The articles Where Does Money Come From and The Debt-Based Economy looked at how the banking system creates money by debt, and debt drives more and more debt, which demands more and more growth and squeezes the economy tighter and tighter. As more and more debt is created, more money is also created, yet there’s a constant scarcity of money. Where is it going?

To answer that, we need to follow the debt. As of December 2020, the combined government, household, and business debt in the US was approximately 61.2 trillion dollars.1 Written out that looks like this: $61,200,000,000,000. Interest in one form or another is being paid on all of it all the time. If we estimate a theoretical average interest rate of say 3%, the interest on all that debt would be 1.836 trillion dollars a year, which looks like this: $1,836,000,000,000. Per year.

In 2020, interest paid on US federal government debt alone was over 522 billion dollars.2 Paid by US tax payers. Interest on household debt is paid through mortgages, student loans, and other types of personal debt, while interest on business debt is paid as part of the operating expenses of US businesses.

Back to the original question then—where is the money going? To whom is all this interest being paid? Essentially it’s paid out of the producing economy and into the investment economy. Interest on government debt is paid to investors holding treasury securities or bonds. Interest on business and household debt is paid to bank shareholders or to other investors through different types of financial investments.

What this is doing is creating a constant migration of money out of the producing economy and into the investment economy. The money moves from interest payers to interest receivers, from producers to investors.

The graph below shows US Census Bureau statistics for household income from 1967 through 2019. The data plotted in the graph represent average (mean) incomes for segments of the population from lowest income to highest. Notice how the rise of the top lines gets steeper and keeps moving farther and farther away from the other lines.

The segments used here are quintiles. A quintile is 20% or one fifth of the sampling.

Taking the same figures and adjusting for inflation, we get the graph below. Notice the flatness of the lower lines. Real income gains show up only in the upper levels.

Data for the above two graphs was taken from US Census Bureau historical figures:

It’s also important to note that during the same period of time, debt has been growing at a much faster pace than income. If debts increase faster than income, financial viability may go down even though income is going up.

The graph below shows average net worth for US households as reported in the Federal Reserve Survey of Consumer Finance. (Net worth is the household’s assets (such as real estate and money in the bank) minus its debts.) Notice how far the top line is from the other lines.

The lines represent quartiles (25% or one quarter of the sampling) from lowest net worth to highest. The top quartile was broken out into two lines to show the average net worth of the top ten percent.

In the graph above, the lowest lines are made almost invisible by the scale of the graph required to show the top line. By showing only the bottom three quartiles in the graph below, we can make the slope of the lower lines visible.

Note that the average net worth for the lowest level is below zero throughout most of the included time period. Since the crash of 08, that segment of the population has had an average negative net worth between 12 and 14 thousand dollars. Also you can see that none of the lower levels have recovered from the crash. The only segment of the population whose net worth has risen above where it was before the crash is the top 25 percent. This is where the money goes. To the top.

Graph data was taken from the SCF Chart Book of the Federal Reserve Survey of Consumer Finance last updated September 2020.  The SCF is conducted every three years. The next updates are expected in late 2023.

Class Division

In a capitalist society populated by human beings who may be prone to selfishness, greed, and graft, there can be many factors that contribute to the disparity shown in the graphs above. Also certain tax laws or regulations may be aimed at countering or minimizing these effects. But the use of a money system in which the money supply is created by interest-bearing debt is a fundamental lock on economic injustice. The money and banking system itself is systematically stealing from the working and the poor and giving to the wealthy.


If you took our money system and planted it on a small isolated island, the inequity and the class division it generates would become very obvious very quickly. On an island the size of Earth, or a country the size of the US, it takes a little longer, and it gets a little more complicated.

In the US we’ve prided ourselves on an alleged openness in the class structure. Financial progress in the middle class has generally been to work your way from the worker/interest-payer class to the investor/interest-receiver class. You start out buying a house and putting money into a retirement fund. You work your mortgage down and your retirement fund and investments up, and eventually you can retire as an interest receiver. At least it used to be that way. Now it’s more likely you start out holding an enormous burden of student debt and looking at real estate prices that are completely out of reach.

The “self-made men” that have made such colorful characters in business and on Wall St. are generally people who started in the payer class and fought their way to the top of the receiver class. They set the example for everyone else that the American Dream can be achieved, classes are not fixed in this country, and with hard work and ingenuity, anyone can do it.

It’s questionable who is really included in that anyone, but obviously it can’t be everyone. The system depends on the payer/workers—otherwise there’s nothing for the receiver/investors to receive. The system only works if most of the people remain in the working, struggling, interest-paying class, and the investor class remains a small minority. Also the structure of the system continually makes the upper levels more and more excessive and the lower levels more and more crushingly burdensome.

In addition to the moral and humanitarian objections to this sort of class structure, the system is functionally unsustainable. The longer it continues, the more it squeezes and crushes the lower levels—and it is the lower levels that are producing the goods and services people need to live their lives. The inevitable end of letting a system like this run its course is that the lower levels become so crushed and depleted that they cease to be able to produce anything, and the whole system collapses.

Might there be a smarter, fairer, more sustainable way to operate an economy?

Better Ideas

Last modified: April 4, 2021

1 Federal Reserve Statistical Release Z.1,