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The Leverage of Debt and the Levers of Power

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In a previous commentary, The One Bank, readers were presented with the dominant social/economic/political menace of our era; one, gigantic financial monopoly which by itself controls 40% of the entire, global economy.

That previous piece introduced readers to the litany of financial mega-crimes perpetrated by this Crime Syndicate, the endemic corruption which allows these crimes to occur without any impediment (let alone punishment), and the primary means to achieving that level of corruption/control: debt.

The evidentiary basis for this construct is a persuasive piece of economic modeling, conducted by a trio of Swiss academics, which has been favorably cited by several other writers/sources. They arrived at their conclusions through mathematical analysis of a huge data sample of more than 30 million “economic actors” (primarily corporate entities).

However, while that previous piece was based upon a solid evidentiary foundation; skeptical readers may still have had trouble accepting the validity of the level of corruption asserted within that analysis. Even though (if it were a nation) the One Bank would have a “GDP” roughly double that of the United States; skeptics may have still found it difficult to accept that one Crime Syndicate (in any form/size) can exert essentially absolute control over entire governments.

To facilitate bridging this gap; this piece will focus upon how “control” of that magnitude is achieved in general terms, by first noting in specific terms how debt (and debt-leverage) is such an insidious tool in creating a “slippery slope” of corruption. It is a slide which (inevitably) leads to the saturation-level of corruption which now exists in our societies today.

Give me control of a nation’s money supply, and I care not who makes its laws.”

- Mayer Amschel Rothschild

That (in)famous quotation was cited in a recent commentary, but accompanied by what was (in hindsight) an inadequate degree of elaboration:

Whoever controls the money-supply of any nation/economy can simply funnel infinite amounts of free money into their own pockets – and with that money they can buy all the lawmakers. This is precisely the reality we face today.

While this accurately summarized what has taken place in our societies, the important omission was in not explaining how having the power of the printing press translates into the control of governments (and entire nations). To understand this requires understanding debt; more particularly, fully understanding the relationship between lender and debtor.

The starting point is in noting the transformation which has taken place between classical “capitalism”, and the bastardized neo-capitalism which has evolved out of it. Pure capitalism (the original model for our economies) was an efficiency-based doctrine aimed at maximizing the productive output of the three basic inputs of any economy: labour, raw materials, and wealth (i.e. capital).

Through the efficient allocation of these inputs, a capitalist system generates “profits” (i.e. more wealth/capital), and then that wealth is reinvested into the system, in a virtuous cycle of healthy/stable growth. Neo-capitalism, on the other hand, is essentially nothing more than “capitalism on steroids.”

Not surprisingly, this has in turn evolved into capitalism abusing steroids. What do we know about the abuse of steroids from countless (disgraceful) examples in the realm of sports? Any short-term benefits achieved through this form of cheating are accompanied by significant long-term penalties in terms of irreparable damage to one’s health. This is precisely what we see in the 21st century with neo-capitalism, and our irreparably-damaged economies.

What is the distinction between capitalism and (our own) neo-capitalism? Capitalism is a system based on the optimal utilization of wealth. Neo-capitalism is a system based upon utilization of credit (i.e. debt), and more specifically leveraging and re-leveraging that debt. It is a totally irrational/unsustainable economic model of infinite growth in a finite system, and entire theses could be written on this subject alone.

 

However, for present purposes; what is salient is in analyzing how this economic system has been perverted into a paradigm of debt-addicts and debt-pushers. It is here where we gain the fundamental understanding of the relationship of lender and debtor.

What do ordinary people know about this economic relationship, simply from the realm of their own personal experiences? For a (rapidly shrinking) majority; it is through buying a home, and the (inequitable) relationship between mortgagor and mortgagee. This is where ordinary people see for themselves the implications of the leverage of debt.

What is the (factual) difference between borrowing money to renovate one’s kitchen versus borrowing money to purchase the home, itself? Simply, it is the quantity of debt. However, the more interesting question to ask and answer is what is the consequence of the higher level of debt necessary to finance the purchase of a home.

The answer is that the difference is “influence”; the influence gained by the lender when the debtor chooses to increase his level of debt, and thus his/her level of debt-leverage. If the Banker who finances the renovation of your kitchen wants to be supplied with a plethora of personal data about one’s assets, spending habits, and other information which most people choose to keep private; we would (politely) assert to the Banker that this was “none of their business.”

We would supply the loan officer with data demonstrating a secure income-flow, along with a list of any other outstanding debts, as representing the minimum (and maximum) amount of information to which the lender was entitled. Conversely, with respect to the purchase of an entire home; while we may not like divulging all of the personal information requested, we comply with such requests (demands?) without hesitation.

Why do we cede to such demands? Because we understand that in increasing our level of debt/debt-leverage that we automatically bestow more influence upon our Banker. Furthermore, we understand that if we continue to increase our debt-leverage that the power of this “influence” possessed by the Banker gradually evolves into control.

Should we suffer some short-term financial set-back where our capacity to service our debt comes into question (and our debt-leverage thus spikes); suddenly our Banker may no longer be content merely asking us questions about our personal, financial affairs, but rather begins telling us how to conduct those affairs. Should we seek to object as the Banker uses his growing influence to exert control; the Banker offers but a single word as all the rebuttal which is necessary: “foreclosure.”

Giving a Banker control of a nation’s money-supply in a pure, wealth-based capitalist system provides that Banker (or cabal of bankers) with only a modest level of influence over that nation/economy. However, give that same Banker control of a nation’s money-supply in a credit-based, debt-addicted, neo-capitalist system; and one immediately hands that Banker control over the nation/economy itself – the same level (and nature) of control which exists between the drug-addict and the drug-pusher.

In any system/society which legitimizes and encourages the regular use of the potent and dangerous “economic drug” known as debt; it is absurdly obvious that such a society will evolve into one filled with debt-junkies and controlled by the Debt-Pusher(s).

In the now-discredited “War on Drugs” instigated by the United States; what is the one argument which retains any validity in this campaign of neo-Prohibition? If we were to legalize the use of recreational drugs this would legitimize such drug-use, and (in turn) this would lead to greater numbers of drug-users and drug-addicts.

However, the Debt-Pushers of the 21st century have gone much further (and are allowed to go much further) in “pushing” their debt on the habitual debt-users in our societies. They extol the virtues of debt-use, on an ever more-frequent basis – through massive quantities of advertising solely geared at increasing debt-use (and debt-addiction) still further.

In Canada; a particularly insidious example is the Debt-Pusher advertising to Canadians that “you’re richer than you think” – implying that by increasing their debt-leverage through maximizing their use of debt they can (somehow) improve the quality of their lives.

What would happen in our societies if the drug-pushers were allowed to “market” their drugs (and drug-usage) the same way that the Debt-Pushers are allowed to market debt-use? We don’t have to ask that question in hypothetical terms, because we already have a concrete, real-life example: nicotine.

Drug-pushers were allowed to (legally) market a deadly and extremely-addictive poison, whose only “virtue” was creating addiction itself. For decades; the Drug-Pushers were allowed to tell us that addicting ourselves to this deadly poison wasn’t simply desirable, but almost indescribably “glamorous”. What resulted is the health Plague which our societies still seek to treat and recover from to this day: nicotine addiction, a health-epidemic where (at one time) the Drug-Addicts were actually the majority.

Unlike nicotine however; the “drug” of debt actually has some practical uses – when used in sober moderation – thus making debt-use more appealing than nicotine-use. With the Debt-Pushers allowed to market their own drug without any restrictions or limitations of any kind; we have a new Plague (and new majority) in the 21st century: the debt-addicts.

Unlike drug-addiction; debt-addiction is a ‘disease’ to which not only living entities are susceptible. In our world of paper entities known as “corporations”; these too are highly-susceptible to debt-addiction – as are our governments, which are a mixture of paper entities and human actors.

Now the previously-cited quotation is fully revealed in all of its horror. The power of the printing press (in neo-capitalism) is the power of the Debt-Pusher. Just as drug-addiction corrupts the drug-addict to the point where they will literally commit crimes just to service their addiction; so too are the Debt-Addicts of the 21st century corrupted. And amongst these “addicts” are all of our governments.

The power of the Debt-Pusher is much too great-and-terrible a power to ever be placed in private hands, in any neo-capitalist, debt-based economic system. It is politically/economically/socially intolerable. The endless, crippling consequences of this new, economic Plague – debt-addiction -- instigated by the Debt-Pushers, have placed all of our economies/societies in imminent danger of complete, systemic collapse.

There are only two paths toward reforming this intolerable paradigm. We must either remove the Power of the Printing Press from private hands (permanently/irrevocably), or we must put an end to neo-capitalism itself, and restore legitimate capitalism to our economies/societies.

The current, neo-capitalist paradigm where one Debt-Pusher is essentially able to assert de facto control over entire nations of Debt-Addicts is an economic nightmare beyond the comprehension of the charlatan economists who originally promoted this neo-capitalism. Their flawed thinking has become our Economic Hell – ruled by a single Debt Overlord.



[Readers are encouraged to join me on The Daily Grind, my daily dialogue on precious metals markets – and the events which drive those markets]

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owatica
...
written by owatica, December 27, 2013
As I watched the George Soros funded "Occupy" movement and read sign after sign demanding socialism and "free" everything as opposed to the perceived monstrousness of "capitalism" I simply shook my head. Of course we don't know if capitalism will work since in living memory we have not actually used it. Arrrrgh. I have seen not one whit of historical perspective in the entire group; i.e. they don't seem to understand the reality that eventually you run out of other people's money to steal. This can easily be found under the heading "Why socialism has ALWAYS failed". The word "redistribution" makes me shudder. Debt and 'money from debt' is a mystery to the People. Personal responsibility has faded far into the mists of time. The very notion of self-reliance seems archaic. So the 'cleansing' approaches and we will learn again the powerful truth of survival... or we will perish. On the other hand, Fukushima may already have taken care of that. Happy New Year.

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