Capitalistic Renaissance 10: Generations of debt
It is unlikely that John Maynard Keynes could have foreseen the implications of interest at a time when western economies needed a jumpstart from the Great Depression. He laid the foundations of modern macroeconomics with The General Theory of Employment, Interest and Money (1936).
The crack in this foundation comes from the word “Interest” in his work. If he did foresee this debt problem, his convenient answer at the time was that “we [he and others who contributed to this debt problem] would be long dead.”
The crack has slowly widened with the passage of time and stronger communication ties between national economies. Unbridled debt has a generational effect on any country.
Interest is the toxic problem in the unbalanced General Theory of Keynes, a theory that is no longer needed. Yet there was some good in his work. The primary reform of the New Deal for social security has always produced equity surpluses from the social security fund investing in public companies. The surplus did not come from Lord Keynes or the government. It is capitalism that produced the surplus of social security.
Fractional reserve banking, a type of derivative, is the origin of free credit that produces the debt bought by the consumers as credit. In a “smoke and mirrors” twist of fate, the consumers provided the raw material from their checking and savings deposits that created the unlimited free credit – the same credit used by consumers, aka wage earners or labor units. Using this credit is exactly the same as purchasing debt.
Government-sanctioned deductibility of interest from the taxes of wage earners has provided another masking layer over this debt problem of free credit with interest attached.
A myriad of interest formulas used by banks cause debt to increase faster than the ability of wage earners to pay the taxes and pay back the exponential increase in debt. Fixed employment contracts are simply not enough.