Debt Serfdom
The financial system is rigged
Oct 01, 2025
Let’s look at some examples. For instance, many of us were brought up believing that the key to financial success is a college degree. In generations past, that was probably true, but is no longer the case. The student debt burden in the United States is currently $1.54 trillion.[i] For borrowers with federal student loans, which is about 92 percent of student loans, the average debt is more than $35,000.[ii] The average monthly payment on college loans in 2016 was nearly $400,[iii] and one study found that, on average, it will take college graduates in America today more than twenty-one years to repay their debt.[iv]
A survey found that recent American college grads naively believe they’ll have their school debt paid off in about six years.[v] Imagine the shock when they realize they’ll be in their forties before they make that last payment. Imagine the further shock when they discover that student loans, unlike nearly every other kind of debt, normally cannot be discharged through bankruptcy in the United States.[vi]
Student debt is now the largest form of consumer debt in the US, other than mortgages, having surpassed auto loans and credit cards.[vii] Nearly 11 percent of student loans are, as of this writing, at least ninety days delinquent.[viii] That’s a bad sign, because that statistic was compiled before the tsunami of unemployment filings caused by the COVID-19 economic crash. Sadly, unless Congress changes the law, student debt will remain non-dischargeable in bankruptcy. (Technically, it can happen, but it’s rare. Filers have to jump through a lot of legal hoops.) Student borrowers who are granted a forbearance during the COVID crisis will add additional interest charges to the principal, extending the time it will take for those loans to be paid off.
As it is, a typical $35,000 loan borrowed at 4.66 percent interest and paid off over ten years will cost $43,853. Paid off over twenty years (the norm), that’s $53,871. Now, while there are other considerations—like the rate of inflation, which lowers the real cost of borrowing—you can still see why banks are happy to make loans available and “cheap” to college students. By extending payments out over ten or twenty years, new graduates entering the workforce represent a constant income stream to banks.
You can see why lobbyists who represent banking interests managed to convince the US Congress to make it harder to discharge those loans back in 1984.[ix]
Credit card debt is also bad, but for different reasons. Because cards are relatively easy to get, charge outrageously high interest rates, and look for opportunities to hit consumers with extra fees, revolving debt is a trap—a devastating financial treadmill that lures in the unwary with slick advertising emphasizing the convenience of swiping plastic to pay for everything from entertainment to groceries.
For those running on this exhausting treadmill, credit cards can be a nightmare. True, the cards can be useful (try traveling without one, especially if you need to rent a car), but if the balances are carried over from month to month, that “ease of transaction”’ is very soon offset by the crippling cost of interest charges and late fees added to the purchase.
The average American credit card balance as of this writing is $6,194. To pay off that balance by making the minimum monthly payment of 2 percent of the principal, and using the average interest rate of 14.87 percent, it would take more than six years—and add about $3,521 in interest charges.[x]
Credit cards can be a useful tool, but without the discipline or ability to pay them off as quickly as possible, they become a zygos —a heavy yoke, trapping consumers in a never-ending cycle of trying to stay one payment ahead of the credit cycle. Tragically, it’s often when people are most desperate that they reach for the plastic, hoping that their temporary situation can be sorted out when things get better.
But for some, better days never come. Often, the highest average credit card debt in the US rests on the backs of those who have the least—households with a net value of zero or less.[xi]
By making credit easily available and stretching payments for cars, clothes, college, and housing out to ten, twenty, and thirty years, and then turning those debts into complicated financial instruments that can be traded like stocks, we have become oxen—our necks locked in yokes of debt as we tread out grain for our financial overlords.
This, as much as famine, is the work of the rider on the black horse.
How did we get here? Isn’t America the land of opportunity, where a good idea and hard work leads to prosperity and happiness? To a degree, yes; but remember, the love of money leads to all kinds of evil , and the rider on the black horse has been spreading his influence for a very long time.
This is an excerpt from our 2020 book Giants, Gods & Dragons . Over the coming weeks, we’ll publish it here at no charge. If you want to own a copy, it’s available in paperback, as a Kindle e-book, and as an audiobook at Amazon and Audible.
After the American Civil War, the rapid rise of industry in the United States was accompanied by the growth of investment banks to facilitate the rising demand for capital. Unlike commercial banks, investment bankers weren’t allowed to accept deposits or issue notes. Instead, they served as intermediaries, bringing together investors with those who needed capital. By 1890, a few powerful firms, led by J. P. Morgan & Co., dominated US investment banking. In 1913, a House committee found that the officers from J. P. Morgan sat as directors on the boards of 112 corporations, with a market capitalization of $22.5 billion—at a time when the total capitalization of the New York Stock Exchange was about $26.5 billion.[xii]
Lax regulation in the United States allowed banks to operate commercial and investment divisions with no internal firewall, until the Glass-Steagall Act at the height of the Great Depression. This meant that, until 1933, deposits from the commercial side of a bank provided a ready in-house supply of capital for the investment side. Glass-Steagall was passed after the collapse of a large portion of the commercial banking system. The act required banks to separate according to the type of business they pursued. For example, J. P. Morgan & Co. continued as a commercial bank, while Morgan Stanley was formed as an investment bank.
Glass-Steagall was partly repealed by the Gramm-Leach-Bliley Act of 1999, which passed Congress with bipartisan support. The GLBA became law shortly after Citicorp’s merger with Travelers Group. The new corporation, Citigroup, offered commercial banking, insurance products, and securities. Going forward, the GLBA allowed other similar mergers, as well as removing a provision in Glass-Steagall that banned the “simultaneous service by any officer, director, or employee of a securities firm as an officer, director, or employee of any member bank.”[xiii] Thus, the cross-pollination of retail banking, investment banking, and securities trading was restored.
In 2000, J. P. Morgan & Co. merged with Chase Manhattan Bank to enter retail banking as Chase Bank, and in 2016, Goldman Sachs, another of the world’s largest investment banks, expanded into consumer banking by launching Marcus, an online bank named for Marcus Goldman, who founded the company in 1869.
You might be wondering: A bank with no physical locations? Why not? With direct deposit, debit cards, and ATMs everywhere, money in the twenty-first century is mostly bits and bytes. All banks really need are sophisticated computers and software to record credits and debits in their virtual ledgers.
Of course, this means that whoever controls the virtual ledgers controls the financial well-being of those who trust the banks to keep an accurate count of their bits and bytes.
The cause of the Great Depression is debated by economists to this day. Derek’s opinion, which is not the majority view, is that rapid expansion of credit through speculative investing in the 1920s created a wealth bubble that burst when the unsustainable credit cycle inevitably collapsed—which happened again during the subprime mortgage collapse in late 2007.
How is this bubble inflated? The full answer is too convoluted for this chapter, but in three words: fractional reserve banking. In a nutshell, it’s a system in which banks are required to keep only a fraction of bank deposits on hand in the form of actual cash. In theory, this expands the economy by freeing up more money for lending.
In theory.
However, the trend in the US over the last century has been away from wealth creation and toward wealth manipulation. Commercial and investment banks, rather than bringing together investors and entrepreneurs, focus on trading exotic financial instruments such as collateralized debt obligations (CDOs), credit default swaps, tri-party repos, and others.
A short definition: CDOs, which were at the heart of the 2007 subprime mortgage meltdown, are securities backed by a variety of income-generating assets, such as corporate bonds, government bonds issued by less developed countries, or, of course, mortgage loans—which encouraged lenders during the real estate boom of the 1990s and early 2000s to approve as many as possible.
In one morbid example, German investors accused Deutsche Bank of fraud in 2009 for selling more than $750 million worth of shares in funds, based on American life insurance policies! Apparently, the Germans who’d sunk their money into these investments were upset because Americans weren’t dying fast enough for them to turn a profit.[xiv]
As the old song goes, money makes the world go ’round, and speculation is the name of the tune. The value of the global market for financial derivatives is estimated at more than $558 trillion,[xv] a staggering sum, and the five biggest Wall Street banks hold more than 90 percent of all derivatives contracts.[xvi] To give you an idea of just how much money that is, the annual gross domestic product (GDP) of the United States is about $20.5 trillion. Global GDP in 2018 was estimated at $86 trillion.[xvii]
Let that sink in. The biggest banks in America hold contracts on speculative investments worth about seven times more than the combined annual economic output of the entire planet!
[i] Travis Hornsby. “Student Loan Debt Statistics in 2020: A Look at The Numbers,” Student Loan Planner , May 5, 2020. Student Loan Debt Statistics for 2025 [Average Student Loan Debt + More], retrieved 5/24/20.
[ii] Ibid.
[iii] Natalie Issa. “U.S. Average Student Loan Debt Statistics in 2019,” Credit.com , June 19, 2019. What is the Average Student Loan Debt?, retrieved 5/24/20.
[iv] Abigail Hess. “College Grads Expect to Pay Off Student Debt in 6 Years—This Is How Long It Will Actually Take,” make it , May 23, 2019. College grads expect to pay off student debt in 6 years—this is how long it will actually take, retrieved 5/24.20.
[v] Ibid.
[vi] It is possible, but rare. The filer has to prove financial hardship and meet certain other conditions.
[vii] Federal Reserve Bank of New York, Quarterly Report on Household Debt and Credit , 2020:Q1 (May 2020).
[viii] Ibid.
[ix] Rebecca Safier. “Discharging Student Loans in Bankruptcy: A Brief History,” Student Loan Hero , September 1, 2019. https://studentloanhero.com/featured/discharging-student-loans-bankruptcy/, retrieved 5/24/20.
[x] John S. Kiernan. “How Much is the Average Monthly Credit Card bill?” Wallet Hub , April 23, 2020. How Much Is the Average Monthly Credit Card Bill?, retrieved 5/29/20.
[xi] Joe Resendiz. “Average Credit Card Debt in America: May 2020,” ValuePenguin , May 27, 2020. https://www.valuepenguin.com/average-credit-card-debt, retrieved 5/29/20.
[xii] Robert F. Bruner, Sean D. Carr. The Panic of 1907: Lessons Learned from the Market’s Perfect Storm (Hoboken: John Wiley & Sons, 2007), p. 149.
[xiii] Julia Kagan. “The Gramm-Leach-Bliley Act of 1999 (GLBA),” Investopedia , May 11, 2020. The Gramm-Leach-Bliley Act of 1999 (GLBA) Purpose, Implications, retrieved 5/29/20.
[xiv] Anne Seith. “Short Selling American Lives: Deutsche Bank Life Insurance Fund in Hot Water,” Spiegel Online International , November 20, 2009, Short Selling American Lives: Deutsche Bank Life Insurance Fund in Hot Water - DER SPIEGEL.
[xv] “Semiannual OTC Derivatives Statistics.” Bank for International Settlements, updated May 7, 2020, OTC derivatives statistics - overview | BIS Data Portal, retrieved 5/24/20.
[xvi] Ben Protess. “Big Banks Get Break in Rules to Limit Risks,” New York Times , May 15, 2013, Big Banks Get Break in Rules to Limit Risks - The New York Times.
[xvii] “GDP (Current US$).” The World Bank Data, https://data.worldbank.org/indicator/NY.GDP.MKTP.CD, retrieved 5/24/20.