|November 8, 2012
Interest charges are a strongly regressive tax that the poor pay to the rich. A public banking system could realize savings up to 40 percent - allowing taxes to be cut, services increased and market stability created - with banks feeding the economy rather than feeding off it.
In the 2012 edition of Occupy Money released last week, Professor Margrit Kennedy writes that a stunning 35 percent to 40 percent of everything we buy goes to interest. This interest goes to bankers, financiers, and bondholders, who take a 35 percent to 40 percent cut of our GDP. 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 Dr. 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. Dr. Kennedy cites interest charges ranging from 12 percent for garbage collection, to 38 percent for drinking water, to 77 percent 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 percent of US business profits in 2006. That's more than five times the 7 percent made by the banking sector in 1980. Bank assets, financial profits, interest and debt have all been growing exponentially.