Guest Post: No Debt Will Ever Be Repaid

Via Notes From Disgracedland’s Bjarne Knausgaard

Debt and guilt are two intimately related concepts. In some languages (Sanskrit, Aramaic, Hebrew, German) the two words even have the same root – the German makes it particularly explicit: Schulden (debt) vs. Schuld (guilt). In the same way guilt implies that we will have to atone in the future (or in the afterlife) for the sins committed today, debt is a handover of a part of our future in exchange for present consumption.

The dynamics of capital accumulation is based on the perpetual process of investment in a borrowed future. “Borrow today and repay later” logic carries an implicit bet on the future. Without an optimistic outlook on the future, there is no lending or borrowing. Debt links the present and the future in a circular way: A prosperous future cannot happen without the present, and the present cannot take off without a belief in (better) future. In this way, the very concept of the future undergoes a transformation in capitalism: It no longer represents a timeline we experience, but a concept we envision.

By now, accumulation of debt has become so pervasive that today there is more debt than wealth in the world. No debt will ever be repaid. It exists in a virtual space with an understanding that it can never be allowed to intersect with the real world. Today, debt links institutions and individuals through virtual default – everyone is both a victim and an accomplice in that game[1]. So why does debt still persist?

Debt defines the power structure inherent in the debtor-creditor relation. It has become the main instrument of biopolitics, especially in the last decades of neoliberal hegemony. In the absence of a real collateral (like house, car or any material good), creditor feels entitled to impose upon the debtor’s modes of behavior consistent with initial expectations of debt issuance. It is logical for the creditor to demand from the debtor maintenance of a lifestyle that guarantees his creditworthiness and ability to honor his obligations. For example, in the case of welfare (social debt), government has the power and (it assumes) the rights to pressure the welfare recepient into a conduct that increases his chances of getting back on track – rehabilitated and reintegrated into the mainstream society – so that his social debt is effectively reduced.

In the past, the United States, and other developed countries, used to finance the production of others – this was the traditional center-periphery interaction. Its credit-financed growth, which came to a halt in 2007, created domestic imbalances. This “domestic debt” had to be paid by borrowing from abroad – borrowing to service an already existing debt – a grand pyramid scheme of a sort. In an odd and misguided interpretation of the theory of comparative advantages, the United States specialized in the production of debt, but in international currency (US dollar). This enabled others, e.g. China, to “buy dollars” in exchange for its commodities[2]. To put it more bluntly, the United States imported from China commodities, labor and real products, in exchange for debt — a piece of paper, an IOU. (Who really got a better deal here, or who could get potentially screwed in this transaction?) Thus came about a strange situation in which the emerging world producers, the periphery, also became the net world creditors on condition, however, that payment of debt never be demanded.

United States, the world’s largest economy, owes foreign countries more than $6 trillion dollars, about 1/3 of its GDP (and another $10-12tr domestically). To China alone, it owes $1.2tr, to Japan $1.1tr and to European countries around $1.5tr – about 2/3 of its total foreign debt is concentrated in three economic regions. In principle, these three (and not to forget, rather powerful) creditors have the right to tell the United States how to “behave” – how to conduct its policies to insure its ability to service and repay its debt. In turn, the US is incentivized to comply with whatever the imposed rules, this implicit “code of conduct”, in order to maintain its creditworthiness and ability to borrow more in the future.  Global capital, thus, can demand access to the US political process, and, in order to allow that access, the US laws should be modified accordingly: Global creditors are given a way to have a say about who is elected in policy making offices, including the president of the United States. This is how debt becomes an instrument of global governance. This is the same mechanism already seen at play when IMF and the European Union used their “creditor rights” to disagree with the results of the Greek elections, their choice of the finance minister and a general shape of the local political landscape, followed by their insistence to impose austerity measures in order to insure Greece’s ability to service its debt to the large European banks and to the detriment of the Greek economy and people.

In this way, democratic process becomes compromised by influence of global capital which demands as collateral the ability to protect its interests through presence in domestic policy or eventually access to the real US assets, demand tighter regulations and smaller financial markets as a way of reducing the default risk, or more favorable trade agreements.

Submission to the tyranny of the Global becomes the other side of debt. Our lives become arranged to harmonize with demands of extraterritorial capital flows over which local politics has no jurisdiction and little or no influence. In order to keep global capital happy, budgets have to be balanced, welfare state dismantled, safety net removed and precarity and asymptotic unemployment as a way of life accepted. In this constellation of things politics becomes the problem instead of solution and status quo the only (peaceful) way ahead.

The acceptance of the existing democratic mechanisms as the ultimate frame is preventing a radical (or any other) transformation. Peaceful social life is itself an expression of the (temporary) victory of one class- the ruling one, with the state as an apparatus of class domination. Unable to perform the functions that states generally do, all states eventually become failed states.

Compromised democracy and loss of autonomy is the price to pay for excessive government debt. This is a perpetual process whose end is becoming only more elusive with time. It looks increasingly less like atonement and more like an eternal damnation.

[1] Jean Baudrillard, The Transparency of Evil, Verso 2009

[2] Massimo Amato & Luca Fantacci, Saving the Market from Capitalism, Polity 2014