I’m not sure I’ve ever seen the assertion that the rich are bigger debtors than the poor. But hey, there it is.
Not to a bank. By a bank.
Every dollar is a debt instrument issued by a bank. That much is true.
But it doesn’t back up your assertion that “the rich are bigger debtors than the poor”. Dollars are debts issued by banks. Yes. But that tells us nothing about net indebtedness. Banks are intermediaries. They are both creditors and debtors simultaneously. That is the entire business of banking. Dollars are bank debts, yes, but banks are not huge net debtors, else they’d be doing their business in ass-backward fashion. Banks borrow from their depositors, and lend to their loan applicants and other borrowers like the government, and those two sides of the transaction tend to balance out.
Banks lend money. Who borrows? Well, the government for one, directly and indirectly, in the form of reserves and government bonds on bank balance sheets. Who else borrows from banks? Is it… rich people? Is it people who already have a lot of wealth who are borrowing? Well, that’s certainly not impossible, given tax incentives to hold debt. But who else is borrowing money from the banks? What about the people who don’t have money? Isn’t it plausible that a good chunk of people borrowing from a bank are doing so because they don’t have enough money themselves?
Banks borrow money. Who lends to banks? Well, the people lending to the bank have money. Pretty much by definition, in fact. That’s the entire reason why they’re lending to banks: because they have wealth, and they keep at least some portion of that wealth in deposit at banks. What class of people have extra money sloshing around that they can lend to banks? Is it… poor people?
I don’t actually have any data on this. I’d be curious to see if anyone has a cite. But if we wanted to know the net indebtedness of different classes of the population, the banking system is the last place we should look when doing that, because bank borrowing goes hand-in-hand with bank lending. It tends to balance. Banks are basically neutral on the whole debt thing. The earn money by having a higher rate of return on their debt assets than their debt liabilities, and they manage that by offering monetary services on their liabilities. If we want to understand the debt demographics of the economy (so to speak), the best place to look is everywhere outside the banking system, because outside the banking system, debts going in and going out don’t have to match each other so closely as they must do within the banks.
Like I said, I don’t know the data. Maybe if you count corporate borrowings (outside the financial sector), and the ownership of “the rich” (top percentile? decile? quintile?) of those corporations, it’s easy to imagine the rich borrowing a lot of money, “through” the corporations they own. But they’re still rich. They are, simultaneously, lending massive amounts of money in other fashions. Who is buying all of those corporate bonds? Is it poor people? Really? I’d guess the rich in general lend more than they borrow. Why? Because they’re rich. They’ve got the wealth, might as well lend it to get a return.
Who are some clear, unequivocal examples of net borrowers in our society? Some of these are very easy: People who just borrowed money for a house, but don’t have a lot in savings. People with massive credit card debt, and no savings. People who are hounded by collections calls. What about people with negative net worth, meaning few assets and big debts? There is literally no possibility that that subgroup is a net lender, because they don’t even have positive net worth. This is pretty simple, actually: we know that people with big mortgages, and relatively little in savings, are net debtors. We know that people with large credit card balances, and no money, are net debtors. More generally, we know that people with negative net worth are net debtors. Every last one of them.
In case you’re not aware: about 14% of households in the US have negative net worth. Every single one of these households is a net debtor. So… are these people rich? Or poor? And if these people are net debtors, there must be another group of people they owe money to. Net creditors. This is a different class of people.
It is not, in fact, mathematically possible for the entire population to be net debtors, with no class of people being net creditors. There must be some class of people who are lending more than they are borrowing. So, what class of people is that? Do you think it’s… poor people? I have already admitted that I don’t actually have data on net debt holdings of the population by income quintile or anything on those lines. But I’m also not the person arguing that rich people – the peeps with all the wealth – are major-league debtors. I mean, that’s… mathematically possible, I guess. They could have major non-debt asset holdings, which exceed their debts. (Still positive net worth, i.e. rich.) And it just so happens that all of the people in the world with less wealth than the rich could be lending the rich people money at interest.
In this case, indebtedness would necessarily be U-shaped, where the poorest and the richest are net debtors, with the middle class lending simultaneously above and below. Mathematically possible. But really? Is that your argument? Really? Because if so, I for one would like to see some data backing that up, not some irrelevant comments about the banking system.
To make the point again: if this is actually the case, the banking system is exactly the wrong place to answer this question, because the banks borrow as they lend. We would need to look at household indebtedness by wealth level. That’s the only data that could actually answer this question. And in talking about this, I haven’t even gotten into this weird stuff in other parts of the post about the “Cantillon effect” or “banks buying stocks”.
Commercial banks, in the US at least, are not even allowed to buy stocks. Even the big mega-banks, with commercial and investment banking divisions, cannot-not-NOT finance any risky assets like stocks with an expansion of their monetary (deposit) liabilities within their commercial bank section.
That was an interesting link to the post about the Cantillon effect. I don’t have any problems with that cite. It’s the highly idiosyncratic interpretation of that cite that I’m having issues with.