November 16, 2012
November 15, 2012
November 14, 2012
By Ellen Brown Asia Times 14 Nov 2012
In the 2012 edition of Occupy Money released this month, Professor Margrit Kennedy writes that a stunning 35% to 40% of everything we buy goes to interest. This interest goes to bankers, financiers, and bondholders, who take a 35% to 40% cut of our gross domestic product.
That helps explain how wealth is systematically transferred from Main Street to Wall Street. The rich get progressively richer at the expense of the poor, not just because of "Wall Street greed" but because of the inexorable mathematics of our private banking system.
This hidden tribute to the banks will come as a surprise to most people, who think that if they pay their credit card bills on time and don't take out loans, they aren't paying interest. This, says Kennedy, is not true. Tradesmen, suppliers, wholesalers and retailers all along the chain of production rely on credit to pay their bills. They must pay for labor and materials before they have a product to sell and before the end buyer pays for the product 90 days later. Each supplier in the chain adds interest to its production costs, which are passed on to the ultimate consumer. Kennedy cites interest charges ranging from 12% for garbage collection, to 38% for drinking water to, 77% for rent in public housing in her native Germany.
Her figures are drawn from the research of economist Helmut Creutz, writing in German and interpreting Bundesbank publications. They apply to the expenditures of German households for everyday goods and services in 2006; but similar figures are seen in financial sector profits in the United States, where they composed a whopping 40% of US business profits in 2006. That was five times the 7% made by the banking sector in 1980. Bank assets, financial profits, interest, and debt have all been growing exponentially.
Adapted from here .
Exponential growth in financial sector profits has occurred at the expense of the non-financial sectors, where incomes have at best grown linearly.
By 2010, 1% of the population owned 42% of financial wealth, while 80% of the population owned only 5% of financial wealth. Dr Kennedy observes that the bottom 80% pay the hidden interest charges that the top 10% collect, making interest a strongly regressive tax that the poor pay to the rich.
Exponential growth is unsustainable. In nature, sustainable growth progresses in a logarithmic curve that grows increasingly more slowly until it levels off (the red line in the first chart above). Exponential growth does the reverse: it begins slowly and increases over time, until the curve shoots up vertically (the chart below). Exponential growth is seen in parasites, cancers... and compound interest. When the parasite runs out of its food source, the growth curve suddenly collapses.
People generally assume that if they pay their bills on time, they aren't paying compound interest; but again, this isn't true. Compound interest is baked into the formula for most mortgages, which compose 80% of US loans. And if credit cards aren't paid within the one-month grace period, interest charges are compounded daily.
Even if you pay within the grace period, you are paying 2% to 3%for the use of the card, since merchants pass their merchant fees on to the consumer. Debit cards, which are the equivalent of writing checks, also involve fees. Visa-MasterCard and the banks at both ends of these interchange transactions charge an average fee of 44 cents per transaction - though the cost to them is about four cents.
How to recapture the interest
The implications of all this are stunning. If we had a financial system that returned the interest collected from the public directly to the public, 35% could be lopped off the price of everything we buy. That means we could buy three items for the current price of two, and that our paychecks could go 50% farther than they go today.
Direct reimbursement to the people is a hard system to work out, but there is a way we could collectively recover the interest paid to banks. We could do it by turning the banks into public utilities and their profits into public assets. Profits would return to the public, either reducing taxes or increasing the availability of public services and infrastructure.
By borrowing from their own publicly owned banks, governments could eliminate their interest burden altogether. This has been demonstrated elsewhere with stellar results, including in Canada,Australia, and Argentina among other countries.
In 2011, the US federal government paid US$454 billion in interest on the federal debt - nearly one-third the total $1,100 billion paid in personal income taxes that year. If the government had been borrowing directly from the Federal Reserve - which has the power to create credit on its books and now rebates its profits directly to the government - personal income taxes could have been cut by a third.
Borrowing from its own central bank interest-free might even allow a government to eliminate its national debt altogether. InMoney and Sustainability: The Missing Link (at page 126), Bernard Lietaer and Christian Asperger, et al, cite the example of France.
The Treasury borrowed interest-free from the nationalized Banque de France from 1946 to 1973. The law then changed to forbid this practice, requiring the Treasury to borrow instead from the private sector. The authors include a chart showing what would have happened if the French government had continued to borrow interest-free versus what did happen. Rather than dropping from 21% to 8.6% of GDP, the debt shot up from 21% to 78% of GDP.
"No 'spendthrift government' can be blamed in this case," write the authors. "Compound interest explains it all!"
More than just a Federal solution
It is not just federal governments that could eliminate their interest charges in this way. State and local governments could do it too.
Consider California. At the end of 2010, it had general obligation and revenue bond debt of $158 billion. Of this, $70 billion, or 44%, was owed for interest. If the state had incurred that debt to its own bank - which then returned the profits to the state - California could be $70 billion richer today. Instead of slashing services, selling off public assets, and laying off employees, it could be adding services and repairing its decaying infrastructure.
The only US state to own its own depository bank today is North Dakota. North Dakota is also the only state to have escaped the 2008 banking crisis, sporting a sizable budget surplus every year since then. It has the lowest unemployment rate in the country, the lowest foreclosure rate, and the lowest default rate on credit card debt.
Globally, 40% of banks are publicly owned, and they are concentrated in countries that also escaped the 2008 banking crisis. These are the BRIC countries - Brazil, Russia, India, and China - which are home to 40% of the global population. The BRICs grew economically by 92% in the last decade, while Western economies were floundering.
Cities and counties could also set up their own banks; but in the US, this model has yet to be developed. In North Dakota, meanwhile, the Bank of North Dakota underwrites the bond issues of municipal governments, saving them from the vagaries of the "bond vigilantes" and speculators, as well as from the high fees of Wall Street underwriters and the risk of coming out on the wrong side of interest rate swaps required by the underwriters as "insurance."
One of many cities crushed by this Wall Street "insurance" scheme is Philadelphia, which has lost $500 million on interest swaps alone. (How the swaps work and their link to the LIBOR scandal was explained in an earlier article here.) This month, the Philadelphia City Council held hearings on what to do about these lost revenues. In an October 30 article titled "Can Public Banks End Wall Street Hegemony?", Willie Osterweil discussed a solution presented at the hearings in a fiery speech by Mike Krauss, a director of the Public Banking Institute.
Krauss' solution was to do as Iceland did: just walk away. He proposed "a strategic default until the bank negotiates at better terms". Osterweil called it "radical", since the city would lose its favorable credit rating and might have trouble borrowing. But Krauss had a solution to that problem: the city could form its own bank and use it to generate credit for the city from public revenues, just as Wall Street banks generate credit from those revenues now.
A solution whose time has come
Public banking may be a radical solution, but it is also an obvious one. This is not rocket science. By developing a public banking system, governments can keep the interest and reinvest it locally. According to Kennedy and Creutz, that means public savings of 35% to 40%. Costs can be reduced across the board; taxes can be cut or services can be increased; and market stability can be created for governments, borrowers and consumers. Banking and credit can become public utilities, feeding the economy rather than feeding off it.
Ellen Brown is an attorney and president of the Public Banking Institute. In Web of Debt, her latest of eleven books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are http://WebofDebt.com, http://EllenBrown.com, and http://PublicBankingInstitute.org.
(Copyright 2012 Asia Times Online (Holdings) Ltd.
1. United States
Per capita debt: $46,929
Debt as in percentage of GDP: 94%
Debt: $8.981 trillion
Per capita debt: $144,338
Debt as in percentage of GDP: 400
Per capita debt: $57,755
Debt as in percentage of GDP: 142
Per capita debt: $74,619
Debt as in percentage of GDP: 182
Image: A homeless man lies in front of the Louvre Hotel in Paris. 6. Japan
Debt: $2.441 trillion
Per capita debt: $19,148
Debt as in percentage of GDP: 45
Per capita debt: $36,841
Debt as in percentage of GDP: 108
Per capita debt: $47,069
Debt as in percentage of GDP: 154
Per capita debt: $91,487
Debt as in percentage of GDP: 187
Per capita debt: $47,636
Debt as in percentage of GDP: 174
Per capita debt: $46,795
Debt as in percentage of GDP: 217
. 1. United States
Gold reserves: 8133.5 tonnes
The United States owns the world's largest gold reserves.
Gold constitutes 74.7 per cent of the nation's foreign exchange reserves.
Gold reserves: 3,401.0 tonnes
Gold reserves2,814.0 tonnes
Gold reserves:557.7 tonnes
India's current credit rating by S&P is BBB- (BBB minus), which, according to S&P definitions is considered lowest investment grade by market participants. 8811
India Debt Rdff10811
Although India's gross public debt to GDP ratio fell from 75.8 per cent to 66.2 per cent between 2007 and 2011, it still is among the highest in the region.
India's 66.2 per cent level compares with Malaysia's 55.1, Pakistan's 54.1, the Philippines' 47, Thailand's 43.7, Indonesia's 25.4 and China's 16.5, according to an analysis by Cornell economist Easwar Prasad in the Financial Times.
Outstanding liabilities of the Central Government
2004-5: Rs. 19,33,544 crore (Rs. 19,335.44 billion)
2009-10: Rs. 33,57,772 crore (Rs. 33,577.72 billion)
a) Internal debt
2004-5: Rs. 12,75,971 crore (Rs. 12,759.71 billion)
2009-10: Rs. 23,56,940 crore (Rs. 23,569.4 billion)
) Market borrowings
2004-5: Rs. 7,58,995 crore (Rs. 7,589.95 billion)
2009-10: Rs. 7,66,897 crore (Rs. 7,668.97 billion)
2004-5: Rs. 5,16,976 crore (Rs. 5169.76 billion)
2009-10: Rs. 5,90,043 crore (Rs. 5,900.43 billion)
b) Other internal liabilities
2004-5: Rs. 6,57,573 crore (Rs. 6,575.73 billion)
2009-10: Rs. 10,00,832 crore (Rs. 10,008.32 billion)
External debt (outstanding)
2004-5: Rs 586,305 crore (Rs 5,863.05 billion)
2010-10 (Sept end): Rs 1,332,195 crore (Rs 13,321.95 billion)
The components of India's external debt and the percentage they form of the total external debt are given hereunder:
Multilateral: 15.8 per cent of total external debt
Bilateral: 8.3 per cent of total external debt
IMF: 2.1 per cent of total external debt
Export credit: 6.2 per cent of total external debt
Commerical borrowings: 27.8 per cent of total external debt
NRI deposits: 16.9 per cent of total external debt
Rupee debt: 0.6 per cent of total external debt
Long-term debt: 77.7 per cent of total external debt
Short-term debt: 22.3 per cent of total external debt
External debt figures represent borrowings by Central Government from external sources and are based upon historical rates of exchange.
Total outstanding liabilities
2004-5: Rs. 19,94,422 crore (Rs. 19,944.22 billion)
2009-10: Rs. 34,95,452 core (Rs. 34,954.52 billion)
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Amount due from Pakistan on account of share of pre-partition debt
2004-5: Rs. 300 crore (Rs. 3 billion)
2009-10: Rs. 300 crore (Rs. 3 billion)
Internal liabilities (as per cent of GDP)
2004-5: Rs. 59.7 crore (Rs. 597 million)
2009-10: Rs. 54.5 crore (Rs. 545 million)
a) Internal debt
2004-5: Rs. 39.4 crore (Rs. 394 million)
2009-10: Rs. 38.2 crore (Rs. 382 million)
Total outstanding liabilities
2004-5: Rs. 19,94,422 crore (Rs. 19,944.22 billion)
2009-10: Rs. 34,95,452 crore (Rs. 34,954.52 billion)
i) Market borrowings
2004-5: Rs. 23.4 crore (Rs. 234 million)
2009-10: Rs. 28.7 crore (Rs. 287 million)
2004-5: Rs. 16 crore (Rs. 160 million)
2009-10: Rs. 9.6 crore (96 million)
(b) Other internal liabilities
2004-5: Rs. 20.3 crore (Rs. 203 million)
2009-10: Rs. 16.2 crore (Rs. 162 million)
External debt (outstanding) (as per cent of GDP)
2004-5: Rs. 1.9 crore (Rs. 19 million)
2009-10: Rs. 2.2 crore (Rs. 22 million)
External debt figures represent borrowings by Central Government from external sources and are based upon historical rates of exchange
November 12, 2012
In his first foreign visit after being re-elected, President Barack Obama will be in Cambodia, Myanmar and Thailand from November 17 to 20, 2012. His visit to Cambodia is to attend the East Asia summit. The brief visits to Myanmar and Thailand will be bilateral.
2. He will be in Yangon (Rangoon) where Aung San SuuKyi lives for a few hours on November 19,2012. He will have talks with President TheinSein also at Yangon and not in the capital. He will be accompanied by Mrs. Hillary Clinton, Secretary of State, for whom this will be the second visit to Myanmar.
3. The proposed visit has been projected in warm terms both by the US and Myanmar.A spokesman for President TheinSein said on November 9: "His visit is warmly welcomed. It will strengthen the resolve of TheinSein to move forward with reforms.Obama's visit shows concrete support for the democratisation process of President U TheinSein, Daw Aung San SuuKyi, Members of Parliament and the Myanmar people.President TheinSein fully believes that the trip of President Obama will push the momentum of the process of democratic reform."
4. The proposed visit underlines the US confidence in the stability of the Government of President TheinSein and its belief that there is no opposition in the senior levels of the Myanmar Armed Forces to the policy of political and economic reforms and opening-up to the West undertaken by Mr.TheinSein and his c-operation with SuuKyi.
5.While there has been no comment so far from the Chinese Foreign Office, Qin Guangrong, Secretary of the Communist Party of China in Yunnan, who is presently attending the 18th Congress of the CPC in Beijing, said that China saw no threat to its interests from Mr.Obama's visit. He added: "We understand and support the wish of the Myanmar authorities wanting to open up and become part of the world."
6.Mr.Obama's proposed visit will be coming less than a month after a new spell of violence between the native Buddhists of the Rakhine (Arakan) State and the Rohingya Muslims, who are projected by the Myanmar authorities as illegal immigrants from Bangladesh, not entitled to full citizenship rights.
7. The violence, which led to over 80 fatalities and added to the number of internally displaced persons living in camps, was triggered by the opposition of the Buddhists to a proposal to permit the Organisation of Islamic Cooperation (OIC) to open a permanent office in Yangon to monitor the human rights of the Rohingya Muslims and the distribution of humanitarian relief to the internally displaced refugees from both the communities living in camps in the Rakhine State.
8. While the violence has since subsided, a Commission appointed by the Government of President TheinSein to enquire into an earlier spell of deadly violence in June has not been able to make much progress in its enquiry due to non-cooperation from the Buddhists.
9. US officials dealing with the visit have maintained a discreet silence on the recent violence in the Rakhine State and sought to project the visit as meant to encourage the TheinSein Government to keep moving on the democratic path.However, there will be expectations from the Muslims of the ASEAN region, who nurse feelings of solidarity with the Rohingya Muslims, that Mr.Obama will exercise pressure on President TheinSein as well as Aung San SuuKyi to pay attention to the human rights of the Rohingya Muslims and grant them full citizenship rights.
10. The Buddhists are watching the visit with apprehension that President TheinSein and SuuKyi may soften their opposition to the grant of citizenship rights to the Rohingya Muslims under pressure from Mr.Obama. Any impression of a US pressure in this regard during Mr.Obama's visit could trigger off fresh violence in the Rakhine State weakening the ability of the TheinSein Government to restore law and order and to re-settle the displaced persons in their home villages.
11.Non-Governmental human rights organisations such as the Amnesty International have expressed their misgivings over the wisdom of Mr.Obama's decision to visit Myanmar at this delicate time. They are worried it could prove counter-productive.
12.In a report on the situation in the Rakhine State due for release on November 12, the Brussels-based International Crisis Group (ICG) has been quoted by the media as saying as follows:
"The flare-up in Rakhine State represents a deeply disturbing backward step from Myanmar's reforms.This is a time when political leaders must rise to the challenge of shaping public opinion rather than just following it. A failure to do so will be to the detriment of the country.There is a threat of rising identity politics in Myanmar as reforms give new found freedoms to interest groups.The situation needs decisive moral leadership... by both President TheinSein and Aung San SuuKyi to prevent it spreading and contribute towards long-term solutions." The ICG urged the Government to ensure camps for the displaced do not become a precursor to the "segregation" of Rakhine and Rohingya.
13. Mr.Obama's tricky visit is coming at a time when sections of the Rakhine Buddhists are demanding a policy of separate development for the Buddhists andRohingya Muslims, with separate educational institutions, hostels and buses for RohingyaMuslim students. ( 12-11-12)
(The writer is Additional Secretary (retd), Cabinet Secretariat, Govt. of India, New Delhi, and, presently, Director, Institute For Topical Studies, Chennai, and Associate of the Chennai Centre For China Studies. E-mail: firstname.lastname@example.org Twitter @SORBONNE75)