I did a brief speech at the latest debtors’ assembly for Strike Debt Bay Area on both Fringe Finance and International Debt. With the time allotted I couldn’t get to nearly as much as I wanted to, so I will reproduce my notes here:
The Debt-System effects everyone, even people outside of the traditional banking system. It costs people who don’t have a bank account (the unbanked or underbanked) more money just to use their own money.
People choose not to use banks mainly because they don’t have enough money to meet the minimum balance requirements of banks and have had bad experiences with overdraft charges. They are primarily poor people.
The un- and under-banked people make up about one-quarter of Americans, that’s 25% of all people in America not being served by the banking system. These people must turn to Alternative Financial Services.
Check Cashing Outlets
Check Cashers take out about 4% of your pay check. For someone who uses Check Cashers their entire life, the average amount given over their lifetime is about $40,000.
Check Cashing stores have more than doubled in number this century, and the cost for using them has gone up by about 75% in the period 1996-2006.
Pre-Paid Cards have been getting popular, they are used by 13% of people in the US. They also charge you to access your own money, though a but cheaper than check cashers.
Examples of Pre-Paid Cards: GPR Cards and EBT Cards.
GPR (General Purpose Reloadable Cards) have many fees: monthly fees, activation fees, inquiry fees, and more.
EBT (Electronic Benefit Cards) are for funds given by governments to cut down on paper use (and extract fees). They are better for you when from the federal government than the state (like with Food Stamps and Unemployment Benefits). In California, fees and other costs of use are better than other states, but they’ll still hit you with lots of fees.
Welfare recipients paid $17 million plus in fees and ATM surcharges in CA alone in 2012. So fees add up with Pre-Paid Cards.
Pay Day Loans
12 million people took out a Pay Day Loan in 2012 and they’ve been getting more and more mainstream since the 2008 financial crash.
In the early 1990’s, there were less than 200 Pay Day Lenders, now there are 23,000 – that’s more than McDonalds for some perspective.
Pay Day Lenders give you money you need now at very high interest rates. Borrowers often end up paying back the Pay Day Lenders many times more than the original loan.
Most people (69%) take our Pay Day Loans to meet everyday expenses. So it’s not just emergencies that lead to Pay Day Loans, as some people believe.
The Pay Day Lenders’ game plan is to keep you in their Debt-Trap and keep the interest rolling over. They call it “Churning”: they don’t want you to pay do back the loan ASAP (only 2% of borrowers actually do). 75% of Pay Day Loans are for the purpose of this Churning and it nets them $3.5 billion.
Pay Day Loans are unsecured, meaning if you default they can’t repossess anything you own. No Debt Collectors, so don’t be frightened by them. They can contact a Credit Reporting Agency and lower your credit score, but they mostly use this as an empty threat.
There are also Pawn Shops, Auto Title Loans, and Rent-to-Own Stores which are more fringe finance institutions that extract fees, interest, and possessions primarily from poor people.
Solutions to Fring Finance:
Community Check Cashing exists in Fruitvale area if you can travel there conveniently. CCC works on a non-profit model which we are trying to extend in our working group. Join us if you like!
Postal Banking is the big one. It has already worked for over 50 years in the twentieth century very well. Postal Banking could perform just about all of the fringe finance business’ but on a cheaper public model, without the fees and usurious charges. Postal Banking is used in many countries now successfully, it is a kind low-level but far-reaching public bank.
Fringe Finance is perhaps the lowest level of the debt-system. People outside the banking system still get caught up in the debt-trap and are hit especially hard.
At perhaps the highest scale of the debt-system there is International Debt – the opposite extreme where entire countries are put under the control of financiers who weaponized debt.
This is how the standard explanation goes: A sovereign country must borrow money and go into debt if it spends too much money and doesn’t collect enough taxes.
But they do this because central banks and other international institutions prevent them from issuing their own currency and controlling its supply, so that these countries cannot control the supply and creation of their own currencies.
Control of the money in a country is in almost every case now controlled by private banks and their willingness to lend.
The Bank of International Settlements (the BIS) in Basel, Switzerland sets the rules of the global financial game for most of the countries on the planet. It was set up in 1929 as a way to shore up the power the international bankers were losing during the beginning of the Great Depression.
But it was right after a World War II that the main standards of the global financial system were set at the Bretton Woods Conference in 1944. This is where the IMF and World Bank were established.
When a country needs money to expand its economy, repay a previous debt, or gain more foreign currency reserves, it must appeal for credit from the IMF or World Bank, or issue bonds (92% of bonds are issued/sold at New York or London).
When countries take out loans from the IMF or World Bank, they must grow their economies mainly by increasing exports. This allows them to match their debt repayment with profits from exporting to consuming nations. If they cannot repay all of the debt from those loans by competing on the global export market, they are caught in the debt-trap.
The IMF and World Bank then impose structural adjustment programs that slash public institutions, public benefits, and public infrastructure. They force countries to privatize public goods like land and industry, because they have to pay the debt instead of their own people.
Privatizing public goods, land, and services gives countries a one-time boost in profit but cancels all further public profit to governments and the free use of the commons.
So, this is all about control, and debt-based finance is perhaps the primary tool for control today besides military intervention.
Any country that tries to break free and play by their own rules can attacked with currency raids and short selling on the foreign exchange market – which devalues an entire worth of a country’s economy.
Nations led by the US can also impose sanctions, saber-rattle, and fund revolutions within the dissenting country to establish sympathetic military rulers (or Juntas).
This is what happened in Chile in the 70’s, Libya a few years ago, what’s happening in Syria and Venezuela now, and what they are trying to do to Iran and Russia. There are many other examples in South and Central America, the Middle East, and Africa.
A good example with a happy ending is Argentina. 70’s – military dictatorship. 80’s – Neoliberal regime that led to a hyperinflation scenario of too much money borrowing. 90’s – massive privatization of natural resources (oil, roads, and banks). The interest in the loans and austerity conditions attached to them meant an uncompetitive, depressed economy.
So, in 1995, there was a run on the banks and massive capital flight out of the country – a major depression.
Now for the good part: without any kind of decent banking system, people turned toward alternative currencies (local communities made-up their own money).
Propel conducted massive, sustained protests that delegitimized the entire Argentinian government and made them fear for total loss of control. “Que se Vayan Todos” – “They can all go (to hell)” was their main slogan.
This pressure from below forced the Argentinian government to default on its International Debts. By re-nationalizing it’s once privatized industries, doubling social spending, and public investment, Argentina’s economy grew rapidly in the 2000’s. They went from negative growth to over 8% per year growth.
Recap on Argentina: by walking away from its debts, brought on by massive popular protest, and a re-nationalization of privatized goods, services, and land, Argentina saw major economic revival.
They were able to restructure their debt to far less than the original amount and paid off their IMF debt altogether. They did this by *issuing their own currency under their own control* and boosting public investment.
In the 2000’s, Argentina saw poverty drop from over 50% to under 15%.
Vulture funds bought some debt and refused to renegotiate it down, and there is an ongoing court battle over these culture funds right to collect the entirety of the debt that they bought from someone else.
The big one is Sovereign Money: to allow treasuries to print their own national currencies without borrowing it first from Private Central Banks or issuing bonds. The Central Banks would be public and under public control vs. for-profit private banks.
It happened in America during the civil war when Lincoln printed Greenbacks, which are the original design for the dollars we use today. Now, however, they are federal reserve notes, not treasury notes).
Canada is under a court battle for this right now and Iceland gained this after their revolution…
And Finally, Public Banks
Public Banks put money earned from interest on loans (profit) into the accounts of city and state governments instead of private banks because it would be a municipal, state, or regional bank.
They would partner with local banks and credit unions not compete with them.
Luckily we have one already in the State of North Dakota. The Great Recession and bank failure of 2008 had no effect on their economy whatsoever.
Most all major successful economies around the world today have a strong public banking sector: China, India, Brazil, Russia, and Germany (plus more).
The debt-system effects us all from big to small, from those outside of the banking system to entire countries, Fringe a Finance to International Debt. There are alternative models and solutions at each step, but we need major public pressure to recapture public goods, services, and land before these solutions can be put in place – like in Argentina.
The sources for this speech were The Debt Resistors’ Operations Manual [link], The Public Bank Solution by Ellen Brown [link], and The Democracy Project by David Graeber (for the bit about Argentina’s massive public protests of delegitimization)