Debt is the slavery of the free.
– Publilius Syrus
The more debt we have, the more money they make. By “we” I mean ninety percent of the nation. By “they” I mean the top ten percent of wealth holders in the nation. This is not an accusation, but a simple fact. Our debt is inventory for the financial markets, which are mostly owned by the top 10%. Our debt is used to create products, and investors sell those products in the financial markets. In addition to buying and selling the debt, investors bet on our debt, to win or lose. They bet on you to make your mortgage payment or to lose your home. Banks and credit unions own, buy, and sell our debt. Finance companies and online lenders own, buy, and sell our debt. Fannie Mae and Freddie Mac own, buy, and sell our debt. Investors in Asset-Backed Securities own, buy, and sell our debt. Even the federal government is in on the game and owns our student loan debt, profiting from compounding interest that drags and taxes earnings from working people over a lifetime.
The providers and clients of this debt industry can’t keep selling our debt without more inventory. They need more and more inventory. Therefore, those who control the financial system are directly incentivized to push consumers further into debt. How can we expect to get a different outcome than the middle class sinking further and further into debt? That intention is increasingly designed into the system and for the gain of those who control that system.
Debt is the world’s largest financial market. It is significantly larger than the stock market. The global bond market as of 2024 was $133 trillion while the global stock market was $109 trillion. The United States has the largest bond market, valued at over $51 trillion. Total household debt in the US has reached $18 trillion, with $12 trillion in mortgages, $1.6 trillion in student loans, and $1.2 trillion in credit card balances. The average household debt stands at approximately $100,000, while the average household annual income stands also at about $100,000 (with a median net worth of about $190k).
This 100% debt-to-income ratio is actually a bit improved from even before pandemic levels, but it’s a microview to see any positives there. The real problem is that the debt is compounding and growing and will never be paid off. Instead, it is a permanent mechanism in our economic system to transfer wealth from the working class to the wealthy. The average American pays more than 20% interest rates on their credit card. Compound interest ensures that balances grow rapidly. Federal student loans in the U.S. accrue interest daily. Just the cost of servicing the debt can delay wealth-building activities like homeownership or retirement savings, which compounds the problem of growing debt, now not offset by personal assets. Median net worth will decrease over time as a result of consumer debt.
Interest
Money was intended to be used in exchange, but not to increase at interest.
– Aristotle
FDIC-insured commercial banks and savings institutions reported making approximately $1.276 trillion in 2024 off of interest payments. Twenty-two percent of that money was doled out as shareholder profits. As a result, that $280 billion in shareholder profit was transferred from the borrowers–working people and small businesses–to the top 10% of wealthiest people who are the dominant recipients of shareholder wealth.
In the America of the past, a local bank existed to help people start businesses and buy homes and build wealth. Today, banks function as outposts in small towns to transfer the wealth of that community to the pockets of the super wealthy. This grim reality is the result of a poorly designed economic system. Increasing the debt and interest burden of 80+% of us is in the best interest (short term at least) of the other 20% of us. This is a flawed design. Unless it is intentional. Then, it is an authoritarian design as it will result in total wealth consolidation and the indentured servitude of the masses.
Amoritization
There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt.
– John Adams
I bought a car for my son and got a loan with an 8% interest rate. Then, I made my first payment and saw that half of the money I paid went to interest. That’s not 8%. That’s 50%. When I looked at why, I saw that it was the amortization of the loan that resulted in that outcome.
Loan amortization is how the loan payments are divided between principle and interest. When you first start paying your loan, you are paying mostly interest. Over time, the interest share of each payment decreases, and by the end of the loan you are paying mostly principle.
To use an example, let’s take a $300,000 house with a 30-year mortgage at 6% interest. The monthly payment would be $1,798.65 (excluding taxes & insurance) and the amortization schedule would like like this:
| Month | Payment | Principle | Interest | Remaining Balance |
|---|---|---|---|---|
| 1 | $1,798.65 | $298.65 | $1,500.00 | $299,701.35 |
| 12 | $1,798.65 | $315.00 | $1,483.65 | $296,391.56 |
| 60 | $1,798.65 | $398.00 | $1,400.65 | $279,421.48 |
| 120 | $1,798.65 | $565.00 | $1,233.65 | $247,905.73 |
| 180 | $1,798.65 | $850.00 | $948.65 | $197,809.73 |
| 240 | $1,798.65 | $1,341.00 | $457.65 | $122,883.23 |
| 300 | $1,798.65 | $1,742.00 | $56.65 | $30,654.02 |
| 360 | $1,798.65 | $1,798.65 | $0.00 | $0.00 |
When this borrower goes to pay this monthly mortgage payment of nearly $1,800, they are only putting about $300 to principle, which means that 84% of their payment goes to interest. That rate lessens over time with each payment, but it takes fifteen years to even get it down to a 50% interest rate on each payment made. At that point, national interest rates will likely drop, and the borrower may refinance to get their 6% rate lowered to a 3% rate. The borrower would feel pretty good about a 3% rate for sure. What they don’t realize is that their amortization schedule then starts over. So, while they think that their interest rate went down from 6% to 3%, the actual interest rate went up from 5o% to 80%.
This lending model, widely accepted as normal, has all the trappings of a scam. In practice, the interest rates that consumers are being sold on their mortgages and auto loans are not real. The actual interest rates paid by consumers are 50-80% and more. This must be regulated and is easily avoidable. We simply need a law that says any loan with an interest rate must be amortized equally across the life of the loan. So, if you have a 6% interest rate. Then every payment you make, 6% is put to interest and 94% is put to principle. That’s a real 6% interest rate.
Wouldn’t almost everyone in the United States be better off if we passed such a law? Then why won’t we do it? Whom does the current system benefit?
Securitization
The modern theory of the perpetuation of debt has drenched the earth with blood, and crushed its inhabitants under burdens ever accumulating.
– Thomas Jefferson
The securitization of debt is the process of pooling various types of debt (loans, mortgages, credit card receivables, etc.) and transforming them into marketable securities that investors can buy. Basically, it’s the process of making debt into products like Mortgage-Backed Securities, Collateralized Debt Obligations, and Student Loan Securities. These products can then be owned, sold, bought, bet against, and borrowed against. Entire tertiary markets, like Credit Default Swaps, are born of no real money but just a hedge against these products collapsing due to being overleveraged by the very people betting on their collapse. Not only do investors buy and sell our debt, as well as bet against our debt, but they have also found creative ways to use our debt to collateralize loans. Collateralized Debt Obligations (CDOs) are financial instruments that pool various types of debt, such as mortgages, bonds, and loans, and then issue tranches with varying risk levels to investors. In 2023, the global CDO market was valued at approximately $27.5 billion and is projected to reach $80.4 billion by 2033.
But what if consumer debt was not allowed to be used as a financial product? What if it was against the law? This would remove one of the major incentives for corporations to create more and more debt among the working class. Almost all Americans would benefit from this change. So why don’t we do it? Who benefits from the people going further and further into debt?
An economic democracy would work to design the economic system so as to eliminate consumer debt. An economic oligarchy will throttle that debt until the system threatens collapse, and then use the people’s money to prop it back up again and get back to the throttling.