By Rabbi Dr. Shmuly Yanklowitz
Since the economic crash of 2008, millions of Americans have suffered as they drown in debt.
The national economic picture has been grim during this Great Recession, which was largely brought on by deregulation of the financial sector, an increased desire for quick returns and easy availability of credit that turned much of the economy into a virtual casino. A few basic statistics make the extent of the damage clear:
- As of 2011, there were 8.2 million foreclosure starts, quadruple the prerecession rate.
- Federal Reserve statistics reveal that Americans lost $15.6 trillion during this recession. As of March 2013, the average American household had only regained 45 percent of its losses, while two-thirds of all new wealth has gone to the very wealthy, thanks to huge gains in stock prices during the past several years.
- There have been approximately 7 million bankruptcies during this period, with a rise of more than 31 percent from 2007 to 2008 and 32 percent from 2008 to 2009.
- In July, the interest rate for 7 million people with student loans doubled, from 3.4 percent to 6.8 percent, which will lead to a further swelling of the existing $1 trillion of student debt.
- The total federal debt is estimated to be about $17 trillion, and several of the federal budgets during these last few years featured trillion dollar deficits.
In this week’s Torah portion of Ki Tavo, Moses teaches the people about the terrible curses that would befall them if they stray from God’s path of righteousness and justice. One of them is the curse of intractable debt: “He will lend to you, but you will not lend to him. He will be at the head, while you will be at the tail” (Deuteronomy 28.44). The concomitant blessing if the people remain upright is eternal freedom from debt: “You will lend to many nations, but you will not [need to] borrow” (Deuteronomy 28.12).
The continuing plight of the developing nations, countries in the Global South, amply demonstrates the devastating effects of decades of heavy debt. According to a 2005 report, since the 1970s approximately 60 of the poorest nations have paid $550 billion on their international debt of $540 billion, and yet due to interest on the principle, they still owed an astonishing $523 billion. At that point, developing nations paid $13 in debt payments for each dollar they received in new grants.
While much has been made of the decision by representatives of the major industrial nations, the World Bank and the International Monetary Fund to forgive the debt of many African nations (and, to cite the obvious, these nations had already paid more than the amount they originally borrowed), it appears they did this because there was little chance of their recouping the debt anyway. Many nations in Latin America and Asia did not have their debt forgiven (the extremely impoverished Bangladesh is one example). As a result, a 2012 World Bank report noted that poor nations owe $4 trillion, which translates to $1.5 billion in debt payments daily. There can be no thought of social-welfare programs in these countries as long as their crushing debt payments (and therefore, their inability to borrow more) remain.
There is more to this story than irresponsible borrowing, although rampant corruption and gratuitous military spending has obviously contributed to the problem. We must remember that the nations of Europe (and in some cases, the United States) colonized many of these lands and exploited their resources. Many nations were developed for their cash crops, a single commodity that would be sold by the colonial power for its own gain. Thus, roads, railroads and other infrastructure were all built solely to get the cash crop to the coast (with a few landlocked exceptions, such as modern-day Zimbabwe).
When these nations won independence, they had an economy and infrastructure centered solely on a single commodity, and with the inevitable collapse of the market the nation would be thrown into catastrophe, forcing it to borrow. In addition, the new nations had to pay just to undo what the colonial powers had done to their countries, adding to the burden. Finally, international lenders exact a heavy price on developing nations, from long-term interest costs to restraints on the social programs that the nations can undertake. This is the worst example of the pitfalls of borrowing and unethical lending.
This destructive model illustrates a point made by Friedrich Nietzsche, in “On the Genealogy of Morals,” where he points out the etymological link between debt and guilt (from the German word “schulden”). Debt demoralizes the people of whole regions, reinforcing the idea that the West is only out to exploit the developing world.
Systems of borrowing and lending, of course, are not all bad. In fact, the Talmud teaches that it is better to make a loan than give charity (Shabbat 63a). Rashi explains that this is because the poor individual is not embarrassed in the same way when receiving a loan as when he receives charity. Maimonides states, as law, that giving someone a job (the means to support himself or herself) is the highest form of “tzedakah” (just giving). It is only when one is trapped in an unforgiving abyss of debt where we see a problem. When the potential for socioeconomic mobility is destroyed and the rich dominate the poor, the system is broken.
Responsible lending and payment can yield positive results. For example, the federal deficit for fiscal year 2013 is expected to be $642 billion, a proportion less than half as large as in the fiscal year 2009 budget, at the height of the recession. Bankruptcies, while still high, dropped by 11.5 percent in 2011 and 13.4 percent in 2012. Foreclosures have dropped from a monthly average of more than 90,000 for most of 2010 to a projected 500,000 total in 2013. According to many economists, these results could be greatly improved if the government borrowed money (at the lowest interest rates in history, and thus having little impact on the debt), stimulated the economy by funding infrastructure repair and other necessary projects, and then collecting tax, Social Security, Medicare and other payments instead of paying out unemployment benefits and other relief expenses.
In developing nations, there are some glimmers of hope. For example, the microfinance movement, which provides small loans to dozens of countries, frequently shows success and has compiled repayment (at low interest rates) of close to 100 percent. As citizens of the world, we can participate in these small-scale operations, and we can urge our governments to pursue an ethical debt structure, in which responsible projects (e.g., those that do not destroy the environment and are used to improve the lives of people) are promoted, which will enable these nations to structurally improve and thus be able to repay debts. These solutions can be accomplished if only we work for them.
Excessive mortgage debt, student loan debt, medical debt and more have placed untenable burdens upon millions. As we learn from our Torah portion, a cursed society is one in which factions are trapped in merciless power dynamics as debtors. The Jewish community must be at the forefront of working toward more just solutions to ensure that the most vulnerable are not trapped under unforgiving debt, making social mobility impossible. This is what our tradition demands of us.
Rabbi Dr. Shmuly Yanklowitz is Executive Director of the Valley Beit Midrash, Founder & President of Uri L’Tzedek, Founder and CEO of The Shamayim V’Aretz Institute , and the author of “Jewish Ethics & Social Justice: A Guide for the 21st Century.” Newsweek named Rav Shmuly one of the top 50 rabbis in America.”
ON Scripture — The Torah is a weekly Jewish scriptural commentary, produced in collaboration with Odyssey Networks and Hebrew College. Thought leaders from the United States and beyond offer their insights into the weekly Torah portion and contemporary social, political, and spiritual life.