Why debt is slavery

Debt is as much a pandemic as any virus because it touches so many people. It’s estimated that 75% of the world is in debt. Global debt reached $255 trillion in 2019, and in 2008 the time of the global financial crisis, debt was at $97 trillion. In twelve years debt has increased by 163%.

This is a phenomenal increase in a very short space of time. On the web site This is Money there is an inflation calculator. I chose the year 2007 and entered a value of £100, to see what it would be worth today. The answer it gave was £145.94. This is a 45% rise, but when we look at the rate debt has grown its more than three times that increase.

One of the key factors behind the crash of 2008 was the availability of cheap credit, and this turned into toxic debt.  This toxic debt was due to irresponsible lending. Loans were agreed for people who had little or no ability to repay them. This was possible due to the lifting of regulation in 1983. These were the regulations which were put in place after the Wall Street Crash of 1929, to avoid another financial crisis.

This mind-set of easy money still exists today. The sharp rise in debt says that we haven’t learned any lessons. It’s easy to run up debts. Buy now pay later, pay day loans and other financial instruments give people access to easy money. For some debt starts at birth, it’s the cost of medical bills.

In 2019, Lorie Konish wrote an article, and this is a very small segment of that, ‘Research shows that about 137.1 million Americans have faced financial hardship this year because of medical costs.’

For many life starts with debt and it follows individuals and their families throughout their lives. American students alone owed about $1.5 trillion in student loans at the end of March 2019, more than two times what they owed a decade earlier. But the hidden costs of these schemes and loans are horrifying, and like all debts it has to be paid back, and that’s when easy money becomes the slave master.

Recently I saw an ad offering a pay day loan with an interest rate of 1297%. This is an astronomical rate and one you might associate with a loan shark, and so I searched the internet and this is what I found on Wikipedia.

“The research by the government and other agencies estimates that 165,000 to 200,000 people are indebted to loan sharks in the United Kingdom… Payday loans with high interest rates are legal in many cases, and have been described as "legal loan sharking."

It made me ask a couple of questions. Are we are creating a new layer of toxic debt? Are we recreating another crash but much bigger than 2008? I read a quote by Albert Einstein, and his definition of insanity was.

“Doing the same thing over and over again and expecting different results.”

Financial problems are one of the biggest attributable factors in suicides. Debt can make a person feel hopeless, impulsive, aggressive, isolated, a failure and ultimately it could cause mental illness, and result in tragedy. Debt is financial slavery, and the rate that debt is growing, it’s likely that most of us will be enslaved.

Debt is also man-made slavery. The more debt grows, the more we are enslaved by it. Think of it as way of silencing the masses. While we worry about debt, we don’t really ask question about those that allow debt to grow in this exponential way.

I want to briefly look at a nation’s debt, and I’ll use Greece as an example. Before Greece could adopt the Euro in 2001 it had to reduce its debt levels as part of the Euro adoption criteria. With the help of bankers, Greece did this by re-profiling part of its debt as currency swaps. A currency swap is a foreign exchange transaction that involves trading principal and interest in one currency for the same in another currency. The sleight of hand worked, Greece met the debt criteria and adopted the Euro. It soon became clear that the currency being traded had little value, but by then Greece had the Euro.

After twenty years of taking on more debt Greece has locked itself into a life of debt. On 30 June 2015, Greece became the first developed country to fail to make an IMF loan repayment on time. It needed another bailout, another loan, another debt. The curse of debt for Greece will continue for many years, and there could be a couple of generations who pay the price for Greece’s policies over the last 20 years. The austerity for the Greek people will continue.

And just like Greece, I think of those who are taking out their first payday loan, credit card, and signing up to a buy now pay later scheme. It’s easy to say, think again, and try to remember that debt is a spiral. The more you borrow the more you become reliant on borrowing. The reality is we are enticed on a daily basis by the media to achieve a certain lifestyle, and that often means getting into debt.

The worrying part about this article is that we haven’t considered 2020. This could be the year that well-known companies and banks with high debt and borrowing levels go bust. It’s better for us to try and adjust while we have a choice. When the choice is taken away, it could become a nightmare.

During this pandemic I’ve come to realise how little we really need. I hope these lessons serve us well, and we think twice before purchasing another outfit on credit, and add to our overcrowded wardrobes and lives.

This is a short poem which tries to express the key elements of this article.

Mother stares at her baby with love
Phone vibrates from the cupboard above
Father receives a text from the bank
What shall we call our boy Frank?

Father stares at his boy with a smile
Father thinks, I’m out of credit, wait a while
Father replies, anything you like sweetheart
Bartholomew, but it will get shortened to Bart

The family manages to make ends meet
The boys is embarrassed by the friends he greets
Their clothes are trendy and new
This is all I have, I have so few

University starts, life is great
Student loan agreed, parties negate
The reality of the debt
But the cost of education is a sure bet

Start working, pay back loans
Cycle of debt creates gloom
Buy now pay later says the ad
Feel better, but the small print is bad

Buy a house 25 years to pay
25 years of debt, is that the way?
We all have to live this life
It’s easier to divorce your wife

Take a policy to pay funeral costs
Borrowing till our life is lost
The cycle of debt enslaves
Until our vision of life is in a cave

Nations borrow to secure citizens
Paying back, it’s not pretty then
Toxic loans crash the market
Pay day loans create new toxic circuit

Debts enslave people and ruin lives
Politicians and bankers continue to thrive
Will we learn to control our spending?
Not as long as someone is lending