Resident columnist Dickson Igwe
Debt is like oxygen. It is everywhere in the world of economics. Debt is currency used to pay for what we want and need. It pays for products that are essential to existence such as hospital care, a roof over the head, or a vehicle in a land with no adequate public transportation. Debt can follow us to the grave if we do not pay off debt at a certain age, leaving our survivors to pay the debt.
On the other side of the scale, debt allows the lender, also known as the investor, the cash for their efforts. It is money put into the pockets of consumers by investors. Consumers who would otherwise be unable to pay for a product without that debt.
Then debt is cash that becomes revenue and profit for the investor who owns the means of production and the financing thereof. Today, we live in the world of supply side, where the producer aka the investor is king.
Debt enables the consumer to possess a product or service which he or she may or may not be able to pay for at a point in time. Debt is wealth transferred between parties or individuals. It makes one party wealthier: usually the lender. Debt is a factor in growing inequality.
How does debt drive inequality? Debt transfers wealth from the bottom of the social pyramid to the top, using the everyday transactions that drive human experience and existence. The vast majority of consumers require some form of debt. Investors, increase their wealth through the exchange of goods and services using debt to sell their products to consumers. The wise consumer uses debt to increase the value of their assets: typically mortgage debt that enables the purchase of land that appreciates, or cash flow for business.
Now, the moneylender is the intermediary between producer and consumer. The moneylender has evolved over the centuries into the banking, finance, and investment industry. The moneylender is the capitalist using his cash as capital to increase his wealth. The lender is the investor who lends to consumer, business, and industry, with the aim of greater returns. Lending is a major industry. It is an octopus with tentacles going into every industry.
That octopus is investor’s cash not used in the everyday transactions of commerce: cash that sits in its own valuable space. It is money owned by individuals, small and large savers, and investors. This money migrates into secret spaces, and bank vaults as deposits or savings. It further converts into various securities and speculative tools for investment bankers and speculators to adopt.
This ‘’excess’’ cash from trade and commerce forms the basis of bank lending. It is capital. It is ‘’silent’’ money: a magnet that adds value. It drives lending to individuals, businesses and governments. Fund managers invest it into corporations. It is cash flow for businesses from bank lending. Debt capital finds its way on to trading floors, exchanges, and commodity markets, through various devices to increase the wealth of investors and speculators.
Debt sits in homes, cars, businesses, credit cards, loans, and so on and so forth borrowed by billions of consumers. It returns to savers and investors in the form of interest, profits, and capital gains. This is how wealth increases and billionaires created. This is also, why social inequality exists.
Dickson Igwe is an education official in the Virgin Islands. He is also a national sea safety instructor. He writes a national column across media and has authored a story book on the Caribbean: ‘The Adventures of a West Indian Villager’. Dickson is focused on economics articles, and he believes economics holds the answer to the full economic and social development of the Caribbean. He is of both West African and Caribbean heritage. Dickson is married with one son.
