The Debt Trap

During the nineties, I procured my first credit card. Being a cautious socialist who distrusted private banks on principle, the card was from the State Bank of India. Initially I didn’t do much with it, but use it to shop at our local supermarket: the novelty was in taking it out and flashing it instead of a bunch of dirty notes. So things went on satisfactorily for a few months.

1-1204463487cJKyThen, the temptation of buying beyond my means was too much – I purchased something (I don’t exactly remember what) through my card which could not be paid off immediately. In addition to this, I took some cash advance on my card to take care of the expenses of my father’s sixtieth birthday celebrations.

Suddenly, the card had me by the throat. All that was left of my salary after monthly expenses was going towards the minimum payment on my card; however, the outstanding amount was decreasing only minimally. To put it simply, I was paying out interest while the principal remained largely untouched. Moreover, my card had become useless because the credit limit had been reached.

Well, I am glad to say that I caught on to the danger after only a few months, and took out a non-refundable loan from my provident fund to settle the amount on the card in full. After that incident, I started using a credit card only after I came to the Middle East in 2004 – and I am extremely careful settle the outstanding amount in full each month.

I had experienced the nightmare of the never-ending debt loop.

Usury

Matsys_the_moneylenderMoneylenders have always been a despised lot in history until modern times. Usury, the business of lending money at high interest rates so as to make a profit is condemned in Judaism, Christianity and Islam (though Jews are allowed to do so to non-Jews). Christ reportedly drove away usurers from the church with a whip: Islam even now practices a special type of banking without interest. Due to widespread anti-Semitism in the Middle Ages, usury was the only profession allowed for Jews, thus giving rise to caricature of the covetous Jew a la Shylock: ironically, this became a vicious circle of hatred.

In India too, the moneylender (often caricatured in movies as a ‘Bania’ with his characteristic cap and strongbox, sitting cross-legged in his tiny office and fleecing villagers) was not a liked figure. Many people have been fleeced of their life savings and domicile by these rapacious characters. Debt bondage was also common in India, where people were forced work free of cost for generations in the service of the person who lent them money – the debt and interests keep on accumulating.Christ_drives_the_Usurers_out_of_the_Temple

It must have been with the rise of industry, banking and international finance that charging interest on loans lost its stigma as a malpractice. When the borrowed money is used to generate more money on its own, it seems only fair that the lender is compensated – after all, theoretically the profit would have been his, had he used it the way the borrower did. Anyway, except in the Islamic world, lending money on interest is no longer a shameful activity: rather, it is the backbone of the current market economy-driven world. If one is to listen to the bards who sing the praises of capitalism, this is the only sustainable model.

But is it? Since the recession of 2008, I have begun to have serious doubts.

Virtual Money

I am not an economist. In fact, even though I have taken a Post-Graduate Diploma in Financial Management, I am very weak in understanding the vagaries of international finance. Other than the basics of balance sheets, discounted cash flow and future value, I am lost.

However, there is one aspect of modern finance which I am sure is an ultimate recipe for disaster – virtual money, symbolised by the ubiquitous credit card.

Just think about how we do finance nowadays. Most of the money is just numbers on a computer system in a bank’s server. When you buy or sell something, the numbers are adjusted accordingly. And when you buy something on credit, the numbers readjust based on the assumption that you will be able to pay back. If you are not able to, the bank will come after you.

This system will work as long as the majority of the people play by the rules. But when the majority starts defaulting, that’s when things start to come unstuck.

Exploitation and the Myth of Infinite Consumption

“Exploitation” is the cornerstone of the capitalist world we live in today. Even communist ideology is dependent on the “exploitation” of natural resources. Now this is a key word: it creates the impression that exploiting anything and everything for one’s benefit is the natural way of things. This, coupled with the myth that there are infinite resources to go around, has created a covetous, rapacious, dog-eat-dog society where the aim is to get ahead, even by trampling down the one beneath you, paying scarce heed to the voices of reason saying that the current pace and direction of humanity is unsustainable. Social Darwinism, as promoted by Ayn Rand, has become the norm. Is somebody living a miserable life? Well, he deserves it for being too lazy to do better for himself! This is blaming the victim with a vengeance.

Socially conditioned rapacity coupled with the ability to consume beyond means – it was only a question when whole thing would collapse. Well, it has happened. Starting in 2008, we are seeing the beginning of modern society’s one-way roller-coaster ride to disaster.

Greece

Greek-Communist-Party-pro-005Greece is a fine example of what will happen when a government becomes beholden to moneylenders. When a country’s money is invested in “securities” provided by international financiers who know that they are based on subprime mortgages, and later, when these instruments fail and the money vanishes, the same financial vultures force the government to pay back huge amounts – this is nothing short of debt bondage. And the price to be paid? Austerity! Increased privatisation and reduction of government funding on public amenities. To quote a colourful metaphor from the website, http://www.filmsforaction.org:

If you are a fan of mafia movies, you know how the mafia would take over a popular restaurant. First, they would do something to disrupt the business – stage a murder at the restaurant or start a fire. When the business starts to suffer, the Godfather would generously offer some money as a token of friendship. In return, Greasy Thumb takes over the restaurant’s accounting, Big Joey is put in charge of procurement, and so on. Needless to say, it’s a journey down a spiral of misery for the owner who will soon be broke and, if lucky, alive.

(Read the full article, here.)

This is financial extortion on an international scale. Ironically, we find mainstream media blaming the Greek people for this catastrophe.

Even though Greece has voted emphatically against austerity, there is little hope that the vultures will leave off. The country will be squeezed and people pushed into unbelievable misery until these corporate bloodsuckers get their pound of flesh.

***

Unfortunately, we are all cogs in the wheel, and cannot escape the mammoth capitalist behemoth which controls society nowadays. We cannot do away with investments and virtual money. This is why leftists like me are called hypocrites many a time by conservatives, and they are right. All of us are culpable.

But is there nothing we can do? I believe there is.

At this point, I would like to quote the story of the squirrel, from the Indian epic Ramayana.

Legend has it that Lord Rama built a causeway across the ocean to connect India to Sri Lanka, to go over there with his monkey army to fight the demon king Ravana and recover his wife Sita, whom Ravana had abducted. As the mighty monkeys were throwing rocks into the sea, Rama spotted a squirrel running into the water, running back to the beach and rolling in the sand, then running into the water again. When asked the reason for this strange behaviour, the squirrel replied: “I am participating in the building of the causeway. The few grains of sand which stick to my back will also contribute, no?” It is said that Rama became extremely happy and blessed the squirrel.

The moral of the story is simple – nothing is too little. We all can contribute our mite to bringing down this corrupt edifice. Blood-soaked revolutions are not required, nor are they essential.

The first step is control our appetites. It will not be easy – but we can do it. Start slowly and in a limited fashion. Do you need to buy all those consumer products advertised in the TV? Is it required to use your petrol –drinking monster of a car for going that one kilometre? Is air-conditioning absolutely necessary in all rooms of your house?

The second step is to see ways of becoming self-sufficient and promoting self-sufficiency. Do you need to visit that international retail chain for buying vegetables, when your neighbourhood grocer may be able to supply the same? Can you not try to cultivate at least some vegetables in your backyard, or terrace garden? When equivalent brands are available, can you not choose a local one over an international one?

The most important step, in my humble opinion, is to never borrow beyond one’s means.

These are all suggestions and not diktats. I am also a person who is struggling to find ways of escaping from the clutches of the faceless corporations who have no caste, creed, colour or nationality. If we do not, I am afraid that soon sovereign governments may become history, and the world would be divided up among the financial Leviathans.

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10 comments on “The Debt Trap

  1. Unfortunately, IMO, India has also now dived into this rapidly surging stream of mad capitalism, especially seen in the context of consumerism.

    The section of society willing to listen to your advice is continuously shrinking. All middle class want to be like the upper class. If not in their principle/hereditary wealth, then in their consumerist patterns at the very least.

    • Actually I should not point fingers, as I am also part of this capitalist house of cards. But being aware of the fragility of this edifice is the first step towards rectification, I feel.

      And we can always do minor things which are within our capability…

  2. Ah, pesty credit cards obviously do their mission very well regardless of gender, skin colour, race and geographical location of their holders. 🙂

    Just thought you might enjoy reading Joe Nocera’s book A Piece of the Action: How the Middle Class Joined the Money Class. It tells the history of credit/debit cards and other branches of the modern financial industry. It is quite good stuff to read and then think hard about – before venturing in any credit or investment deal.

    P.S.: Landed here because I liked Samandrita’s and your arguments in the long discussion under Samandrita’s blitz-review of Conrad’s Heart of Darkness on Goodreads.

  3. I somehow seems to have missed out on answering your comment! Apologies.

    I use credit cards, but after I got my hands burnt once, I am more wary of how I use them! In an ideal world, you wouldn’t require them – but here in the Middle East, they are fast proving to be an “essential” luxury.

    I will add the book you mentioned to my TBR list. Thanks!

  4. For Western countries like Australia, I think that another way of looking at what is necessary is to live as our parents lived. My mother, according to my brother, has the smallest footprint on the planet. She could scarcely be less materialistic. But she is fairly representative of a generation who knew the value of everything and its cost. Buying local, recycling, walking not driving, no credit card, wrapping rubbish in newspaper, narry a plastic bag in sight, etc etc etc. Her generation was thrifty because that’s the right way to live and it goes hand in hand with being environmentally sound and socially responsible as well. The waste products (using that term in a liberal way) of my generation compared with hers is truly something to be ashamed of.

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