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Debt is a transfer of wealth

Dickson C. Igwe. Photo: VINO/File
Dickson C. Igwe

Debt is like oxygen. It is everywhere in the world of economics. Debt is currency used to pay for what we want and need. It pays for products that are essential to existence such as hospital care, a roof over the head, or a vehicle in a land with no adequate public transportation. Debt can follow us to the grave if we do not pay off debt at a certain age, leaving our survivors to pay the debt.

On the other side of the scale, debt allows the lender, also known as the investor, the cash for their efforts. It is money put into the pockets of consumers by investors. Consumers who would otherwise be unable to pay for a product without that debt.

Then debt is cash that becomes revenue and profit for the investor who owns the means of production and the financing thereof. Today, we live in the world of supply side, where the producer aka the investor is king.

Debt enables the consumer to possess a product or service which he or she may or may not be able to pay for at a point in time. Debt is wealth transferred between parties or individuals. It makes one party wealthier: usually the lender. Debt is a factor in growing inequality.

How does debt drive inequality? Debt transfers wealth from the bottom of the social pyramid to the top, using the everyday transactions that drive human experience and existence. The vast majority of consumers require some form of debt. Investors, increase their wealth through the exchange of goods and services using debt to sell their products to consumers.  The wise consumer uses debt to increase the value of their assets: typically mortgage debt that enables the purchase of land that appreciates, or cash flow for business.

Now, the moneylender is the intermediary between producer and consumer.  The moneylender has evolved over the centuries into the banking, finance, and investment industry. The moneylender is the capitalist using his cash as capital to increase his wealth. The lender is the investor who lends to consumer, business, and industry, with the aim of greater returns. Lending is a major industry. It is an octopus with tentacles going into every industry.

That octopus is investor’s cash not used in the everyday transactions of commerce: cash that sits in its own valuable space. It is money owned by individuals, small and large savers, and investors. This money migrates into secret spaces, and bank vaults as deposits or savings. It further converts into various securities and speculative tools for investment bankers and speculators to adopt.

This ‘’excess’’ cash from trade and commerce forms the basis of bank lending. It is capital. It is ‘’silent’’ money: a magnet that adds value. It drives lending to individuals, businesses and governments. Fund managers invest it into corporations. It is cash flow for businesses from bank lending. Debt capital finds its way on to trading floors, exchanges, and commodity markets, through various devices to increase the wealth of investors and speculators.

Debt sits in homes, cars, businesses, credit cards, loans, and so on and so forth borrowed by billions of consumers. It returns to savers and investors in the form of interest, profits, and capital gains.  This is how wealth increases and billionaires created. This is also, why social inequality exists.

Dickson Igwe

9 Responses to “Debt is a transfer of wealth ”

  • jack (07/10/2023, 15:27) Like (1) Dislike (1) Reply
    Tell them
  • Contrarian (08/10/2023, 11:43) Like (5) Dislike (0) Reply
    Not all consumers uses debt. Some pay cash and others borrow. Consumers who don’t have the means to pay cash for big ticket items, ie, appliances, cars, houses, etc., leverage their income to borrow to purchase them. It is important to note that some consumers with large cash stash in the billions forgo paying cash. Instead, they used OPM,ie, other people’s money; they borrow. Why? The rich can leverage debt to get richer while debt makes the middle class and poor poorer. Moreover, debt is money, and debt is tax free. Debt grows the economy, i.e., when debt is created, money is injected in the economy and when debt slows the economy also slows. Debt can be useful but is expensive so use debt carefully and wisely. The biggest income producer for banks today is credit cards. Banks love those card holders that pay the minimum monthly for ever. They are not too enthused with card holders who pay off their balances monthly. They are working on ways to have these card holders to pay something. Remember when banks compete for your deposits, ie, paying higher interest rates? Today, they discourage deposits, ie, low interest rates. Europe and Japan are charging savers; it is known as Negative Interest Rate Policy( NiRP); this trend will catch on elsewhere.
    • Quiet Rebel (08/10/2023, 14:04) Like (2) Dislike (0) Reply
      @Contrarian, now I see why the banks paying me pittance on deposit. In a different era I would be better off putting my money in a mattress.Debt is causing many to lose their piece of the rock. Whatever happened to that land bank idea?
  • Disinterested (09/10/2023, 05:54) Like (2) Dislike (0) Reply
    When will basic finance get on the secondary/high curriculum? Understanding basic finance is an essential part life and living. Lack of basic understanding of finance/money carries a huge opportunity cost for citizens/residents/consumers. Question?? Why does debt makes the rich richer but the middle class and the poor poorer? Is the system rigged? Is not debt a death trap?
  • Contrarian (09/10/2023, 09:41) Like (2) Dislike (0) Reply
    Ordinary income , ie, ordinary people that work for a living, etc, is the worst income, and has the highest tax rate. Further, individual income earners, ie, middle class and poor, normally invest in liabilities which are not typically tax deductible and takes money out of their pockets, ie, they pay from their income to make payments ( cars, homes, appliances). The rich on the other hand behave in a different manner. The tax system, structure, favors, the rich. The golden rule, a maxim, he who owns the gold makes the rules. The rich control and force the politicians to pass laws, ie, tax laws, in their favor. Consequently, they borrow money, ie, incur debt, to invest in assets that are tax deductible. The tax system is structured so that the rich can legally use the tax system to pay little or no taxes. The rich invest in tax deductible stuff that puts money in, not take money out of their pockets, ie, multi/family housing, etc., as compared to the middle class and poor who invest in liabilities that takes money out, not put money in their pockets, ie, cars, etc. The rich gets richer and poor gets poorer. The individual tax rate is one of the highest rates. Consequently, the rich don’t work for ordinary income, ie, money. They prefer Portfolio income, passive income, phantom income, etc. The government likes and incentivizes these types of income.
    • Disinterested (09/10/2023, 10:53) Like (1) Dislike (0) Reply
      To Contrarian, thanks for the info. Looks like it takes money, financial education, and financial literacy to make money in the rigged system.
    • Quiet Storm (09/10/2023, 11:08) Like (1) Dislike (0) Reply
      @Contrarian, good financial info. Almost quarter of semester in financial info. ; finance students probably would like it. VINO operates as a university, informing and education. It lets bloggers have their say without selecting what to post, if it not slandering or libeling and meets normal standards.
  • Citizen (09/10/2023, 20:14) Like (0) Dislike (0) Reply
    another great read
    • @citizen (10/10/2023, 09:45) Like (2) Dislike (0) Reply
      To Citizen, tell us financial dummies who only went to Manda School what are the salient points in the read, leaving us hanging.

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