The True Cost of Debt

This article was originally posted at americanchronicle.com on May 12th, 2008

've heard that in 1913, before the Federal Reserve was created, eighty percent of homes owned by Americans were owned outright. Could you imagine that? Eighty percent of the families living in single family homes didn't have to pay a mortgage. They had all that extra money to spend on other things. They could save for retirement. They could afford to buy upgrades. They didn't have to worry about losing their homes if the economy turned sour. They were more or less assured that their families would at the very least always have a roof over their heads. They didn't have to worry about some bank or mortgage company foreclosing on their home and taking everything they'd worked so hard to build, leaving them destitute. I imagine that helped make the people back then quite independent and self reliant. I heard that today only three percent of families living in single family homes own their home outright. Quite a difference a century makes.

Now, I don't usually go throwing numbers around in the articles I write. There is good reason for this. First off, I really don't have the time to go double checking on all these statistics and making sure I'm being accurate. Second off, numbers and statistics often times lie, or at the very least they mislead. There is almost always some kind of agenda behind statistics, some individual or group or political entity trying to get you to believe something in order to gain money or power. Statistics can be manipulated in order to make a situation sound better or worse than it really is, and often times they are so manipulated and convoluted that it becomes hard to know what to believe. I find this particular statistic very interesting, however, not because of its accuracy or whether it's been manipulated, but because of what it says about how far we as a society have fallen. It shows just how much we've become dependent upon huge, cold, uncaring bureaucracies, and how we've lost our independent spirit that at one time defined what it meant to be American.

Even if the eighty percent and three percent figures aren't entirely accurate, even if its more like seventy five percent and five percent, or as low as sixty percent and as high as ten percent, it is still not hard to believe that a huge percentage more people owned their own homes before the creation of the Federal Reserve than do now. Back then, money was based on gold and silver, as provided for in the constitution, and there was hardly any inflation. One didn't have to worry so much about the value of the dollar falling, so it was much easier to save for a big purchase. Many people built their own homes, starting them out small and adding on as they needed. They didn't have to worry about the extra costs foisted upon them by government regulations. They made their own decisions about safety. Today, all you have to do is look around you. No one I know owns their house outright. Even my friends and family who I consider well to do don't own their homes. The banks more or less own just about everything, and they just let you live on their properties. To make matters worse, governments can come along and take any land they want for any reason. Even the Supreme Court has ruled recently that a local government could take a property and then give it over to a private entity, proving once again that they are not concerned with American ideals such as individual rights, property rights or the pursuit of happiness. Remember, the Supreme Court of the United States of America once ruled that a human being could be the property of another human being. The Supreme Court has shown historically that it cannot or will not protect individuals from the power of certain elite individuals, institutions or groups, let alone the power of the state.

So it is that in today's world we are hearing about the housing crisis. People took out loans based on possible future earnings and rosy economic forecasts that simply did not pan out. And yet wasn't this situation inevitable? At some point in time we have to face up to our responsibilities and pay the piper, so to speak. There are no guarantees in this world and none that growth could be maintained permanently. Like a balloon inflating, sooner or later the air has to be let out or the balloon will pop. So it is with the economy. The inevitable cannot be stopped, only postponed.

Yet this does not have to be how the world works. Consider that for millennia economies operated just fine without the help of central banks. People did business with each other in exchange for precious metals or other goods or services. When business is done in this manner, no one is indebted to anyone else. It is only when one borrows and another lends that one man can lay claim to another's labor or possessions. In modern society, going into default can lead to loss of possessions. But there's more to it than that. Our money, printed at will and based on debt, is losing value, but those who lend it out, those who print it, have nothing to worry about. It is only those on the bottom of the pyramid, those who support the system on their backs, who will pay the most.

Consider for a moment that in today's world, it would be nearly impossible for the vast majority of people to buy a house without a bank loan. And since there is little possibility of saving enough to buy a house outright and renting nets one nothing, taking out a loan seems to be the best alternative. As many of you may know, the true price of a house goes up quite a bit when a loan is used. By the time a thirty year mortgage has been paid off, the original selling price of the house has been covered three times or more. Even if the house was to have tripled in value when you sell it, you will only be making back the money you put into it, and that's not including any upgrades, repairs or additions you may have made to it. Where has all that money gone? It's gone from those at the base of the pyramid to those at the top.

And yet there's still more than just money involved here. The true cost of debt could very well be our real wealth. As more people lose their homes, more wealth is taken out of the hands of the general populace and put into the hands of the banking elite. As more people lose their wealth, less people will be able to afford to spend on the goods and services offered by others in this country. As this happens, businesses begin to shut down, more people lose their jobs, more people lose their wealth, and a downward spiral continues. Those at the top of the pyramid will likely horde the wealth and keep it out of circulation. In desperation, the populace will likely turn to the government for help, perhaps demanding that government force the elite to relinquish their hold on real wealth. The government, only too happy to help, will in this way make the populace dependent upon their ability to use force. This is where the true cost of debt becomes evident. Debt could well cost the masses their independence. For a few crusts of bread, many may sell out their freedoms.

I hope this situation can be avoided. I hope that those experts who claim we are well on the way to such a scenario are wrong, as I'm sure they do to. Yet I can't help thinking that all this could have been avoided by simply adhering to the dictates of the constitution and the advice of some of the founding fathers. Even if we do end up in such a hopeless situation as some suggest we will, we can help ease suffering by accepting currencies other than Federal Reserve notes, by accepting any kind of barter another may offer in a voluntary transaction. And even if we do somehow manage to save this floundering economy, even if we do right the ship and bail it out, one could wonder if we will continue to make the same mistakes. Those who can should do their best to become debt free. A debt free society makes for a more independent, wealthier society. And as the future unfolds and we begin to recognize the mistakes made and the fraudulent practices that have been allowed, we need to demand sounder currency based on something other than debt. In this way we can move forward with an eye to keeping our economy stable rather than trying to force it to grow. When this happens, perhaps debt will not be so costly.