Debt for Dummies: Who We Really Owe the Money to

06/27/2011 05:26 pm ET | Updated Aug 24, 2011

So this is how things are:

People work. They get paid. They put their money in banks. These are called deposits.

Other people manage the money of the bank. These are called bankers. They pay themselves very well. They tend to think of the money as belonging to the bank, but that is an illusion. It belongs to the depositers.

Most people in the world need more money than they have in the bank. They need it to start and operate businesses, to buy houses and cars, to go to college. So the bank loans the money back out. This is called extending credit. Most people spend most of their lives paying this money back -- sometimes more in interest than in principal.

People don't just deposit their money directly in banks, they also pay taxes that the government puts in banks. The government then redistributes that money. Sometimes the taxes are fairly well-spent, (despite facile government-bashing) on things like education and infrastructure. Sometimes the taxes are wasted on war and corruption. In any event, the source of this money is still all those taxpayers.

Over time, people who make a lot of money have pretty much made sure that they keep making a lot of money. Sometimes they provide value in exchange -- like by inventing something -- sometimes not. Clearly, who ends up with how much is not particularly fair. It is debatable whether someone who works 10 hours a day sweeping the streets or toiling in a factory should have far less resources available to him or her than someone born into wealth. For some people, the "free market" is the fairest arbiter of allocation. Other people believe worshiping the "free market" is an inhumane crock of shit.

In any case, the great heaping piles of money in banks "belong" to a great many people. Collectively, they loan out that money to heaps of other people. Very roughly speaking, the same people (mostly the world's richer half) are doing both the borrowing and the lending. In essence, we borrow the money from ourselves, and owe the money to ourselves. This is called irony.

Of course economies and trade must be built on agreements -- no one is suggesting anarchy. But the idea that interest must be endlessly paid and never applied to the principal is pure and simple loan-sharking. Banks, for example, are figuring out ways to loan Greece more money to pay off the loans it already has. A quarter of our own budget is spent on interest on the national debt alone. This is nuts.

I understand that challenging the sanity of humanity endlessly owing money to itself is radical. It requires signing on to the unfashionable idea that we are all citizens of the world before we are citizens of any country; that the haves and have-nots are spiritual siblings. Perish the thought that the Irish or the Indians or the Chinese are just as much my brothers and sisters as John and Josephine Doe across the street. But when we think of our relationship that way, it is far easier to imagine forgiving each other's debt, not to mention forgiving each other an endless list of real and imagined historical wrongs. (In fact I heard some fella named Jesus tried to spread these notions a few millennia ago, but those who trumpet his name the loudest seem to be the deafest to his message.)

The bankers and the wealthy may suffer from a sense of entitlement, but they are not more deserving human beings just because they always make sure they get their cut off the top. It's time they stop holding the world hostage with our money. No amount of personal means is going to protect them from the consequences of billions of unemployed people with middle-class expectations suddenly dropped into poverty. In the end, the gun the bankers hold is only aimed at their own heads.