In Capitalist America, Bank Robs YOU

Podcast: Play in new window | Download

Subscribe: RSS

In spite of all the disinformation you’ll find around the subject of capitalist economics, it is very true today in the US that banks have rigged the system to rob everyone else.

And it just sort of…happened, while we weren’t looking. The result of it happening is this massive inequity of wealth and power that we’re living in now.

In the US (and most other places) we have this thing called fractional reserve banking. In this system, commercial banks are allowed to loan money in excess of their actual cash and assets on hand. If the fractional reserve is 10% and I have a thousand dollars, I can write loans for ten times that.

Perfect conditions for this to actually work are first, all the loans have to be paid back, completely, on time. Second, the banks aren’t leveraging regulatory and tax code features to lower their tax liability through artificial or less than honorable – even if legal – means.

In that perfect world, the payment of the loan cancels the money created by the loan. This is the same mechanism as federal tax; they “print” the money by appropriation, and then they “destroy” it by taxation.

We don’t live in a perfect world.

If you default on a loan, that’s money in the economy which has lost its way to get back out. If you pay it off early that’s (usually) a loss of some amount of profit for the bank. That and innumerable other variables all have to be accounted for in tax policy.

It also means that even though that money cancels itself out as its returned to the lender, you still have to adjust tax policy to account for the money that’s in the economy right now, including the rates “we the people” must pay in to keep things running smoothly.

The people who manage the whole thing aim to balance between maintaining currency value and ensuring there’s sufficient currency stock in the economy to keep it stable. That balance must be calculated to fit as closely as possible what’s really in the economy, rather than only the aspirational projections of what commercial banks expect to be in the economy.

It’s that first calculation which has the greatest impact on tax policy. You and I pay taxes now to balance the money creation that banks are profiting on now (by charging interest on those loans). Then banks hire attorneys and accountants and lobbyists to take advantage of regulatory and tax code features to reduce their own tax bill – and also to have a strong hand in creating those features. That includes increasing the amount of money they can “print” via loans versus the amount they actually hold.

Eventually other capitalists realized they have attorneys and accountants and lobbyists too and joined the party, further shifting the burden of taxation onto the backs of the people they were refusing to pay and overcharging to live – us.

End result: they are never paying the taxes needed to offset the money they’re printing and putting in their pockets, and thus that money, the taxes, has to come out of our pockets.

Then our pockets become too shallow to meet our needs and we get a credit card. Or take out a loan. Next verse, same as the first. They get paid on the money, then they don’t pay taxes on what they get paid. The taxes must be paid to keep things running smooth and stable (but not to pay for federal spending! It’s so important people internalize that fact!) so we, the rest of people who aren’t major executives in banks and multinational corporations and such, pay them instead. Over time this puts an ever-larger portion of the “real” wealth in the hands of fewer and fewer people, while leaving an ever-smaller portion for everyone else.

Executive compensation is a tax-deductible business expense.

This isn’t all the result of some “invisible hand” or magic. It’s the result of individual human beings making decisions for their own material benefit, knowing that they’re doing so by harming others.

As the old meme goes, those people have names and addresses – not to encourage anyone, mind you – but that’s why we don’t talk about these things.

If there has ever been a valid way to say “taxation is theft,” this is the true way. Problem is you say that and everyone thinks the thief is “the government.” The government is just the bookkeeper. The thieves are the people who are taking the money – capitalists, oligarchs, plutocrats. The more control they have over every aspect of our lives, the less likely it is that we’ll start looking for those names and addresses, or even know there’s a problem at all.

Means, motive, opportunity. Capitalism is a dead-end street for the species, and none of the other things we’ve tried are perfect either, so it’s time to move forward into what’s next. I’d hold on tight, because these folks aren’t going to let go easily.