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Money that works for the .001% by legalschnauzer.blogspot.com
In the 2012 edition of Occupy
Money released last week, Professor Margrit Kennedy writes that a stunning 35%
to 40% of everything we buy goes to interest. This interest goes to bankers, financiers, and
bondholders, who take a 35% to 40% cut of our GDP. That helps explain how wealth is systematically transferred from
Main Street to Wall Street. The rich get
progressively richer at the expense of the poor, not just because of "Wall
Street greed" but because of the inexorable mathematics of our private banking
system.
This hidden
tribute to the banks will come as a surprise to most people, who think that if they pay their credit card bills
on time and don't take out loans, they aren't paying interest. This, says Dr. Kennedy, is not true. Tradesmen, suppliers, wholesalers and
retailers all along the chain of production rely on credit to pay their
bills. They must pay for labor and
materials before they have a product to sell and before the end buyer pays for
the product 90 days later. Each supplier
in the chain adds interest to its production costs, which are passed on to the ultimate
consumer. Dr. Kennedy cites interest charges ranging from 1 2% for garbage collection, to 38% for drinking
water, to 77% for rent in public housing in her native Germany.
Her figures are
drawn from the research of economist Helmut Creutz, writing in German and
interpreting Bundesbank publications.
They apply to the expenditures of German households for everyday goods
and services in 2006; but s imilar
figures are seen in financial sector profits in the United States, where they
composed a whopping 40% of U.S. business profits in 2006. That was five times the 7% made by the
banking sector in 1980. Bank assets,
financial profits, interest, and debt have all been growing exponentially.
U.S. Bank Assets by http://www.oftwominds.com/blogsept12/cui-bono-Fed9-12.html.
Adapted from http://www.oftwominds.com/blogsept12/cui-bono-Fed9-12.html.
Exponential growth in financial sector profits has occurred at
the expense of the non-financial sectors, where incomes have at best grown
linearly.
Household Income by http://www.oftwominds.com/blogsept12/cui-bono-Fed9-12.html.
http://lanekenworthy.net/2010/07/20/the-best-inequality-graph-updated/
By 2010, 1% of the
population owned 42% of financial wealth, while 80% of the population owned
only 5% percent of financial wealth. Dr.
Kennedy observes that the bottom 80% pay the hidden interest charges that the
top 10% collect, making interest a strongly regressive tax that the poor pay to
the rich.
Exponential growth is unsustainable. In nature, sustainable growth progresses in a
logarithmic curve that grows increasingly more slowly until it levels off (the
red line in the first chart above).
Exponential growth does the reverse: it begins slowly and increases over
time, until the curve shoots up vertically. Exponential
growth is seen in parasites, cancers . . . and compound interest. When the parasite runs out of its food
source, the growth curve suddenly collapses.
People generally assume that if they pay their bills on time,
they aren't paying compound interest; but again, this isn't true. Compound interest is baked
into the formula for most mortgages, which compose 80% of U.S. loans. And if credit cards aren't paid within the one-month grace period,
interest charges are compounded daily.
Even if you pay within the grace period, you are paying 2%
to 3% for the use of the card, since merchants pass their merchant fees on to the consumer. Debit cards, which are the equivalent of
writing checks, also involve fees. Visa-MasterCard and the banks at both ends of these interchange transactions
charge an average fee of 44
cents per transaction--though the cost to them is
about four cents.
How to
Recapture the Interest: Own the Bank
The implications of all this are stunning. If we had a financial system that returned
the interest collected from the public directly to the public, 35% could be
lopped off the price of everything we buy.
That means we could buy three items for the current price of two, and that
our paychecks could go 50% farther than they go today.
Direct reimbursement to the people is a hard system to work out,
but there is a way we could collectively recover the interest paid to banks. We could do it by turning the banks into
public utilities and their profits into public assets. Profits would return to the public, either
reducing taxes or increasing the availability of public services and
infrastructure.
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