How Banks Enslave Us

Banks play an important role in modern economies by providing credit and transactional services to their private and corporate clients. The problem is that the credit boom that began in the 1960s has spiraled out of control. Bank debt used to be the exclusive domain to finance homeownership and car ownership. Then the introduction of the credit card enabled people to leverage themselves with the purchase of daily necessities and discretionaries. Today, banks are throwing money at people and have created an unhealthy situation that is affecting society at large.

Let's start by looking at how domestic credit to the private sector has grown in the past 60 years. According to information from the World Bank, domestic credit to the private sector as a percentage of the gross domestic product was 56 percent. Today, that number is closer to 150 percent. This means that the level of indebtedness of private households has increased threefold as a percentage of GDP. Given that global real wages have not kept pace with GDP growth since the 1980s, this level of indebtedness has increased considerably more than 3x.

The objective of this blog is to explore how banks use debt to enslave their customers and how this is taking its toll on society in general.

First, it is important to understand how banks use debt to make money. Many people believe that it is only central governments that can print money, and that is true but only in so far as physical notes are coins are concerned. It needs to be remembered that more than 90 percent of all money in circulation is not physical - it is an entry in a database and the vast majority is created by banks. Banks make money by taking in deposits and paying interest on those deposits and lending money out at an interest rate in excess of the deposit rate. Now you need to have a basic understanding of fractional reserve banking. Banks are typically limited in terms of the loans they can generate. Under normal circumstances, they need to hold in deposit a percentage of their total loans. This percentage is normally 10 percent. If the bank lends $100, it needs to hold $10 in reserve. In the United States, these reserves need to be held with the Federal Reserve Bank. When the COVID pandemic hit, the Federal Reserve abolished those reserve requirements effectively giving banks the freedom to lend as much money as they wanted. The Fed did this to encourage banks to inject liquidity into the system through loans as a lifeline to consumers and corporations to help them remain afloat during the lockdown. Three years later these reserve requirements are still zero. Other countries that have zero reserve requirements at the time of writing this blog were Sweden, New Zealand, Hong Kong, and Australia. The Eurozone was at 1 percent. On the other end of the spectrum were China at 17 percent and Brazil at 21 percent.

So, in a world that promoted banks to lend out large amounts of money, banks have started to encourage customers to take out loans and credit cards they cannot afford. Banks often market loans and credit cards with low interest rates or other attractive features, such as cash backs or rewards programs. These offers can be tempting, but they often come with hidden fees and charges that can quickly add up. Customers who take out loans or credit cards they can't afford can quickly find themselves in debt, paying high interest rates and fees that only benefit the bank.

This practice can be particularly harmful to vulnerable populations, such as low-income individuals or those with poor credit. These individuals may not have access to other forms of credit or may be more susceptible to marketing tactics. Banks may also target these populations with subprime loans or credit cards, which often come with higher interest rates and fees than those offered to other customers.

Another way that banks use debt to enslave their customers is by creating a cycle of debt that is difficult to escape. When customers take out loans or credit cards they can't afford, they may find themselves struggling to make payments. Late payments can lead to penalties and fees, increasing the amount of debt owed. This can lead to a cycle of debt, where customers are constantly struggling to make payments and are never able to pay off their debt.

The cycle of debt can be particularly harmful to those with low incomes or poor credit. These individuals may not have access to other forms of credit, such as low-interest loans or credit cards. As a result, they may be forced to rely on high-interest loans or credit cards with high fees and penalties. This can create a cycle of debt that is difficult to escape, leading to financial instability and hardship.

Banks also use debt to enslave their customers by encouraging them to take out loans or credit cards for unnecessary purchases. Banks often market loans or credit cards as a way to finance large purchases, such as a car or a home renovation. While these purchases may be necessary, customers may also be encouraged to take out loans or credit cards for less essential purchases, such as vacations or luxury items. This can lead to a cycle of debt, where customers are paying off debt for purchases they didn't need or couldn't afford.

The impact of banks using debt to enslave their customers can be felt throughout society. Financial instability can lead to a range of negative outcomes, including poverty, homelessness, and social isolation. Customers who are struggling with debt may be forced to cut back on essential expenses, such as food or healthcare, to make payments. This can lead to a range of health problems, including malnutrition and stress-related illnesses.

One way in which consumer debt can lead to mental illness is through financial stress. When individuals are carrying a lot of debt, they may feel overwhelmed and anxious about their ability to make payments and manage their finances. This can lead to feelings of helplessness, hopelessness, and despair, all of which are risk factors for mental illness.

In addition, debt can cause individuals to feel like they are trapped in a cycle of financial insecurity. They may feel like they are working hard just to keep up with their debt payments, with little hope of ever getting ahead. This can lead to feelings of frustration, anger, and resentment, which can also contribute to mental illness.

Another way in which consumer debt can cause mental illness is through the impact it has on relationships. Financial problems are one of the leading causes of divorce, and debt can create significant tension and conflict between partners. This can lead to feelings of isolation and loneliness, as well as depression and anxiety.

Furthermore, debt can affect individuals’ sense of self-worth and self-esteem. Many people view their financial situation as a reflection of their personal success or failure. When individuals are carrying a lot of debt, they may feel like they are not living up to societal expectations or their own personal goals. This can lead to feelings of shame and embarrassment, which can contribute to mental illness.

Finally, debt can also impact physical health. Individuals who are carrying a lot of debt may be more likely to engage in unhealthy behaviors such as smoking, drinking, and overeating as a way to cope with stress. This can lead to a range of physical health problems, including obesity, heart disease, and diabetes, all of which can contribute to mental illness.

So what can be done to address the issue of consumer debt and mental illness? One solution is to provide more resources and support for individuals who are struggling with debt. This could include financial counseling, debt management programs, and access to mental health services.

In addition, there is a need for more education and awareness around the issue of consumer debt. Many individuals may not fully understand the long-term consequences of borrowing money, or may not know how to manage their finances effectively. By providing more education and resources, individuals may be able to make more informed decisions about their finances, which could help to reduce the impact of debt on mental health.

Finally, policymakers can play a role in addressing the issue of consumer debt and mental illness. This could include implementing regulations around lending practices, as well as providing more support for individuals who are struggling financially. By taking a more proactive approach to addressing consumer debt, policymakers may be able to reduce the impact of debt on mental health, and improve overall well-being for individuals and families.

In conclusion, the rise in consumer debt is a growing concern, and it is clear that this issue is contributing to the rise in mental illness. By addressing the root causes of consumer debt and providing more resources and support for individuals who are struggling financially, we can help to reduce the impact of debt on mental health, and improve overall well-being for individuals and families.

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