Monthly Archives: September 2010

Taxes are everywhere! Some taxes are obvious and others are hidden.

When you get your paycheck, the first thing you see is the total amount paid to you. Reading through the details, you see that money was withheld to pay federal, state and local income tax, and employment tax (Social Security and Medicare).

When you get your utility bill, the amount due is published in large bold letters. Someplace, in fine print, there is an explanation of charges and some of the charges are taxes.

In most states, there are retail sales taxes. You might hardly notice them on small purchases, but the retail sales tax can be a real eye-popper on larger purchases.

Less obvious is your employer’s property, income and employment related tax obligations which work to reduce your paycheck and/or increased the price of goods and services sold. These are hidden taxes on laborers and consumers and only come from owners’ profits as a last resort.

The good news is that We the People generally benefit in some way from taxes imposed by our representative government. But there is another kind of tax that benefits only a select few who are both unelected and unaccountable. It is the interest paid on nearly all of our money.

The Mechanics of Money Creation

The mechanics of money creation in modern society are unreasonably complicated but it should be known that almost every monetary unit in use is brought into existence as a loan and is subject to the tax which benefits its creator, interest.

Since only the principle is brought into existence by the money creation process, it is mathematically impossible to repay the principle plus interest without borrowing more money into existence. In a growth economy that naturally demands a growth in the money supply, this necessity for more money to repay debt might not be noticed.

Over time, the principle expands partly to fund economic growth but also to create the money needed to pay interest. This expansion of money to pay interest is compounded year by year and the growth curve in both debt and money supply begins to resemble a hockey stick in this classic logarithmic growth curve.

In a slump economy, the natural demand for growth in money supply does not keep up with artificial demand for growth in money needed to repay debt. Any repayment of debt that is not offset by newly incurred debt actually shrinks the money supply making it even more difficult to repay the massive accumulation of debt with its compounded interest.

Even if a laborer or consumer has never personally borrowed any money, they must bear the impossible burden debt repayment as their wages drop or fail to keep pace with inflation and as price of goods and services rises to cover the cost of debt. Interest on debt is like an invisible withholding on wages or an invisible tax on goods and services.

Winners and Loosers

Unlike actual taxes, this burden benefits only a select few. When it comes to interest, there is them what pays it and them what gets it. In a net analysis, only the top 15% of income earners will get more benefit from interest than they pay. In this analysis, interest is essentially a wealth transfer payment from the bottom 80% of income earners to the top 10% of income earners.

Approximately 57% of the interest benefits are received by the top 1% of income earners and the next 4% earn roughly 16%. Interest costs and benefits are essentially balanced for the next 15% of income earners and the bottom 80% of income earners are little more than interest paying wage slaves to the top 5%. This is true even if you have no personal debt.

With the expansion of private investment in mutual funds and retirement plans by the middle class, many common people have come to see themselves as owners. But the lenders are ahead of them! Publicly traded corporations are heavily burdened with debt and the lenders get paid not only ahead of the laborers and consumers but also ahead of the investors.

Many of the lenders are also majority owners who pay themselves as managers, earn money as lenders and and trade as insiders. They benefit ahead of the common people whose stock ownership is as much of a liability as an asset. Gone are the investors who expected regular dividend over time, replaced by traders and speculators who buy and sell stock in a manner not unlike gamblers at the casino. The lenders benefit with every purchase because they also own the brokerage firms. They finance the speculators, bet against the traders and charge for brokerage services. Whether the buyer or seller wins or looses, the lender profits.

And just in case you somehow managed to avoid being a borrower, an employee, a consumer or an investor, you still get to be a taxpayer and your government is borrowing money on your behalf and you are expected to repay these loans with interest!

Nobody can say exactly how much of the price for goods and services is interest on debt, but the best estimate is that almost a third of price is interest. If government taxed us that much we would revolt! But the cost of interest is a hidden, private tax on all money and we keep paying it without too much complaint.

Focusing on the Problem, Finding a Solution

We might be tempted to direct our hatred and anger toward the lender class who benefit so much lending practices, and they might even deserve such animus. It would be more productive to focus on reforming the monetary system that makes it possible for well-positioned people of wealth to exploit common people through their money creation powers.

Some people would like to return to the good old days of gold and silver money, others would like to socially and economically move forward with publicly-created, debt-free money issued and managed by and for the benefit of We the People.

One thing should be clear, we are quickly moving toward the day when supply of money needed to pay down debt will not leave enough money in circulation to provide us with a medium of exchange for the payment of wages or the purchase of goods and services.

Over the Peak?

Is this the peak debt equivalent of Energy Return on Energy Investment (ERoEI)? I think so!

The symptoms can already be seen, contraction in available credit, low wages, unemployment, defaults, forclosures, recession, and … dare we say it? … depression.

The American Monetary Act (proposal-USA)

Monetative (Europe)

Deeper Roots of World Financial Crisis (1 of 3) Lecture by Prof. em. Dr. Bernd Senf, University of Economics (FHW) Berlin

Monetary Growth (Playlist – 1 of 4 – Helmut Creutz, author of The Money Syndrome, examines the math problem of money supply, interest, growth, hording, etc.)

The Good Old Days of Gold and Silver (Playlist examining one of the big problems of returning to gold and silver money … the supply of gold and silver)

Still Pounding on the Nail! (Video considers income distribution, esp. capital income from interest and investment, and tax distribution)