Debt: The Real Cost

Anne Marie Waters 

Tuesday May 12th 2020

 

If you’re a book lover, like me, there will be books in your life that fundamentally change the way you view the world.  I have recently read (and am re-reading) just such a book.  ‘Grip of Death – A Study of Modern Money, Debt Slavery, and Destructive Economics’ by Michael Rowbotham has changed how I see things.  It has opened my eyes to how our financial systems work, and for whose benefit.   Modern economics (societies built almost entirely on debt) is having a profoundly detrimental impact on our property rights – an essential element of our liberty.

Rowbotham’s book is just over 20 years old, but that doesn’t matter, the picture he paints is very much still with us, and I would wager, getting more grim with each passing year.  Here we are in 2020 facing the deepest recession in centuries and we are about to go in to even greater debt; individuals, business, and government are all going further and deeper.

So, how much debt are we in?  The UK owes a shocking 85% of our GDP.  That is 85% of everything we earn through production and service provision in an entire year.  That was before coronavirus, now it will be much higher.  We will owe much more than 100% of our GDP before this is over – something we can’t possibly ever pay off, we will scarcely scrape the interest.

That means simply that the next generation and the one after that will begin their lives in debt, spend their lives paying off debt, and will never actually be free of it.  When you owe someone money, they have a hold over you, this is no different.  Big business and big banks own so much that they can (and do) make demands of their debtors – including governments who dance to the tune of the debt.

Individuals suffer similarly.  The deed of my house may have my name on it, but its not in my possession, because it is held by the bank.  The same bank that can (should I for whatever reason become unable to pay them) throw me out of my house, that’s a great deal of power to wield over me.  This brings me to the first of the staggering revelations in this engrossing book.

Almost all businesses are now in debt.  That means that debt is a large part of their expenditure.  The more debt, the greater the repayments.  This is the starting point.  Before staffing, stock, advertising, there is debt.

Rowbotham (2000): “Most companies survive on the slenderest margins, so competitive is today’s economy.  The majority of firms also have substantial outstanding debts.  In fact, the bigger the economy, the larger the borrowing.  Any profit a company makes has to be seen in the context of its outstanding debts before any judgement of excessive profiteering can be sustained.  In fact, the majority of companies never expect to clear their debts through profits; the debt is kept at bay with interest payments, and any small surplus is used for investment.  Even then, further borrowing is often necessary.”

A consequence of this is the race for profits, a race to the bottom.  It has resulted in outsourcing from the West to the East, cheaper and less durable produce, and environmental calamity.  Small businesses have become far less viable, and to compete, they need cheaper produce and to ship it further.  This means transport; commercial transport on the UK’s roads increased by 30% between 1985 and 1990.  Just imagine how much it has increased since then!

Furthermore, goods are often transported around for no reason.  Again, to quote Rowbotham: “The increasingly globalised pattern of production, distribution and consumption in the modern world economy almost defies belief.  There is no obvious rationale behind the constant traffic backwards and forwards; shifting, ferrying, loading and unloading.  At the very moment that washing machines from Germany are being unloaded in Felixstowe, washing machines made in this country are being loaded, perhaps in the same container ship, bound for where?  Germany!”

Doesn’t he have a point?

Debt also keeps poor countries poor, as they scramble to compete in the export market of a globalised world and self-sufficiency takes a back seat.  The IMF and World Bank loan billions to countries steeped in poverty, but in attempting to pay this back, the needs of their own citizens are neglected.  “Brazil is a net exporter, but the increase in her debt meant that whereas in 1960, 30% of her export revenues went on debt repayments, by 1980 this had risen to 78%.”  In 1990, Brazil’s exports were $31.4 billion, with imports at $22.5 billion.  But the debt owed by Brazil took ALL of this income and still showed the country’s economy at a loss.

Another interesting statistic: in 1963 the percentage spent on debt repayments by British businesses was 7%.  By 1990, it was 28%.  Hence our race to the bottom.

It’s the same for individuals, and to give you an idea of how much this has grown in the last 5 decades or so, here is a staggering statistic: in 1963, the UK total of personal debt (mortgages, overdrafts, and loans) was £4 billion, or 14% of GDP.  In 1996, it was £490 billion, 70% of GDP.

While businesses raise prices to pay off debts, and consumers also have to pay off debts, leaving them less money to spend, big business has supplied cheaper products and cut corners to do so.  The ripple effect isn’t measurable.

But it is Rowbotham’s claim that banks don’t actually possess the money they loan that is perhaps most striking aspect of this book.  He argues that when banks give loans, they simply create ‘money’.

There is a fascinating US court case that illustrates this.  In Montgomery v Daly, a bank tried to foreclose on a man’s house.  A clever lawyer, the man argued that the bank had offered no consideration for the loan and therefore no contract between him and the bank.  “Consideration” (a legal term) is the asset exchanged in exchange for another.  If I give you £10 in exchange for a meal, the £10 and the meal are the consideration.  Contract law in the United States, as here in the UK, means there is no contract unless consideration is present.  Daly claimed that the bank, in giving him a mortgage, hadn’t actually given him anything but simply created the funds for the mortgage out of nothing.  In other words, it didn’t give him money from its holdings, which weren’t affected.  If the bank’s money doesn’t go down when it gives a loan, then the money has just been newly created.  This confused the jury in the case somewhat who didn’t believe that banks created money, that was until the bank’s president took to the stand and said yes, they create money “out of thin air” and this is standard banking practice.  Mr Daly kept his house.

This is a tantalising matter; debts are created to carry out tasks that are often unnecessary, interest payments dominate the books of both business and government, and all of it to pay a bank that simply created the debt out of nothing.

The circle of debt is endless and goes round and round, individual, business, government – they borrow and borrow and borrow, knowing full well they’ll never pay it back.

Our economy is sitting on a meringue, and one day, loans taken out to pay off debts will be called in.  This bubble has to burst.  Loans called in while few people can pay them, and no more borrowing available.  It’s a recipe for disaster and it is our modern economy.

Why is this so significant?  Firstly because when we are in debt, we are never truly free.  Property rights are crucial to our independence and power.  Until we own something outright, it is never truly ours.

Secondly, I shall offer my final quote from Michael Rowbotham:

“We are bound to our jobs by reliance on a wage, and held there by debt, lack of purchasing power and the fear of unemployment.  The pressure exerted by finance throughout the economy has been sufficient to impose an entirely new economic culture on many countries.  In less than a generation, people have worked so hard that their combined efforts have altered the physical structure of their society beyond recognition.  People have been obliged to keep pace with rampant industrial change, altering their working methods, retraining, often uprooting themselves from their homes to follow employment.  The unsuccessful, and those unable to adapt, have been sidelined in to poverty… the successful have been forced to run just to stay on their feet.”

 

Anne Marie Waters 

Leader 

For Britain 

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