Serfdom, it's not just for the poor and working class anymore.
Your income stagnates or declines, the cost of living goes up, you go into debt to hang on and enter interest rate serfdom to the economic royalty. This creates an infinite feedback cycle of paying personal debt and interest while remaining in debt and being dependent on income assistance, and though we can debate the causes and solutions to this problem on a macro-economic scale, on an individual basis the results of this process are becoming undeniable even on the prosperous end of the income inequality scale.
This is how high-income households enter debt-serfdom. On paper, they're still worth a lot, but it's trapped capital. On paper, they have a substantial income, but since $50,000 of it (or even $100,000 or more if the household owns multiple properties) goes to mortgage interest, their actual net income is modest or even negative.
This is why so many households have pulled money out of IRAs and 401K retirement funds: their debt service costs and essential expenses exceed their income.
It's also why income tax revenues are lower than they were "in the good old days" before the bubble popped. As median household incomes have declined 9.9% since December 2007, there is less income to tax, and large mortgage payments have reduced taxable income to mere trickles even in high-income households.
Whenever I discover a well-off friend is paying minimal Federal and State taxes, I ask, what's the trick? Answer: huge mortgage payments.
The trapped-capital equity in real estate is simply another form of phantom wealth. If too many people try to free that trapped capital by selling, the price of real estate will decline and the actual net equity left after commissions might well be near-zero. Recall there are at least 6 million homes in the shadow inventory and 12 million "underwater" households whose mortgage exceeds the market value of their house.
Since they can't sell, they are debt-serfs, indentured to their mortgages and the owners and servicers of those mortgages.
I've taken the title to this diary ad verbatim from the title of the post quoted above, which came from over at
ZeroHedge. Though I disagree with the author Charles Hugh Smith on a few points which I will explain, at the heart of the matter this article is dead on and should be considered a must read . . . .
More below the fold . . .
Serfdom. Stagnant and declining wages are the beginning of an infinite feedback loop that forces you to be dependent on credit and debt to survive. Want an education? Than accept the serfdom. Get hit with a major family illness you can't afford, then go into debt. Bad for the individual, bad for the society, but amazing for the financial services industry.
I am reminded of something I wrote a while back which was inspired by a piece written by Matt Stoller . . .
The point is to put working class people in debt. It is not by mistake, it is by design.
Today, we are in the midst of creating a second sharecropper society. I first heard the term "slaves to the bank" from a constituent fighting a fraudulent foreclosure. The details aren't so important -- this couple had been illegally placed in a predatory loan -- but at one point, the wife explained that she and her husband were so scared they would have "given their first born to the bank to keep their home". That was fear speaking, total unadulterated panic. And as we watch debt-holders use the ornaments of fear, such a loan sharking company that set up fake courts to convince debtors they were losing cases, we should recognize that what the creditor class wants is what they've always wanted: total dominance of our culture.
Today, the debts do not involve liens against crops. People in modern America carry student loans, credit card debt, and mortgages. All of these are hard to pay back, often bringing with them impenetrable contracts and illegal fees. Credit card debt is difficult to discharge in bankruptcy and a default on a home loan can leave you homeless. A student loan debt is literally a claim against a life -- you cannot discharge it in bankruptcy, and if you die, your parents are obligated to pay it. If the banks have their way, mortgages and deficiency judgments will follow you around forever, as they do in Spain.
Young people and what only cynics might call `homeowners' have no choice but to jump on the treadmill of debt, as debtcroppers. The goal is not to have them pay off their debts, but to owe forever. Whatever a debtcropper owes, a wealthy creditor owns. And as a bonus, the heavier the debt burden of American citizenry, the less able we are able to organize and claim our democratic rights as citizens.
Debtcroppers don't start companies and innovate, they don't take chances, and they don't claim their political rights.
Think about this when you hear the calls from ex-Morgan Stanley banker and current World Bank President Robert Zoellick and his nebulous mutterings pining for the gold standard. Or when you hear Warren Buffett partner Charlie Munger talk about how the bailouts of the wealthy were patriotic, but we mustn't bail out homeowners for fear of `moral hazard'. Or when you hear Pete Peterson Foundation President and former Comptroller General David Walker yearn nostalgically for debtor's prisons.
Matt Stoller via nakedcapitalism.com
Bold text added by the diarist
The above quote was written by Matt Stoller, who was a policy advisor to Rep. Alan Grayson on financial policy issues. I found this quote in a diary by DailyKos user bobswern and it has stuck with me since I first read it. Debtcropping. The term sums up perfectly what the American economy is based on in 2010. Our economy puts you in debt ON PUROPOSE, and when the valueless debt that can NEVER be repaid eventually blows up in the hands of the financial institutions that hold them we bailout those institution but not the people on the bottom who were robbed because The goal is not to have them pay off their debts, but to owe forever.
As the initial author quoted at the top of this article notes, this is creating a self-perpetuating death spiral, on both macro and micro economic scales. On a national scale, I believe our debt problems can be dramatically reduced by taxing the rich, ending the wars and reducing the runaway military budget, but on an individual basis I see no end in sight to the poverty/debt/serfdom cycle, and it is hurting everyone, even the supposedly well-to-do.
I don't want to overquote the ZeroHedge article, so I will strongly encourage you to read the whole piece and make your own conclusions, but I will finish by leaving you with the final paragraph . . .
Incentivize debt and you create multiple overlapping death spirals. We are seeing the death-spirals play out in a fractal manner, from households to nations to entire regions. High debt levels lead to high interest payments which lead to low investment and savings rates which lead to lower productivity which leads to stagnation of income, consumption and investment: in other words, a death spiral.
zerohedge.com
It is my belief that wages must start to rise so that consumers will have the purchasing power needed to drive demand, only then will the death spiral stop on an individual basis. We have created an economy where wages are suppressed to drive you in debt and it is no longer benefitting anyone but the financial institutions. When this many households are consigned to serfdom to an economic royalty elected by no one we face a crisis of democracy that puts at risk the very nature of individual freedom. You simply can't be an economic serf and be truly free at the same time. If money equals speech than it equals freedom too, and then debt is slavery. The long and short is that if you are buried in debt than you are not free. Is it really so hard to believe? You've been living in a dream world, Neo. This is the world as it exists today. Welcome to the desert of the real.
The floor is now yours . . . .
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