The public debt fiasco - where your taxes go. (And where your children's and grandchildren's and their children's and etc. will likely go)
Public wealth includes assets and liabilities held by the government and government entities like towns, social insurance agencies etc. In most developed countries it is currently insignificant and public dept often exceeds it. However, this actually hasn't always been the case. Governments have become increasingly poorer over the past four decades in comparison to private wealth as the following graph shows (the UK, US, Japanese and French Governments all in debt to the private sector after COVID):
Since 2000 public debt and public wealth have equaled each other in the most developed countries, meaning if the governments of developed countries decided to see off all their assets in order to pay off their debts, nothing would be then left, and now most developed countries would still be in debt! There is wealth in developed countries, but it is overwhelmingly private. In Britain net public wealth represents less than 1 percent of national wealth.
Public debt does usually get paid. Britain has never defaulted on its debt, despite sustaining high debts over a longer period of time than any other country. Hence Britain have never suffered so much from high inflation (in order to get rid of debts like what occurred in Germany before WW2 under the Weimar Republic) and have always been trusted internationally by investors for never repudiating her sovereign debt (unlike Russia for example after the Bolshevik revolution). Developed countries have always generally had large public debts as a result of wars. It was extreme public debt that played a large part in leading to the French revolution and land tax system in 1790 and in the end the French defaulted around two-thirds of their public debt and suffered from high inflation during this period. British public debt was so high following the American revolution and Napolenoic wars that it took centuries of budget surpluses to reduce its debt from nearly 200% of national income in 1810 to under 30% in the 1910s. To put this in perspective, the British governments spent more paying the interest to the owners of the public debt than they did on education these hundred years (and tax revenues had to exceed tax expenditure by several percent of GDP).
Whilst in the 19th century, lenders were rewarded and reimbursed by governments, in the 20th century debts were drowned generally by inflation and far less lucrative to the lenders. High inflation encouraged greater borrowing by governments, but then inflation got controlled and generally kept at a low percentage, but governments kept borrowing - in fact more and more. Consider the US in 1981 - the year congress scrapped the longstanding legal ceiling of $1 trillion for public debt under Reagan, just 40 years later federal debt now stands at $34 trillion, that's 34 times what its maximum used to be, yet the US never offset this with staggeringly high inflation - from 1960 to 2022, the average inflation rate was 3.8% per year. The US was not alone. This means realistically the governments worldwide just expected the future generations to pay back the debts through taxation, but we're talking here about my generation's grandchildren, certainly not theirs (the ones who started the massive debt bubble) or their children's (who just escalated it!). Britain who never defaults her debts grew a massive debt bubble (200% of GDP) after WW2 and that led to high inflation for decades at over 4%, peaking in the 1970s when it reached 15%, and low government expenditure to cut it back down. What's interesting is following the World Wars governments in Europe acquired considerable public assets, while private wealth suffered huge losses - the government of France in 1950 owned 25-30% of the nations wealth and in fact economic growth was stronger at that time than at any other time in the nation's history (a period known as the Trente Glorieuses). Germany similarly performed the economic miracle (the decades of postwar reconstruction after WW2) whilst the government owned 25-30% of the nations wealth. In the 1980s, following the doctrine of Neo-liberalism countries such as France and Germany went through a process of extreme privitisation and subsequently saw a slowdown in economic growth, rise in private wealth and an accumulation of public debt.
Historically, the higher the public debt the more unequal the society, since the beneficiaries are the wealthy who can afford to lend to the government and receive interest as the government extremely slowly repays its debts - this inequality is much worsened when the wealthiest can tax evade through tax havens and the poorest are saddled with considerable tax burdens. Margeret Thatcher even crazily tried to introduce a pole tax, levied at a flat rate for all adults, irrespective of income levels or form of housing during these privatisation years. Thomas Picketty shared his views on the situation in his book Capital in the 21st century -
'What is true and shameful, on the other hand, is that this vast national wealth is very unequally distributed. Private wealth rests on public poverty, and one particularly unfortunate consequence of this is that we currently spend far more in interest on the debt than we invest in higher education. This has been true, moreover, for a very long time: because growth has been fairly slow since 1970, we are in a period of history in which debt weighs very heavily on our public finances. This is the main reason why the debt must be reduced as quickly as possible, ideally by means of a progressive one-time tax on private capital or, failing that, by inflation. In any event, the decision should be made by a sovereign parliament after democratic debate... national wealth in Europe has never been so high. To be sure, net public wealth is virtually zero, given the size of the public debt, but net private wealth is so high that the sum of the two is as great as it has been in a century. Hence the idea that we are about to bequeath a shameful burden of debt to our children and grandchildren and that we ought to wear sackcloth and ashes and beg for forgiveness simply makes no sense. The nations of Europe have never been so rich.'
In short, our governments of today and the wealthy private capitalists who presumably control them probably are the most selfish ever recorded in human history, as public debt shows.
The private debt fiasco - a look into usury
Usury is the illegal practice of lending money at unreasonably high rates of interest. It has been going on for years, essentially legalised and abnormally considered reasonable, as this blog will show in Britain in three ways - questioning the student, credit and SVR mortgage debt interest rates.
Credit card debts - usury?
Britain have generally adopted policies mimicking American ones regarding credit and interest rate caps. It was in the tax haven of Delaware (captured by Chase Manhattan and J.P. Morgan) where a monumental US state legislature was passed, that ended 200 year old historical laws appertaining to usury provisions. The law removed interest rate ceilings on credit cards, personal loans, car loans, and more and gave banks the powers to foreclose on people’s homes if they defaulted on credit card debts, the freedom to establish places of business overseas or offshore, and a regressive state tax structure on top of it. The Delaware law was exported to other states and across America, as by the simple act of relocation - credit card companies were able to ignore all other state's usury laws. Fellow tax havens South Dakota and Nevada followed suit, luring credit card companies to relocate into their borders too. Subsequently, ‘with interest rates caps removed, the credit card industry took off, and Americans splurged on debt. By mid-2007, as the global financial crisis emerged, U.S. consumers owed nearly $1 trillion on their credit cards—and that is not to mention loans people took out against their homes to pay the credit card bills.’
According to the American Bankers Association in the space of eleven years from the ruling, American households with at least one credit card became part of a majority (rising from 38% to 56%). But the big issue was that now credit card users could get ripped off like never before, usury laws thrown out the window, and they were. Multi-billionaire T. Denny Sanford amassed a fortune by selling last-ditch credit cards to consumers with bad credit, using credit cards based in South Dakota - one of them, First Premier Bank offered a card with a staggering interest rate of 79.9 percent.
By now it is accepted that credit cards worldwide charge staggering interest rates over 20% worldwide. The Bank of England figures revealed that the average annual interest rates offered on credit cards has 'risen to 21.49% in the UK , compared with the base rate of just 0.1%' and that in total, UK Consumers 'owe about £57.9bn on their credit cards, equivalent to about £2,080 per household'. In America average card interest rates were 20.72% at the end of 2023.
In Asia, credit cards are belatedly but rapidly becoming popular- for instance in South Korea, the total amount of credit card spending rose from $53 billion in 1998 to $519 billion in 2002 after purposeful promotion by the government, and naturally defaulting became a serious issue there. In developing countries, the picture is even bleaker thanks to inflation, consider South and Latin-America in 2018 before COVID:
The truth is, in the face of a total absence of usury laws in the credit card business, it is better just to stick to a debit card. I feel a credit card interest twice the size of inflation frankly ought to be the limit and only in desperate but promising cases, maybe an interest of 20% could be acceptable - yet that's the average. This is the case in Japan, where from 2010 interest rates in excess of 20% is subject to criminal penalties. The rest of Europe do tend to be slightly stricter than the UK and US, particularly France (though much laxer than they were before the 1980s) and some Muslim nations are particularly strict in prohibiting Usury for religious reasons - though ironically not many, whilst elsewhere in other continents usury is so rife it has destroyed their countries. In Latin-America the situation is so bad it is impossible to find a bank that will hold your money without you paying them interest just for having savings, never mind the fact that the bank will at the same-time invest your savings and make money off your savings themselves through fractional reserve banking, they are that greedy.
Standard Variable Rate (SVR) mortgages - usury?
In the UK between 700,00 and 1.2 million people in the UK will be on a variable rate residential mortgage next year, and the average SVR rate this year is 8.17%, with many approaching nearly 10%. How bad is this? Well, imagine you have still a mortgage debt of around £200,000 when you start having to pay yearly an 8% SVR. Let's imagine you have a good job and can pay it off including interest in 15 years. Well, according to Bankrate's Personal Loan Calculator you would end up paying a whopping £144,034.75 in interest alone. Now asumming the interest rate continued rising like it has in the past and the average SVR you end up paying is 10% (still conservative). Now imagine it takes 1 more year to pay off. Now according to the calculator the mortgage buyer will end up paying £201,626.34 in interest alone, more than the mortgage debt itself.
Is it all sacrilegious?
Whilst I personally call for extreme moderation, not outlawing interest given there does always exist a risk for default- the practice of charging interest on loans has always been condemnable, and the Ancient Greeks and Ancient Romans both at times termed it as usury and outlawed it completely. Charging interest on loans was considered usury in Britain until 1571, when usury laws were abolished. Criticisms of usury are found in most religious texts, be they Buddhist, Jewish, Christian, Islam etc..
In the Qur'an for instance it said (Al-Baqarah 2:275) -'Those who consume interest will stand (on Judgment Day) like those driven to madness by Satan’s touch. That is because they say, "Trade is no different than interest." But Allah has permitted trading and forbidden interest. Whoever refrains—after having received warning from their Lord—may keep their previous gains, and their case is left to Allah. As for those who persist, it is they who will be the residents of the Fire. They will be there forever.' In the Jewish scriptures, particularly Torah, usury is forbidden amongst followers of its faith (though tellingly not on foreigners given the dreadful reputation of Jews and usury) as it is written -'if thou lend money to any of my people, even to the poor with thee, thou shalt not be to him as a creditor; neither shall ye lay upon him interest... Take thou no interest of him or increase; but fear thy God; that thy brother may live with thee. Thou shalt not give him thy money upon interest, nor give him thy victuals for increase... Thou shalt not lend upon interest to thy brother: interest of money, interest of victuals, interest of any thing that is lent upon interest.' In the Old Testament (Exodus 22:25–27) it is taught 'making a profit off a loan from a poor person is exploiting that person' and the New Testament goes further stating loans should be gifts (Luke 6:34-36 NIV) - 'And if you lend to those from whom you expect repayment, what credit is that to you? Even sinners lend to sinners, expecting to be repaid in full. But love your enemies, do good to them, and lend to them, expecting nothing in return. Then your reward will be great, and you will be sons of the Most High; for He is kind to the ungrateful and wicked. Be merciful, just as your Father is merciful.'
The truth is, if a government is run by religious spokesmen - statesmen who say they are Christian or Islamic for example, but yet does not outlaw interest rates (usury), then it is a given those governments only pretend to be religiously affiliated.
Reference
(1) Capital in the 21st century, Thomas Piketty,2014
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