“In a creditocracy … debts are not supposed to be paid down entirely, for the same reason that credit card issuers don’t want us to clear our credit card balance every month.” Photograph: Rui Vieira/PA
Editor’s note: With our debts rapidly expanding beyond our ability to repay them, our ever-increasing productivity is going merely to service the interest on our loans. The creditor class has been able to extract massive amounts of wealth from loans that people may never be able to get out from under.
Throughout history, this has led to social unrest as more and more of society’s wealth flowed to pay the capital gains of those who were net creditors. Societies would become drastically unequal and, as debtors lost more of their land and livelihoods to service usurious debts, the rate of transactions would slow, grinding the economy to a halt.
The only remedy was a debt cancellation – returning the debt clock to zero. The ancient practice of the Jubilee signalled an opportunity for rebirth, a chance to start over and build a more just society. But as long as the reigning discourse treats debt as a symptom of living beyond one’s means, we can’t hope for relief from on high. As Andrew Ross points out in the article below, it may be time for us to simply start deciding “that it may be more moral to refuse some of our obligations to creditors than honor them all. The alternative is a failed democracy.”
Welcome to the creditocracy, where your debt piles up forever
You’re not going to pay off all your credit cards tomorrow, but there’s something wrong with a system built for endless bills
By Andrew Ross
Originally published in The Guardian.
Last month, the Federal Reserve confirmed the ominous news. The decline in US household debt from sky-high 2008 levels has halted, and the figures are on the rise again – up by $241bn (or 2.1%) in the fourth quarter of 2013, following a smaller increase in the third quarter. Unlike auto loans, mortgages, and credit card balances, student debt never fell at all, and is fast approaching $1.2 tn. Economists seem to have decided that the “debt overhang” from the crash has now been resolved; not only is it safe to start borrowing again, it’s a must if we are to get back on track with GDP-driven growth. With aggregate debt still at a staggering $11.5tn, this is bad analysis and bad advice. As for reviving GDP business as usual, all the evidence suggests this kind of growth is a recipe for eco-collapse.
Confronted with these exorbitant numbers, it’s natural to gripe that debts of such magnitude will never be paid off in our lifetimes. But that’s to miss the point. In a creditocracy – the kind of society we now live in – debts are not supposed to be paid down entirely, for the same reason that credit card issuers don’t want us to clear our credit card balance every month. Those who diligently pay up are derided in industry circles as “deadbeats”. The preferred customers are “revolvers,” who can’t quite make ends meet but who pay the monthly minimum along with penalties or late fees, ensuring a steady flow of revenue to banks. Creditors’ profits depend on keeping us in debt for as long as we live, and even beyond the grave in the case of parental co-signers for student debtors who die before they have performed less than an average lifetime of debt service.
With household incomes stagnant or falling, elementary calculus tells us that fresh credit will be needed simply to service existing loans (remember this bumper sticker?: “I Use Mastercard to Pay Visa”). But converting all of its citizens into lifelong revolvers is not a sustainable condition for any functional democracy. It’s the definition of a debt trap, all too familiar to the developing countries that fell under IMF dependency in the course of the 1970s and 1980s.
This captive condition has migrated to the global North in recent years and now burdens the majority of households. In the 1990s and 2000s,advocates in the Jubilee South movement argued, with some success, that many of the external debts of the South were illegitimate, or odious, and should not be honored. Now is the time, before the rate of over-leveraging picks up pace again, to apply some of the same arguments to household debts in the North, especially those incurred to access basic social goods, like education and healthcare. When the costs of these goods have to be personally debt-financed, we are dealing with anti-social debts that are a threat to foundations of our democratic life.
Wage conflict was the great strife of the industrial era, but the struggle over debt is shaping up to be the frontline conflict of the years to come. Not because wage conflict is over (it never will be) but because debts, for most people, are the wages of the future, to which creditors lay claim far in advance. Each new surrender of a part of our lives to private debt-financing further consumes the fruit of labor we have not yet performed, in the form of compensation we have not yet earned. That is why, to put it bluntly, many household debts are a thinly disguised form of wage theft.
Given the fraud and deceit practiced by bankers, and the likelihood that they will not refrain from such delinquent conduct in the future, should we continue to reward them with full repayment? The major banks are bigger and more awash in profit than before 2008; they are much more exposed to dodgy derivatives; and they have amassed colossal debts because they know that if the loans turn sour they will be made whole by taxpayers, once again. Before another meltdown occurs (a likely prospect in the view of finance industry insiders), let’s agree that it may be more moral to refuse some of our obligations to creditors than honor them all. The alternative is a failed democracy.