Staring into the abyss

Credit goes back to prehistoric times. Notched sticks that were split in two, with lender and borrower each keeping a half of the record, probably in front of witnesses, were in use at least five thousand years ago. And written clay tablets were broken lengthwise for the same purpose. Lending and the return of a bit more replaced the older usage of gifts and the obligation of more sumptuous giving back. This coincides with the intensification of agriculture, expanding urbanisation and class divisions in society. That early social structure favoured the priests, followed by soldiers, merchants and peasant-artisans. It survived in India’s caste system and was the basis of Aztec hierarchies. The Bronze Age favoured those who could arm themselves with the hard metal alloy. Priests lost their pre-eminence and absolute monarchs ruled from and held court in extensive palatial buildings. The Iron Age brought an aristocratic class to power that abolished the monarchy. (Iron is far more abundant than tin and copper, and hence less appropriate for a centralised control). This new organisation of power occurred in Athens (Eupatrids) and later in Rome (Patricians). These aristocracies may have come from elsewhere as conquerors, like the Normans in Britain at a much later date. As a class they owned most of the land that was rented out to tenants. Rent arrears due to the hazards of agriculture pushed the tenants into debt and ultimately into life bondage. This led to social upheavals. In Athens, Draco imposed written laws, as opposed to the ruling class’s customary law. But this did not resolve debt slavery or its resulting social unrest. Later Solon cancelled debts, banned mortgages, changed inheritance laws to give all siblings a share, and gave more power to the people. These reforms brought wealth and power to the city, but they were accompanied by wars of conquest, slave labour and subsidised docile citizens. A similar path was followed in Rome, though the Roman People’s Assembly never had the power of the Athenian one. And Rome did not have a Spartan adversary close by to bring a mutual decline. Rome would go on to dominate the whole Mediterranean Basin and beyond.

Debt is an ancient practice that can be very destructive for social cohesion. Lending and borrowing can be reciprocal and useful. But when a few do the lending and many the borrowing, the result is dependency. An unequal society becomes even more so, as wealth and power are monopolised by a plutocratic oligarchy. Some ancient societies tried to mitigate the nefarious effects of debt accumulation by periodic remissions. A newly crowned king might cancel debts to the treasury as a sign of benevolence, but the practice was rare. In Judea, a septennial rule was supposed to annul debts and free slaves, but it was not seriously applied and was easily evaded. However, at the beginning of the Christian era Palestine was one of the few places in the Roman Empire not plagued by mass serfdom or slavery. The remission of debts penalises the rich and liberates the poor. It helps to maintain social cohesion. Capitalism cannot envisage such an idea, as its profits are financed by debt. Inflation can and does reduce debts by devaluing their denominations. Unfortunately, inflation reduces everyone’s buying power not just that of lenders, unless incomes grow accordingly, which usually sets off a wages and prices spiral that can get out of control. Capitalism in its past and present forms needs an ever growing amount of borrowing, and depends on those debts being redeemed and paying interest. But debt is also a way of making slaves of borrowers, until they rise up in rebellion.

Borrowing to invest makes sense, as the investment pays back the debt. Borrowing to consume does not work that way. Consuming more today means consuming less tomorrow when the debt is paid back. However, this reduced future consumption will be attenuated if income is growing, or if the currency that measures the debt is devalued by inflation. When this does not occur, the drop in consumption can be countered by renewing debt, in which case the drain on consumption is restricted to the interest that must be paid. In developed nations consumption represents about 70% of GDP and is essential for economic growth. Public debt incurred by the Treasury is constantly renewed to the same borrower. Private debts incurred by households are renewed to different borrowers. But when all households have borrowed – all those who can and many who should not - these debts can only be renewed to the same borrower, as is the case with public debts that are never repaid. States perpetuate themselves, even if their rulers change, whereas household members end up by dying. State debts are perpetual. Those of private individuals are as mortal as the individuals that take them on, unless they are transmitted to descendants as inheritance.

Capital realises its profits with public and private debts, and capitalists are content with servile debt-ridden governments and workers. These debts cannot be redeemed without slowing, stopping, or putting into reverse capitalist expansion, so they are renewed at term and accumulate in ever vaster amounts. These growing mountains of debt are supposed to pay interest, which means even more debt. And the effect of new debt on consumer demand is reduced, because more and more of it is paid to interest. Ten years ago world finance was on the verge of collapse as lending dried up. Then central banks took the unusual and perhaps not quite legal decision (pressured by governments?) to buy up debts on a massive scale, and to lower their short-term rates closer to zero. This strategy of flooding the system with cash saved the banks, but it did not resolve the debt problem, and even aggravated it by making new borrowing cheaper at historically low interest rates. There was some trickle-down to consumer credit that boosted consumer spending. Treasuries were getting back the interest they paid on bonds held by their respective central banks, and went on a borrowing spree at lower rates. Companies also took on unprecedented amounts of debt, not to invest in production but to buy back their shares and to pay more generous dividends. The so called Quantitative Easing has merely multiplied world debt and made global finance even more vulnerable.

Estimated at about 244 trillion US dollars, world debt is three times larger than the world’s yearly product. Even at ridiculously low rates, the interest paid on this sum is considerable. However, the real rate of interest equals the nominal rate minus the rate of inflation. If the first falls below the second, interest becomes negative and lenders lose money. Central banks are edging towards this solution, and the Bank of Japan has already passed that point. Three years of future incomes have been spent, and the only solution on offer is more of the same. Why stop at three? Already, teenagers are encouraged to take on large debts to pay their education. Why not have children borrowing for their schooling? Why not start at birth or conception? Some form of parental consent might be necessary, though one may presume that the parents would already have all the debt they were able to carry. Consuming future incomes is like over-consuming the planet’s resources or the long term pollutions by plastics, radioactivity, carbon dioxide, heavy metals and countless chemical compounds. In all these cases the future consequences of past and present actions are minimised, subjected to false/alternative facts, or simply ignored. This is partly due to the effectiveness of media and political lobbying/corruption by fossil fuel, nuclear and synthetics companies, banks and insurers, and partly to that vast majority of the world’s inhabitants whose future perspective goes no further than their next daily, weekly or monthly wage. For them the immediacy of paying their bills and making ends meet outweighs some future financial or climatic disruption, about which they feel quite powerless anyway.

Having destroyed the planet’s ecosystem and reduced humanity to debt bondage, profit capitalism reigns supreme on a crumbling world. And this supremacy allows no alternatives. So, as large defaults and severe weather start to take their toll, scapegoats will have to be found. In fact this has been under way for some time – say since the sub-prime bailouts and the Arab uprisings - though it has become more apparent these last three years, since Donald Trump’s ascendency. Trump is a champion at finding scapegoats, from having practiced it all his life. America is Great and Iran is Bad, Capitalism is Beautiful and China is a Cheat. Trump is also a very proficient and prolific liar, which greatly facilitates his designation of culprits. He is a rabble-rouser, able to set off a pogrom or a lynching. But he is also the president of the United States of America and commands military, security and “intelligence” forces that are by far the most heavily armed in the world. This is a dangerous mix, for Americans who want social change and environmental protection, and for any part of the world that does not comply with the President’s injunctions. And, though the US Federal Reserve is theoretically independent, Trump also wields the power of the US dollar, which easily dominates all other currencies.

Capitalism has used the planet as a dustbin and its inhabitants as preys and slaves. That exploitation is in its terminal stages. Mountains of debt are toppling, species are disappearing, the climate is going berserk, and the nationalist blame game could degenerate and end the world abruptly with nuclear fireballs. Financial disintegration opens the path for physical disintegration. Soothsayers have been warning of this for ages. In 1892 Karl Kautsky wrote, “As things stand today capitalist civilisation cannot continue, we must either move forward into socialism or fall back into barbarism.” In 1916 this was echoed by Rosa Luxemburg, “Bourgeois society stands at the crossroads, either transition to socialism or regression into barbarism.” Forty-six years later, after another World War, Rachel Carson warned of a “Silent Spring”. Then “The Limits to Growth” was published in 1972, commissioned by the Club of Rome, followed by “Mankind at the Turning Point” in 1974. And “The Limits to Growth” was updated in 1992, and again in 2004. These are just a few milestones among countless other publications, films and songs about the necessity for change. Anyone who wanted to could know what was happening, but most preferred not to. These Cassandras went unheard because the counter-information was deafening, which helped everyone to look the other way and mind their own business. Now that all this is glaringly obvious, the remorse for past inaction has resulted in mass antidepressant dependency. Ageing hippies and yippies, and greying yuppies comfort themselves with a joint and a pill, but cannot face the questioning look in the eyes of their grandchildren and children. Teenagers are beginning to realise that their future will be harsh and violent, and that they may not have a future at all. Capitalism’s barbarity is becoming more apparent with every day that passes. And those who hold the reins of wealth and power will tighten their grip to the end, with all their bowing vassals doing their bidding. Empires do not change their ways. They fall and bring the world down with them.