The great American writer, Ralph Waldo Emerson (1803-82) wrote in his 1836 essay, Nature,
“Debt, grinding debt, whose iron face the widow, the orphan, and the sons of genius fear and hate: - debt, which consumes so much time, which cripples and disheartens a great spirit with cares that seem so base, is a preceptor whose lessons cannot be forgotten”
Debt is hardly something new and what it does to a life are not new either. Emerson, as a socially concerned person in 1936, understood it well and expressed in a way that feels powerfully close to us today
The Observer, today, covers a recent report (by the Institute for Fiscal Studies and the Institute for Employment Research) and refers to the example of Nottingham family. The mother, Claire Beattie, works part-time as a hairdresser, looks back to her parents' generation and wishes things could be like that now.
Her father had a good profession: he was a builder who brought home a decent wage. Her father-in-law, working in the same trade, owned his own company. His prosperity meant his family owned their own house and went away every year on holiday. "Our parents' generation definitely seemed to have had an easier time," she says. "There were more jobs, better wages and it was easier to get on the housing ladder."
By contrast, Clair and her husband Dan struggle. They don't complain too much, largely because they have two lovely daughters – one four and the other 17 – as well as an 18-year-old son who has left the family home. But life is tough. Dan's expertise is in air conditioning and because there are few jobs in that field in Nottingham he works 50 to 60 hours in London every week.
They don't own their own home and half of their joint income of around £30,000 a year goes on rent and council tax. Clair would love the family to buy their own house but sees no hope because prices are so high and money is too tight. "If childcare was cheaper, I would be able to work more and make a greater contribution to the family budget," she says.
The Beattie’s say: 'We can't look beyond the next pay day'
Even if some us can see beyond the next pay day many will see a resonance of the Beattie’s situation in their own. People are watching their spending power ever diminish with the job and pension prospects of the children in steep decline. On top of this parents and their children have to assume more and more debt just to organise their lives. Young people have to assume massive debts just to get an education: They will know the meaning of Emerson's “Debt, grinding debt.”
The same contrast that the Beattie’s felt with a previous generation was echoed in a piece by Merryn Somerset Webb in Moneyweek recently when she noticed her children were watching some old episodes of the Flintstones. She wrote a piece about this and was deluged with favorable comments. The point she made was that the depiction of Flintstones family of Fred and Wilma, quite unconsciously, took as its model the typical family of the time when the cartoon was made, the 1960’s. The Flintstone’ social and economic circumstances are good reminder of what life used to be like, not for the few, but for the many.
Fred worked as a crane operator in a quarry … But Fred and Wilma still had all the best technology (a foot-powered car, a pelican as a washing machine, etc.); they lived in a nice split-level home and they regularly ate out in restaurants. They had pets; they went on holiday; and they had time for hobbies and all manner of community activity. There were no dual income households, and no one was working two jobs to make ends meet. [my emphasis.].
This … would bemuse and confuse a young person ...[today] to be told that working five days a week in a skilled manufacturing job was first, a possibility for everyone and second, a path to a comfortable life filled with leisure.
… in the last 20 years, anyone earning the average wage has seen their real income stagnant or falling. If they are in the bottom 80% of the population, their share of national income has gone down sharply. If they are in the 19% above that they have kept their share steady. “It is only in the top 1% that gains have been made and for those in that group the gains have indeed been spectacular.”
We are told this gradual degradation of our standard of living is inevitable. We have to pay off the public debt and for this ever more austerity is necessary, destroying lives, businesses, employment and well-being. The current political parties blame each other for the problem but they are all to blame. They were all complicit in the damage perpetrated on our economy by the banking system.
But there is an alternative approach to their bankrupt negative thinking. There is no way any of the main them will ever accept it for they are too implicated in the current compact between big finance and the democratic system.
There are many aspects to improving the economy and creating a society of justice and a progressive advancing of people’s lives, but here I will outline just three major solutions
Eliminate raising of government money with government bonds.
The way to eliminate the deficit is to eliminate the dumbest idea anyone ever had for financing government excess expenditure - government bonds.
I write an IOU with a promise to pay interest. You are a bank so you create the money and buy my IOU.
But I am the government so I could have created the money myself and had no debt and no interest to pay
The origin of the bonds system lies when currencies were backed by gold
It is a nonsense with a fiat currency such as any modern currency..
The debt it creates is quite avoidable. Debt, grinding debt.
Put an end to the Housing Ponzi scheme.
For decades house prices have been too high due to the fact that the banks have created more and more money and people are forced to borrow it to buy houses. If the banks had not created the debt in the first place house prices would be lower - much lower. This is a classic Ponzi scheme where the values of the scheme depend, not on fundamentals, but on new entrants to the scheme or existing entrants increasing they stake.
The solution? Return to what we had before Thatcher’s Big Bang of 1985 – and have non-bank financial companies that alone are allowed to finance private housing. I speak of good old-fashioned building societies. Building societies worked on 100% reserve ratio, that is, they could only lend on what they received as deposits, thereby creating a strong link between house prices and the economy at large.
We should return to that simple, but effective solution. Letting banks create money for lending on houses led to handsome rentier returns for the banks and created unnecessary debt in the economy. Lots of it. Debt, grinding debt
End the Financialisation of our lives.
What is meant by the financialisation here? This is connected to securitisation and I wrote in DRP Newsletter No 102 on how this malign practice works and why it should be banned. It violates legal contract but worse than that it creates a whole new market for its products - CDOs.
I won’t repeat the details here but CDOs enable debt to be sold and traded to suit “investors” and have created a worldwide demand for CDOs. But to create CDO’s, someone has to go into debt and so the banks who originate the CDOs seek to create more and more debt. We saw above how this happens in the housing market but it happens in many other fields. One of its great growth areas in the last few years is in student loans. All those increases in fees and student loans create a vast amount of juicy debt waiting to be securitized. JP Morgan director, Tony Blair, vastly increased student debt during his previous job as prime minister and in this he was magnificently aiding the likes of his present employer.
It is the same story with credit card debt, equipment debt, and so on. If it’s a debt, it can be securitized and can go to help satisfying the enormous global demand for CDOs. For the ordinary hard working people like the Beattie’s above it is just more debt, grinding debt.
These are just three important measures that could be taken tomorrow to free the people from debt and the impoverishment of our lives that debt brings with it. None is radical in any real sense. They would eliminate what are blatantly unjust anomalies and correct the current system in a way that everyone would see is fair.
There is a simple reason why they are not carried out: they would put a stop to the banks and their clients, ie the tax-avoiding globalised superrich, siphoning billions out of the real productive working economy so reducing ordinary people to debt slaves.
If Emerson were alive today he would hardly believe the way the problem he described in 1836 has come to be such a major component of our lives. If you have any debt great or small you will recognise the truth of his words about debt:
“... debt, which consumes so much time, which cripples and disheartens a great spirit with cares that seem so base“
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