The Problem is not Debt, it's Interest
The Problem is not Debt, it's Interest
October 7, 2011
How do we know this?
Consider a mortgage. We borrow 200k, and after 30 years we will have payed about 500k. So we pay 300 thousand dollars interest over the loan.
What would happen with our purchasing power, if we only needed to repay the principal? It would mean we would have 10.000 per year more purchasing power during the 30 years we repay the mortgage.
Our credit would greatly improve, because our liabilities would be much smaller.
Interest is payed to those who have money, and payed by those who don't, and therefore need to borrow.
Interest is therefore a wealth transfer from poor to rich. Margrit Kennedy, a German monetarist, has quantified this wealth transfer in Germany. Her conclusions: the 80% poorest Germans pay 1 billion euros per day (365 billion per year) in interest to the richest 10%. The next richest 10% pay about as much interest as they receive.
Also, with in the 10% brackets the same wealth transfer is happening: so the poorest 8% of the richest 10% pay interest to the richest 1%.
It stands to reason that the situation is more or less the same everywhere. This means, that the poorest 80% Americans pay about 1,5 trillion dollars per year to the richest 10 percent.
This is the key driver centralizing wealth in the hands of the plutocracy.
Another problem with interest is, that it is not transparent who pays what. The strange thing is, that even if you don't have any debts at all, you will still lose up to 45% of your disposable income through interest.
Producers incur 'capital costs'. They pass these costs on to their customers. The amount of interest they pay on the loans to finance their production differs per sector. But it transpires that on average 45% of the prices we pay can be related to cost for capital.
Now, back to the debt.
Is it reasonable that one should be able to get a mortgage? Is their something intrinsically wrong with the debt?
It is probably quite useful for the large majority of the people to be able to get a mortgage. Most people would not be able to buy their own homes if they were not able to go into debt.
Another important aspect is, that in the case of a mortgage the creditor incurs no risk at all: he has the house as collateral.
And who is the creditor? In most cases a bank. A bank basically is a credit facility. However, the bank has made us believe that it is their credit, that we are borrowing their money.
This is not the case. Credit is the result of collateral and future income. A person has about 30 to 40 productive years and it that timespan an average American will make about 1 or 2 million dollars.
This future income is what makes the bank provide the credit.
But this future income is not the Bank's, it's the individual's income. It is therefore their credit.
So banks capitalize the credit of the population.
We know that in the current construct all this interest is being raked in by the banks by creating the money at the time the money is loaned out. Through Fractional Reserve Banking.
We consider it unfair that the bank has the right to create money. Therefore a full reserve gold standard is propagated. Not only taking away the iniquity of money creation, but also the nasty habits of banks going broke by overleveraging themselves.
But if we take out a mortgage in a full reserve gold bank, we would still pay 500k for a 200k home. We would still lose 45% of our disposable income through interest passed on in prices.
VIEW IT HERE
http://www.youtube.com/watch?v=qYwWmDOtLW8&feature=youtu.be