At one time usury itself was widely thought to be sinful – that is the very act of lending money at interest. Most major religions condemned it, and many civilisations outright banned it. Now it is those that borrow that are more often vilified, and this goes for both countries and individuals. And still people are borrowing more and more. The McKinsey Global Institute found that household debt over the period of 2007-2014 had risen by 20% in Greece, more than anywhere else. Not surprising, you may think. But household debt is also prevalent in much richer countries, exceeding 200% of income in Denmark, Norway and the Netherlands.
So why do people borrow? Some do it out of necessity – to pay for basics like food, heating, and transport. Others, because credit is easy to get, and seems like an easy way out of a financial hole. Others in order to buy a consumer item now and pay later, instead of saving up to buy it. We are increasingly becoming accustomed to instant gratification, and into defining our personhood, our individuality and social status on the stuff we own rather than on the things we do. The combination of this toxic materialistic culture, along with the ready availability of deregulated credit, are creating a perfect storm of misery for many people, and not only those on lower incomes. An acquaintance of mine once told me that their iphone was the best thing in their life, and that they would be truly miserable without it, justifying their purchase of an item they couldn't afford without credit.
But how much of this household debt, elsewhere as well as in Greece, is actually repayable? And at what point does the creditor need to take more responsibility for the loans they are providing, to whom and under what circumstances? McKinsey also found that “all major economies today have higher levels of borrowing relative to GDP than they did in 2007. Global debt in these years has grown by $57 trillion, raising the ratio of debt to GDP by 17 percentage points”. The repeal of the Glass-Steagall legislation is the US in 1998, which had previously separated investment from high street banking, paved the way for riskier banking practices in the United States, leading to the 2008 crash. And let's not forget that the sovereign debt crisis that still has hold of Europe was provoked in large part by a private banking crisis, which was largely the result of irresponsible lending by banks. The Guardian last year documented the stories of a number of clients of the controversial UK payday lending company Wonga, where it was noted that the company had granted one client a 30 day loan of £1,000 even though their take-home pay was only £630 a month, and this is simply one case among many.
If a loan is a voluntary arrangement undertaken by 2 willing parties – i.e. the borrower and the lender, it must be acknowledged that whilst it may indeed be voluntary (although not always – see our report on Cyprus), typically the 2 parties are not equal. The lender has the power and sets the conditions, which true, the borrower could reject. But when the borrower is desperate, and/or has no alternative, they will take the money if it is available.
The insistence on repaying all debts regardless of circumstances as a moral principle appears to miss the point of what debt actually is, and how our monetary system really works. It seems to me to assume that money is a finite representation of wealth that has been borrowed and therefore must be returned, like a book, or a DVD. But in the context of a monetary system where the very act of lending in effect creates that money in the first place , it is hard to see that such a moral high ground really exists, and one wonders if perhaps many citizens know where money comes from at all. Banks create new money whenever they make loans, but of course every loan is also a debt, as the campaigning group Positive Money assert, “this is the source of our mountain of personal debt: not borrowing from someone else’s life savings, but money that was created out of nothing by banks.”
As Henry Ford once said, “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” Likewise, it should challenge how we think about the moralising around debt. As the activist anthropologist David Graeber has noted in his epic work Debt: the first 5000 years, excessive popular indebtedness has often led to social unrest and rebellion throughout history. Particularly in the context of recent history, where austerity measures are impoverishing the poorest in society while the richest are getting richer, it must be time to re-examine our attitudes towards debt. As Graeber has it, “the ideology of debt is one of the most powerful tools ever created to justify situations of violent inequalities and not only make them seem moral, but also make them seem as if it is the victim who is to blame.”