Blinded by Salary Increases & Appreciating Assets — Hard Work is a One-way Road to Poverty

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The laws enacted by the rich provide them with an edge over the rest of society

Wonga has recently gotten some well-deserved negative media attention. This is due to the fact that the firm loans money to some of the most financially challenged persons in the United Kingdom at annual interest rates that may exceed 4,214%.

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“Without the confidence factor, many believe a paper money system is liable to collapse eventually.” — Federal Reserve Bank of Philadelphia, Gold, p. 10
THIS WORK WAS NOT COMMISSIONED OR FUNDED MONETARILY IN ANY WAY. MY IDEAS, THOUGHTS, AND POINTS OF VIEW ARE COMPLETELY THE RESULT OF MY RESEARCH AND EXPERIENCES AND ARE NOT INTENDED TO BE FINANCIAL OR MEDICAL ADVICE. ITS ONLY OBJECTIVE IS TO PROMOTE DISCUSSION AND INFORMATION SHARING ON A BROAD VARIETY OF TOPICS.
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Don’t hate the player hate the game … Or society made me do it, or the system is flawed and I’ve figured out how to work it, or everyone else is cheating too, or I hope I don’t go to prison — Urban Dictionary
This is an irrefutable fact that governments worldwide have already confirmed

Nevertheless, there is another side of the tale that has been completely ignored by the media, despite the fact that it is relevant to practically every facet of the problem. It is connected to the bigger problems that now exist around the unequal distribution of wealth. When Wonga provides loans, it does so by lending money that it already has. The company then charges interest on the loans that it provides. Nevertheless, where did the money for the loan come from in the beginning? How will more money be generated so that the principle, as well as the interest on the loan, can be paid? The fact that commercial banks, and not the government or the Bank of England, are the ones responsible for the creation of new money whenever a loan is made is something that very few people are aware of.

"Where does money come from? In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood. The principal way in which they are created is through commercial banks making loans: whenever a bank makes a loan, it creates a deposit in the borrower's bank account, thereby creating new money. This description of how money is created differs from the story found in some economics textbooks." - Bank of England

The distribution of wealth via interest payments is perhaps the aspect of the process of creating new money that is the most unequally distributed outcome. 90% of the poorest people living in the United Kingdom are responsible for the fact that they pay higher rates of interest to banks than they would ever earn on their savings. As a direct consequence of this, a greater proportion of individuals comprising the top 10% of the population now have better wages than those comprising the lowest 90% of the population. We spend a total of $213 billion annually on all of our obligations combined, and we pay a total of $165 million every single day in interest on personal loans alone (this does not include mortgages or payments to secondary lenders like Wonga). The average amount of debt carried by households in the United States was $54,024 as of the month of May. The graph that follows illustrates how the bottom 10% of income earners pay a disproportionately large percentage of their income in the form of interest to financial institutions. This is a considerable difference when compared to those who earn more than the top 10% of all people in the country.

In his most recent book, titled “Cancel the Apocalypse,” Andrew Simms eloquently describes an additional impact of this system on the degree of imbalance that exists across the globe. He has written the following:

‘Generally speaking, the rich already have a lot of stuff, so when they are given the opportunity to leverage assets, like their homes, they buy more assets, more homes. The poor, who have less stuff, given the same chance but from a more modest basis, use their equity to buy household goods and other consumables that depreciate in value.’ — Andrew Simms

In the current economic system, financial entities, such as banks, produce new money in the form of loans, such as mortgages, which directly adds to the high price of real estate. This system magnifies existing disparities. As a result of the bubble, the wealthy get wealthier as more people buy houses and the price of homes increased. For renters who have not yet acquired a home, rising housing costs will cause rents to rise. A bigger percentage of your income spent on rent will push you farther down the economic ladder. As the cost of acquiring a first home continues to rise, the strain on younger folks increases as well. However, elder homeowners and retirees are financially better situated. All of these variables contribute to the widening income gap between age groups.

Companies are in the same predicament as people. A “real” (i.e., non-financial) productive economy requires money; but, since money is created as a loan, businesses must pay interest to banks in order to stay stable. Financial services are ultimately supported by firms in the real economy, such as retail stores and industrial facilities. Multiple economic sectors provide capital to the banking industry.

The Real Economic Recession

In light of this, it is absurd to suppose that banking has become the most profitable industry, given that it should be a safe place to deposit our money, a payment system provider, and a source of loans when we need them. Banks have become profit-maximizing corporations that feel their high salaries are justified by their ability to regulate the quantity of money in circulation. According to Martin Wolf, one of the world’s most prominent economics writers for the Financial Times, a private company provides three public or almost public products. Money, credit, and a payment system are commodities in this sense.

This is not the only nor most practical way of money circulation, since it involves renting money in the form of digital numbers issued by private companies. There are several methods to achieving financial success.

Positive Money agrees with Negative Money that the Bank of England should issue a currency free of debt. Instead of relying on private banks to lend them money, it should be spent by the government, in our opinion. Commercial banks will no longer be permitted to create new money, but will still be permitted to lend.

This animated film illustrates, for instance, how the current monetary system contributes to existing inequality and is a crucial driver in its growth.

I am a world before I am a man. I was a creature before I could stand. I will remember before I forget. Before I forget that — Before I Forget by Slipknot

Remember me when I am gone away,
Gone far away into the silent land;
When you can no more hold me by the hand,
Nor I half turn to go yet turning stay.
Remember me when no more day by day
You tell me of our future that you planned:
Only remember me; you understand
It will be late to counsel then or pray.
Yet if you should forget me for a while
And afterwards remember, do not grieve:
For if the darkness and corruption leave
A vestige of the thoughts that once I had,
Better by far you should forget and smile
Than that you should remember and be sad
.”

— by Christina Georgina Rossetti

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