(remember I wrote this so it's okay for me to repost)
Taking a very long view on the debt crisis
I began researching my most recent book, “Debt: The First 5000 Years,” in 2007, just before the great credit crisis, and as time goes by, the subject never seems to become less relevant. It’s not just the endless succession of debt crises — the subprime mortgage crisis, the credit crunch, debt ceiling crisis and European debt crisis — it is the fact that Americans have become a nation of debtors.
It is simply assumed, nowadays, that we will be born to indebted, mortgage-paying parents, go deep into debt for our educations, and never, quite, completely, get out — and, therefore, that we will both live our lives with a constant feeling of at least slight attendant fear and humiliation, and that a significant portion of our life income will end up being paid out in interest and financial service payments.
The peculiar willingness of American families to accept, at a time of 9.2 percent unemployment, that our real problem is the need to cut government spending to balance the budget can only be explained as a classic example of magical thinking (I’m an anthropologist, I know magical thinking when I see it): perhaps if we can balance our collective budget, I will be able balance my family’s budget too.
This situation might seem strange and unprecedented: but in fact, it is not. As long as there has been money, there’s been debt. It is quite likely that most people who have been alive have been debtors, at least at some point in their lives. What varies — and varies radically — over time is attitudes toward debt, and how debt crises are handled.
For one thing, what we now call “virtual money” is nothing new. In fact it’s the original form of money. Credit systems predate coinage by at least two thousand years. Human history has alternated back and forth between eras of virtual credit money, and eras dominated by gold and silver — which have also, invariably, been times of great empires, standing armies (coins were invented to pay soldiers), and chattel slavery.
What’s more, since the dawn of recorded history, arguments over credit, debt, virtual and physical money have been at the very center of political life. At some times, particularly when money is imagined as gold, and therefore, simply one commodity among others, attitudes toward debt tended to harden, often creating dramatic social unrest (pretty much every popular insurrection in the ancient world was over issues of debt.)
In periods dominated by credit money, such as the Middle Ages, money was seen essentially as an IOU, a social arrangement. The result was, almost invariably, the creation of some sort of great institution designed to protect debtors, so as to ensure the system didn’t fly completely out of hand: periodic clean slates in the ancient Near East, bans on the charging of interest and debt peonage in Medieval Christianity and Islam, and so on.
One might argue the current age of virtual money began in 1971, when the United States went off the last traces of the gold standard — but in broad historical terms, 40 years is nothing; the new age has just begun.
The problem is we have been approaching it with increasingly outmoded assumptions: and thus, frenetically protecting creditors instead. What history shows is this is unlikely to last forever.
We already learned in 2008 that debts — even trillions in debts — can be made to go away if the debtor is sufficiently rich and influential. It is only a matter of time before people draw the obvious conclusions: that if money is just a social arrangement, so many IOUs that can be renegotiated by mutual agreement, then if democracy is to mean anything, that has to be true for everyone, not just the few.
And the implications of that, could be epochal.
http://www.washingtonpost.com/...
They only gave me 500 words (I took 600), but I think one can expand the argument to show that the progression of events since Nixon detached the dollar from gold in 1971 show that this move back to virtual money has been proceeding rapidly, but that, unlike in other periods of history, when credit systems were ultimately based on some kind of communal social trust, with some overarching institution, usually sacred in nature, ensuring no one starts exploiting the system too much for their own private gain and ends up turning everyone else into de facto (or not so de facto) slaves, what's happened this time is that the big creditors have completely dominated the system. Thus we see
* 1971, Nixon floats the dollar, US T-bonds quickly substitute for gold as the world's reserve currency, bought especially by US military clients
* late '70s to '80s, first widespread use of credit cards in daily transactions
* c 1980, US effectively gets rid of usury laws - so that some payday loans now operate, perfectly legally, at a rate of 300% a year (and that's not counting penalties!), rates which for most of US history had only been available from organized crime
* also '80s, huge rise of speculative finance capital which comes to dwarf the amount of money floating around in actual production or trade by a 10-to-1 margin
* '90s, peak of the the "third world debt crisis" and structural adjustment policies - instead of social welfare policies, which are systematically dismantled, microcredit is now supposed to save the world's poor
..... and then there's the rise of 401(k)s, the housing bubble, etc etc, whereby everyone is effectively encouraged to start acting and thinking like a financier.
Critical here is the role of the IMF, and other trade bureaucracies that began to insist, starting with the Third World debt crisis, that financial institutions should never, under any circumstances, have to swallow stupid irresponsible or extortionate loans or even take a haircut on them. (This incidentally flew in the face of almost all previous existing economic wisdom which insisted that the profits on loans were a reward for risk, and that only the possibility of default ensured that lenders would chose their risks wisely, and money reach those who could use it best.) In other words, while in the past, moving to a period dominated by virtual money has always eventually meant creating overarching institutions (Jubilees, Mesopotamian sacred kingship, canon or sharia courts) designed to protect debtors, this time around, the first impulse on the part of the powers-that-be was to do the exact opposite.
It didn't work out too well. IMF "austerity plans" were met with massive resistance and the IMF was, effectively, kicked out of East Asia and Latin America. Most recently, after the Egyptian revolution (which had a lot to do with resentment over brutal police enforcement of microcredit loans - basically, they became the guys who came to break your legs), Egypt has declared they won't deal with the IMF any more either. (It's significant that Saudi Arabia, terrified at the prospect of the Arab spring spreading, not only beefed up security and raises salaries, but also declared mass debt forgiveness, a remarkable echo of the strategy of ancient Mesopotamian rulers.) And in Greece and Spain we're already seeing mass resistance, as in the days of the alter-globalization movement, framed as a movement for "real democracy" against the arbitrary and utterly non-democratically accountable power of the IMF, central bankers, EU trade bureaucrats, ratings agencies, hedge fund managers, and all those guys who completely trashed the world economy in 2008, who we had to bail out (since lord knows they don't have to pay their debts) and have now decided the rest of the world will have to be picking through garbage cans for the next few years to pay for their earlier spate of "irrationally exuberant" behavior.
My basic argument is there is more going on here than the obvious "why should the poor have to pay for the rich people's party." We are at a point in history where it is impossible to disguise the fact that money has become credit, it's a social institution, a set of IOUs, promises. As such, a debt has no intrinsically greater moral standing than any other sort of promise. We need to ask: how did we get to the point where a government's promise to a lender to repay at a certain rate of return is considered so absolutely sacred that no one would even consider adjusting it, whereas, that same government's promise to the people who elected it to, say, provide free education or affordable health care is not in any way sacred, in fact, such promises are made to be broken so as to keep promises of the first sort? The moment I say that, mainstream types always respond, "but if lenders couldn't be sure they would get all their money back, why would they lend? The economy will be threatened!" But you could just as easily say, "if voters can't be sure the politicians they elect will keep their promises, why would they vote? Democracy will be threatened!" And in fact that's what has happened, most Americans assume politicians are liars and don't vote. The only way to restore something that actually resembles democracy would be to recognize that money is debt and debt is in fact a set of social arrangements, that the cards can and are reshuffled regularly (ask AIG), and that the fact that most Americans live their lives as debt peons, many working horrible jobs they would never accept in a free society because of terror of what would happen to their families if the repo man shows up, is not unavoidable or just, but the product of the fact that some people have the political power to whisk money in and out of existence, and other people don't and are told that morality is a matter of always paying their debts.
Oh and here's a link to a longer version of the historical argument:
http://www.eurozine.com/...
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