflation ('Cross of Gold', the crime of '73 and all else).   The Panic of 1907 was engineered to give the NY banks leverage in their goal of creating a BOE model 'Central Bank' under their control, accomplished finally in 1913 with the Federal Reserve.

The US could simply create 'currency' via the Treasury but NOOOOOOOOO.... the Federal Reserve issues banknotes which are paid for by INTEREST paying T-Bills.  The moeny supply keeps expanding along with the interest to be paid on that increase......     if the economy fails to grow at a HIGHER rate than the interest charged you have INFLATION (pretty massive since 1913).

 

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