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It's the Interest, Stupid! Why Bankers Rule the World

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Money that works for the .001% by

In the 2012 edition of Occupy Money released last week, Professor Margrit Kennedy writes that a stunning 35% to 40% of everything we buy goes to interest.  This interest goes to bankers, financiers, and bondholders, who take a 35% to 40% 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 1 2% for garbage collection, to 38% for drinking water, to 77% 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 s imilar figures are seen in financial sector profits in the United States, where they composed a whopping 40% of U.S. business profits in 2006.  That was five times the 7% made by the banking sector in 1980.  Bank assets, financial profits, interest, and debt have all been growing exponentially. 

U.S. Bank Assets by

Adapted from

Exponential growth in financial sector profits has occurred at the expense of the non-financial sectors, where incomes have at best grown linearly.

Household Income by

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By 2010, 1% of the population owned 42% of financial wealth, while 80% of the population owned only 5% percent of financial wealth.  Dr. Kennedy observes that the bottom 80% pay the hidden interest charges that the top 10% collect, making interest a strongly regressive tax that the poor pay to the rich. 

Exponential growth is unsustainable.  In nature, sustainable growth progresses in a logarithmic curve that grows increasingly more slowly until it levels off (the red line in the first chart above).  Exponential growth does the reverse: it begins slowly and increases over time, until the curve shoots up vertically. Exponential growth is seen in parasites, cancers . . . and compound interest.  When the parasite runs out of its food source, the growth curve suddenly collapses.     

People generally assume that if they pay their bills on time, they aren't paying compound interest; but again, this isn't true.  Compound interest is baked into the formula for most mortgages, which compose 80% of U.S. loans.  And if credit cards aren't paid within the one-month grace period, interest charges are compounded daily.

Even if you pay within the grace period, you are paying 2% to 3% for the use of the card, since merchants pass their merchant fees on to the consumer.  Debit cards, which are the equivalent of writing checks, also involve fees.  Visa-MasterCard and the banks at both ends of these interchange transactions charge an average fee of 44 cents per transaction--though the cost to them is about four cents.  

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How to Recapture the Interest: Own the Bank

The implications of all this are stunning.  If we had a financial system that returned the interest collected from the public directly to the public, 35% could be lopped off the price of everything we buy.  That means we could buy three items for the current price of two, and that our paychecks could go 50% farther than they go today. 

Direct reimbursement to the people is a hard system to work out, but there is a way we could collectively recover the interest paid to banks.  We could do it by turning the banks into public utilities and their profits into public assets.  Profits would return to the public, either reducing taxes or increasing the availability of public services and infrastructure.

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Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including the best-selling WEB OF DEBT. In THE PUBLIC BANK SOLUTION, her latest book, she explores successful public banking models historically and (more...)

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and this is just today's mechanism for the transfe... by B. Ross Ashley on Friday, Nov 9, 2012 at 6:41:18 PM
Modern-day feudalism.  ... by Ellen Brown on Friday, Nov 9, 2012 at 6:42:55 PM
Marx was quite wrong. Also, BRIC countries can't ... by BFalcon on Saturday, Nov 10, 2012 at 10:27:49 PM
people would disagree with Marx being right since ... by Mark Adams JD/MBA on Sunday, Nov 11, 2012 at 12:15:56 PM
Strange that you compare it to socialism. You real... by Timothy Gatto on Sunday, Nov 11, 2012 at 12:36:31 PM
a bottom up government, and even though I've expla... by Mark Adams JD/MBA on Sunday, Nov 11, 2012 at 3:19:42 PM
Well, Tim, how you conclude that our ruling class ... by Robert James on Monday, Nov 12, 2012 at 2:39:54 PM
with Ellen Brown. No brainer Obama!... by Lois Gagnon on Friday, Nov 9, 2012 at 6:43:25 PM
... by Ellen Brown on Friday, Nov 9, 2012 at 7:35:28 PM
Ellen; You have been an ispiration to me for some ... by James Tennier on Saturday, Nov 10, 2012 at 11:35:03 AM
I promise to avoid call girls and interns!  ... by Ellen Brown on Saturday, Nov 10, 2012 at 7:16:58 PM
I am constantly amazed to see so few know so much ... by James Tennier on Sunday, Nov 11, 2012 at 1:22:35 PM
Because Obomber is a treacherous shill for the rul... by Robert James on Monday, Nov 12, 2012 at 2:42:19 PM
No! Well not completely, I don't know... I wish... by James Tennier on Tuesday, Nov 13, 2012 at 11:21:47 AM
At the very least, you deserve a key spot on the c... by Scott Baker on Saturday, Nov 10, 2012 at 11:49:46 AM
Bypass the bank as provided under current legislat... by Robert Bostick on Friday, Nov 9, 2012 at 8:45:29 PM
Very interesting, thanks!   ... by Ellen Brown on Friday, Nov 9, 2012 at 11:43:38 PM
Ellen? If the Potomac Oricle knows this stuff and ... by James Tennier on Saturday, Nov 10, 2012 at 11:47:20 AM
1996 was an important year for another reason.&nbs... by Scott Baker on Saturday, Nov 10, 2012 at 12:03:18 PM
A simpler solution would be to just Nationalize th... by Arend Rietkerk on Saturday, Nov 10, 2012 at 6:15:30 PM
Since Obomber disregards the Constitution, his Oat... by Robert James on Monday, Nov 12, 2012 at 2:48:05 PM
US Congress - from the 63rd onward..borrow from Th... by Lance Ciepiela on Saturday, Nov 10, 2012 at 10:12:42 AM
They may borrow from The FED. We pay the interest:... by James Tennier on Saturday, Nov 10, 2012 at 11:48:29 AM
This is a good point - and the only good point con... by Sarah Joames on Saturday, Nov 10, 2012 at 2:55:28 PM
Since the Fed is controlled by foreign interests, ... by Robert James on Monday, Nov 12, 2012 at 2:58:10 PM
There's more than one way to skin a cat it is said... by David Roche on Saturday, Nov 10, 2012 at 1:06:39 PM
DON'T.TAKE.LOANS.YOU.HAVE.FREE.WILL.STOP.BEHAVING.... by Sarah Joames on Saturday, Nov 10, 2012 at 2:49:20 PM
that we have control over our financial circumstan... by Lois Gagnon on Saturday, Nov 10, 2012 at 3:35:09 PM
'expontential growth' is impossible?Really? Actual... by Sarah Joames on Saturday, Nov 10, 2012 at 2:54:30 PM
You have been fooled into thinking economics is se... by Howard Switzer on Saturday, Nov 10, 2012 at 5:28:39 PM
 Resources in the eco-system are changing all... by Mark Oetting on Sunday, Nov 11, 2012 at 9:17:22 AM
All too true.  The American Indians had it ri... by Robert James on Monday, Nov 12, 2012 at 3:00:53 PM
The United States Federal Government is broken a... by Kenn Spaqce on Saturday, Nov 10, 2012 at 3:42:41 PM
Thanks, Ellen Brown, for sharing Margrit Kennedy's... by Ernie Messerschmidt on Saturday, Nov 10, 2012 at 3:49:39 PM
I also like public banks which make sense as long ... by Howard Switzer on Saturday, Nov 10, 2012 at 5:36:14 PM
I like the idea of turning the interest situation ... by Ernie Messerschmidt on Saturday, Nov 10, 2012 at 6:42:00 PM
It's the Adaptive Permutation, Silly.... by roger erickson on Saturday, Nov 10, 2012 at 7:09:48 PM
But please remember that the 'central banks' inven... by Keith Pope on Sunday, Nov 11, 2012 at 3:28:30 AM
Two new petitions have been set up through the PBI... by Scott Baker on Tuesday, Nov 13, 2012 at 2:33:56 PM