Friday, August 5, 2016

Commerce After Abandoning a Gold Standard

Before Nixon took USA off the gold standard lite, the extent of credit issued was incalculable.  It was issued all along the progression of commerce from those working the farms, the seas and mines up to and including the end-users, the retail customers.  No interest was charged on any of this credit.

Nor could these transactions be taxed, because they were both unseen and too numerous to mulct.

My, how things have changed.  Look here:

See what happened after 1971, after we got off gold standard lite?  Much of that represents a switch from businesses extending asset based credit to EZ bank credit.

And here is a student loan subset of the above graph.

The banks offer EZCredit.  EZCredit crowds out organic commerce credit. What happens?

1.   Banks are able to lend credit, a resource that costs them nothing, but upon which they can effectively mulct a portion of the transaction for which the credit they issue is denominated.  Say on a $100 transaction, there is zero risk to the banks as far as the $100, for it is lending credit, not money. The bank earns on its credit whatever processing fee (2.5%?) and any interest (say up to 21% at Macy's) on the ephemeral $100 as long as the user chooses to do so (ultimately the economy in general is at risk: banks socialize losses and privatize profits.)

2. What activity there is necessarily goes through banks so it can effectively be taxed, where that was not possible before given privacy and granularity. With computerization, much smaller amounts can be tracked and taxed.  Was computerization driven by an effort to tax more thoroughly?  Certainly forensically computerization at the consumer level came first in banking and spread from there, and necessarily tied into government.  Now we bank by smartphone, and Bank of America is promoting check processing by phone-image, using literally an ass as spokesman (spokesmule?  spokes-ass?)

3.  EZCredit apparently excites the wealth effect.  It is well documented, indeed a selling point of the credit card providers originally, that credit card users spend some 23% more than cash users.  Today it is up to 50% more. Analogously today, the average debit card transaction (cash) is $39 and credit card is $94.  Kaching for the bankers.

4. With this ephemeral wealth effect, what goods and service this false economy calls forth are distorted.  Selection and design are ordered to a purchasing power that shifts from materialism to consumerism.  People no longer buy one appliance a lifetime and pay cash, extinguishing any further costs, but they replace appliances often and simply add the cost to the credit tally, ever more burdening the household with debt on credit obligations.

5. EZCredit raises prices on degraded goods and services.  The poster child for this is education. An education has shifted over the years from meaning "I am capable of" to now "I am entitled to.."  The two are not the same thing, and the content, scope and sequence for the two results differ.

Whereas when I started college it was academically tougher but far cheaper.  I could work and pay tuition a the same time.  In the 1970s people could work full time a summer to pay for a year, but by the late 1980s you needed to work a quarter to pay for a quarter. You could avoid going into debt this way, but by the late 80s you could not get as good an education regardless of how you managed to swing the payment.  Today a bachelor's degree is comparable to a 1970s high school diploma, largely an extremely expensive waste of time, and to take out a loan is to invite slavery, since the loan cannot be bankrupted.

Although education is the extreme, this goes for cars, ketchup, shirts, medicine, religion, law, labor...  you name it.

6. As consumerism overwhelmed materialism, moms had to go to work to pay for the consumerism and the taxes.  Now she has no choice. So long family integrity.

7. All of this distortion results in accumulation of assets in ever fewer hands, and the hegemon and the state growing ever more leviathanesque.  We seem to be at a tipping point.

This is what you get when you legitimize lending credit at interest.  The solution is to de-legitimize this.  If a bank actually lent you nothing, you need not repay it.  There is no more legal recourse for the banks than there is for the house to enforce a gambling debt.  False economy banking would end overnight if it as not backed by the violence of the hegemon.  People's spending patterns would revert to the rational and organic.

Deregulate banking, so organic banks that lend money against assets could revive. with fees for services, not on exploitation.

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