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Pretty much everyone is in debt these days; from homeowners to university students, credit card holders, those with overdrafts in Britain to the sick and those without proper insurance in the US. The last 12 months have seen a 10% increase in the average household debt in the UK, and a 35% increase in county court judgements – for people who have not been able to pay their debt and have been reprimanded by the courts.
There are notable exceptions to ‘pretty much everyone’. Andrew Ross, author of Creditocracy, draws our attention to the sector prospering while everyone else struggles: the banks. Statistics showed how bank profits had leapt up ahead, while everyone else was deep into their overdrafts. Meanwhile austerity programmes were being rolled out global economic north. Ross showed the asset sheets of the banks in relation to the developed US & Western European economies were dwarfing the GDPs of their host nations.
‘Using international accounting rules, the combined assets of the big six totaled $14.7 trillion (93% of US GDP in 2012) while the entirety of the country’s banking assets was worth 170 per cent of GDP. In Europe the situation was even more acute; Germany’s banking sector clocked in at 326 per cent of national GDP, while the go go UK banks were at 492%. The exposure of the US banks alone to derivatives alone had increased to $232 trillion, almost a third more than 2008 when the escalation of these risky bets helped to bring on the financial crash. News as well that the US banks were carrying a debt load of $8.7 trillion – the combination of debt overhead, exposure to dodgy derivatives, leverage over the national economy and continued weak regulatory oversight, there’s a very high risk of a repeats of the 2008 meltdown.’
In other words, in 2013 as our economies were weak and debt-ridden situation, the banks were simultaneously very vulnerable and also making enormous profits. Just four years on, according to some registers, UK Bank assets stand at 900 per cent of GDP. In the history of economic records, we have never been in a time where asset prices are as inflated relative to earnings, ever. All the signs are with us, our debt burden is huge and looming over us.
But what is a creditocracy? According to Ross, this is a situation in which debt mediates access to all the basic social goods, goods which had been free (such as healthcare), or affordable enough not to necessitate going further and further into debt. In such a situation, power is centralized in the hands of private financial organisations, on which all life seems to depend.
‘It is not enough for every social good to be turned into a transactional commodity, as is the case in a rampant market civilisation. A creditocracy emerges when the cost of each of these goods, no matter how staple, has to be debt financed, and when indebtedness becomes the precondition not just for material improvements in the quality of life, but for the basic requirements of life. Financiers seek to wrap debt around every possible asset and income stream, ensuring a flow of interest from each. Furthermore, when fresh sources of credit are routinely needed to service existing debt, neatly captured in 90’s bumper sticker – “I use MasterCard to pay visa.” we can be sure we are entering a more advanced phase of creditor rule.’
Maggie Thatcher’s policies of subjugating manufacturing, systematically undermining the unions, while at the same time setting the financial industry free from red tape ushered in this era of financialization. It wasn’t just in Britain – her old ally Ronald Reagan was doing the same thing in the US, and Europe too had brought in an era of increased personal debt as welfare capitalism was being stripped back.
As the governments were spending less on their citizens, the costs were being passed over to the private sector, suddenly we were having to pay for education, less houses were being built and rents were spiralling, public & private sector pay rates were growing slower than inflation – so real wages were falling. The Western dream, predicated on home ownership, access to high level education, luxury goods such as cars and good quality furniture, holidays to exotic destinations – all these were slipping away from the average household, but they remained accessible with credit.
Worse, the safety nets beneath which it was supposed to be impossible to fall, and which had represented the apex of our Western capitalist democracies were being cut to ribbons. This exercise was underpinned by an austere Victorian language, and it was a justification the public believed in, but it masked a darker reality – that reality was that the next frontier of the free market was the work of the post war generation – privatising and feeding on the achievements of our welfare states. Public goods were being privatised, a terrible process had been unleashed and it seemed that it was largely unreported.
“When a government cannot protect its people from the harms inflicted by rent extractors and when debt burdens become an existential threat to a free citizenry, then the refusal to pay back is a defensible act of civil disobedience. For those aiming to reinvent democracy, this refusal may be nothing short of a responsibility.”
We have been told over and over that ‘there is no choice’ – our free market system is the only one which works – and human nature determines the system. But this prevailing view was being challenged not just by a bunch of radical intellectuals in the US – but also by those at the heart of the establishment – including Alan Greenspan, who had served as Chairman of the Federal Reserve of the US from 1987 to 2006. Reflecting on the crash, he noted ‘…. I discovered a flaw in the model that I perceived is the critical functioning structure that defines how the world works.’
Some organisations are fighting back; ‘Strike Debt’ in the US has bought up then ‘forgiven’ millions of dollars worth of medical and student debt. The private burden of debt is shouldered by the collective – thus breaking the spiral of more interest and more indebtedness. According to Debt Collective activist Laura Hanna: “One thing’s for certain, things are not going to change unless people actually start to act themselves and build power at the grassroots scale. We are not going to have a system change from above.’ When we refuse to accept a situation where people have to bind themselves in debt to afford the basics of healthcare, housing and education, we take power out of the hands of debt-financiers.
Ross argues that this could be a model for further social action – not just programmatic buy-ups and debt forgiveness, but mass refusal of debt. He lays out a radical programme which could serve as a blueprint for loosening the stranglehold of debt. Relieving households of existing debt burdens, and thinking about how credit could be used more positively in the future. Ross’s case for debt refusal acts as a rallying call:
‘Loans which either benefit the creditor only, or inflict social and environmental damage on individuals, families and communities, should be renegotiated and compensate for harms. The sale of loans to borrowers who cannot repay is unscrupulous and so the collection of such debts should not be honoured. When debt is refused or bought up, public bodies should not offer to compensate or reimburse banks or their beneficiaries, awash in profit, have done very well; they have been paid enough already. The credit was not theirs to begin with – most of it was obtained through the dubious power of money creation, thanks to fractional reserve banking and the “magic” of derivatives. The right to claim unearned income from debts so easily created should not be recognised as binding.
Even if household debts were not intentionally imposed as political constraints, they unavoidably stifle our creativity, our ability to think freely, act conscientiously, and fulfill our democratic responsibilities. Only by refusing debt can we refuse the power that debt holds over our lives. Economic disobedience is how we defend our democracy.’
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