YET another authoritative report detailing the developing world banking crisis has surfaced – a report which if shorn of its dry academic language paints a nightmare picture of the effect of all the trillions of dollars artificially created through quantitative easing (QE) and sustained by near zero rates of interest.
QE and historically low interest rates for borrowing represented the desperate gamble by the world capitalist system to stave off the financial collapse of the entire banking system in 2007.
Through its QE programme, the US Federal Bank artificially created trillions of worthless dollars to hand out as free money to the banks to prevent their collapse into bankruptcy.
Flooding the world with worthless dollars created a huge speculative increase in risky loans across the globe – most notably in the so-called emerging economies of the world – creating an unsustainable debt mountain that will soon come crashing down.
The paper, issued in January by the Bank for International Settlements and entitled ‘Global dollar credit: links to US monetary policy and leverage’, shows that almost every US dollar given out in loans since 2008 has gone either abroad or to the US government.
This massive amount of credit has almost exclusively gone to foreign companies who have been eager to snap up loans in dollars, reaping the benefits of the comparatively low interest rates on these loans, lower than domestic interest rates on borrowing in their own currency.
With the Fed ending QE late last year and now moving to interest rate increases, suddenly these debts are becoming much more expensive to repay, resulting in a wave of bankruptcies.
Turning off the tap of free money and raising interest rates has become essential for the Fed as it tries to contain the massive inflationary bubble it has created on the world’s stock markets.
As the report points out the ‘dollarisation’ of world credit means that every decision by the Fed impacts on the economies of every country.
Already all the hot money is fleeing out of these risky investments helping to drive the US dollar up to levels not seen since the 1990s.
While the US dollar is surging in value, other major world currencies are collapsing – witness the collapse of the euro against the dollar ($1.05 to the euro)
In countries like Brazil, one of the original emerging economic powerhouses that moved to resuscitate capitalism post-2008, its currency has completely collapsed along with the Turkish lira and the South African rand.
The surging US dollar was initially greeted back in December as a sign of US capitalism’s recovery – it is now dawning on economists that, far from being a sign of economic health, it represents all the fictitious money created to avoid one crisis heading home and creating an even bigger crisis.
The collapse of the economies of the emerging countries along with the economies of Europe and Britain will precipitate a gigantic crash dwarfing anything seen before.
This report, which despite its academic prose is causing shock waves throughout the capitalist financial world, proves conclusively that every move carried out by the central banks of Europe and the US to overcome this historic crisis of capitalism only has the effect of deepening it.
The truth is that there is no solution for capitalism except to engage in the massive ‘creative destruction’ of this mountain of global debt – estimated to be at least $199 trillion.
To understand what capitalism is preparing, we can look back to the start of the 1930s depression when the US Treasury Secretary had only one solution: ‘Liquidate labour, liquidate stocks, liquidate the farmers, liquidate real estate’ (Quoted in US President Hoover’s memoirs).
The powerful working class of America, Europe and the world will not sit back and be ‘liquidated’ to keep this bankrupt capitalist system alive.
This historic crisis of capitalism is driving forward revolutionary struggles, struggles that will smash capitalism and imperialism and replace it with a world socialist society.
Decisive to this struggle is the building of the revolutionary leadership of the Fourth International in every country.
