Interest rates lowered
How the fed helps big banks take trillions from workers,
farmers
By Heather
Cottin
Inflation helps farmers and debtors. This is the best-kept
secret in the United States. And the media, the politicians,
and the Federal Reserve bankers know it.
On Aug. 21 Federal Reserve Chair Alan Greenspan lowered
the interest rates it charges banks. It was the seventh rate
reduction in the past year, for a total of three percentage
points, dropping it from 6.5 percent to 3.5 percent.
But banks have not lowered the interest rates they charge
customers. They haven't lowered mortgage rates. They just
keep on raking in the money.
So if the Fed's interest rates have gone down three
percentage points, that means that the banks are making three
percent more on everyone's debts. Personal indebtedness is at
an all-time high at $1.5 trillion. That means the banks rip
off another $45 billion each year from their customers.
How bankers rip you off
In the 1980 presidential campaign, Ronald Reagan warned of
the terrors of "runaway inflation." Reagan promised to wipe
out this terrible scourge. He did.
Since the 1980s, inflation has been minimized, and the
working class and the farmers of this country have seen their
fortunes sink.
The government and the media worked full blast to convince
the population that inflation was an economic enemy to be
fought. Much of the inflation "fighting" policy came from the
Federal Reserve System, an institution whose operations are
obscured.
The Federal Reserve System operates largely in secret. One
of its most important functions is to set interest rates.
The Fed lends out money from the U.S. Treasury to banks,
which then lend it out to corporations and individuals.
The interest rates the Fed sets are lower than the rates
the bankers charge their customers. One major way bankers
make profits is that they loan money at a much higher rate
than they pay for it. They make profits on the
difference.
If you are paying your bank an interest rate of 15 percent
and the Fed gives the banks an interest rate of 5 percent,
the bank clears 10 percent on what it loans to you.
Although the moves by the Federal Reserve System have been
announced in the media, there is a deliberate and successful
attempt to hide from the people of the United States exactly
how the Federal Reserve System is part of a huge legal shift
of trillions of dollars from workers and farmers to the
richest 1 percent of the population.
People have been told that the interest rates are being
raised or lowered to help the economy, to encourage
investment and to curb inflation.
Back in the 1970s, in the days of "runaway inflation,"
wages were relatively high because workers organized to keep
their wages up, though they were never quite equal to the
inflationary prices. But one thing not obvious to most people
was that the cost of car loans, credit card debt, mortgages,
student loans, etc., were steadily decreasing because of
inflation.
If someone was in debt to the bank for a car loan, and the
interest rate was 10 percent, and the inflation rate was also
10 percent, the debtor--and most working people in the United
States were and are debtors--was actually getting use of the
money without paying a fee.
Working people may not have realized that the increased
interest paid on housing, car, and credit-card debt absorbed
much more of their paychecks than the increased cost of food
or clothing or other consumer goods. People experienced
"runaway inflation" when they went shopping, so howls from
the Reagan campaign and the media about inflation seemed to
make sense.
William Greider, author of "Secrets of the Temple: How the
Federal Reserve Runs the Country," wrote during the 1988
election campaign: "For example, one of the groups most
anxious about inflation was younger, newly formed families
without large savings accounts. If they thought they were
losing ground in 1979, they are losing a lot more now because
of disinflation. Now, 2% fewer American families own homes
than they did eight years ago."
After 1979, the Carter and Reagan administrations allowed
the Federal Reserve System to erase the gains the working
class had won during the 1960s and 1970s. The Reagan
administration also worked to break the unions to keep the
workers from fighting back.
How did this happen? When the bankers saw that their
profit margins were declining in the late 1970s, they turned
to conservative economists and an economic policy called
"monetarism." The guru of this policy was the economist
Milton Friedman.
The monster called monetarism
President Jimmy Carter picked a monetarist bureaucrat to
head the Federal Reserve: Paul Volcker.
What Volcker did was simple. He raised interest rates from
single digits to double digits. Homeowners, farmers, or even
corporations had to borrow money for houses, cars, farms or
farm equipment, or new factories at exorbitant rates.
Many of the remaining farmers lost their farms in the
1980s. Corporations had even greater incentive to begin
closing factories and expanding production in low-wage
oppressed countries.
Working people had to borrow at excessively high interest
rates to buy cars or houses or to pay for education. Credit
card interest rates went through the roof. The United States
went from double-digit inflation to double-digit
unemployment.
But the bankers made out like bandits. Inflation was
finally under control.
And when Alan Greenspan took over as head of the Federal
Reserve System in 1988, U.S. banks were making money hand
over fist. Greenspan continued monetarist policy with a
vengeance.
How has this affected most workers?
Since 1980, some 40 percent of the population has seen no
increase in income at all, according to the United States
Census Bureau. Meanwhile, the average for the 5 percent of
the population with the highest income has gone from $125,000
per year to $200,000 in 1998 dollars.
From 1983 to 1995, only the top 20 percent of households
saw any real increase in their income. In 1998 the
top-earning 1 percent had as much income as the 100 million
Americans with the lowest earnings.
The working class, even workers with relatively
high-paying jobs, has taken a beating, largely because the
costs of housing, automobiles, and college education for
their children have risen astronomically. And they are in
debt.
According to Kiplingers Forecast, in 1990 consumer debt
was $789 billion. Now it is over $1.5 trillion, and the
fastest growing segment of the credit card market consists of
low-income workers.
The Federal Reserve System helped the rich get richer and
the poor get poorer. According to the Census Bureau, the top
one-fifth of households now claim 49.2 percent of national
income while the bottom one-fifth gets by on 3.6 percent.
So the Federal Reserve System got inflation "under
control" at the expense of the workers and what remains of
the family farmers. The economy is contracting. There is a
growing fear the United States is on the verge of a
depression. But the bankers are still accumulating huge
profits, thanks to the Fed.
When Federal Reserve interest rates are lowered further,
the bankers will be stealing more money from people in
debt.
During a depression, everyone always wonders, "Where did
the money go?" It goes into the cash boxes of the ruling
class. Before a depression, the ruling class raids the
pockets of the working class. The U.S. central banking
system, the Federal Reserve Bank, is the major government
institution that has helped commit this grand larceny.
This article is copyright under a Creative
Commons License.
Workers World, 55 W. 17 St., NY, NY 10011
Email: ww@workers.org
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