THIS week the Daily Telegraph has published a supplement ‘The Investors’ Handbook 2020’ subtitled: ‘Rising protectionism, negative interest rates, equity bubbles, debt mountains, trade wars, Middle East tensions and climate change – an in-depth analysis of the financial and geopolitical issues keeping investors awake at night.’
This is a list of disasters that is keeping investors not just awake at night but living in fear of the near future, as even the most bourgeois of economists see an inevitable crash coming this year.
The article by economic editor, Russell Lynch, headed ‘The trillion-dollar corporate debt mountain threatening the world’s economy’, starts with the quote that debt is ‘the match that lights the fire of every crisis’.
It details how a decade of near zero interest rates have cut the cost of borrowing for major firms and companies encouraging already highly indebted companies to borrow more and more.
Loans ‘to firms whose debts are typically at least four times higher than earnings have swollen into a $3.4 trillion market – or around 11% of all loans. US banks are the biggest holders of the debt’.
Even worse: ‘In a disturbing echo of the pre-2007 subprime mortgage crisis, some $1 trillion have been packaged up into CLOs, or collateralised loan obligations.’
In other words, the banks are doing exactly what they did before the collapse of Lehman Brothers – packaging up toxic debts that couldn’t be repaid and then selling them on as ‘assets’.
When Lehman Brothers collapsed in 2008, all these trillions of dollars of assets held by the world’s banks turned out to be worthless and they were only saved from bankruptcy by central banks pumping trillions of pounds of worthless paper money into the system and driving down the cost of debt through abnormally low interest rates, creating the trillion-dollar debt mountain that is overwhelming the banks and corporations across the world today.
It created a situation where giant companies are propped up entirely by debt, making barely enough profit to cover even the tiny interest on their loans.
Even the slightest increase in interest rates will send these companies crashing into bankruptcy, along with the banks who hold their worthless credit debts.
Tom Rees in his article ‘The party’s over for the biggest equities bubble in history’ outlines the panic in 2018 when the US Federal Reserve Bank was threatening to turn off the supply of free money by ending Quantitative Easing and slowly increasing interest rates.
Trillions of pounds were wiped off the stock markets under this threat and the Fed backed down and in a short time turned the taps back on again, sending stocks shooting up while manufacturing industry and economic growth was collapsing.
Rees observes ‘Stock markets appear to be becoming detached from economic reality’ with these markets now ‘addicted’ to free money and even the threat of ending it is enough to precipitate a crash that will bring down the entire world stock markets, banking system and every corporation and industry surviving only through debt.
None of the articles in this handbook offers any way out for capitalism, only one offers the slightest glimmer of hope for ‘investors’ by urging them to pile into the ‘green’ revolution and putting their money in new green technology – a desperate bid to make profit out of what many consider to be a global catastrophe.
Although it gets only the briefest of mentions, there is an underlying fear that capitalism is heading rapidly towards what bourgeois economists call ‘creative destruction’ – the belief that all these companies and banks should be allowed to collapse in the hope that a few will survive.
In this financial Armageddon capitalism intends that the full weight of the crisis will fall on the backs of the working class.
Already across the world workers and youth are rising up against austerity cuts made to bail out the bankers and bosses. This will turn into mass revolutionary uprisings in every capitalist country. The world crisis is driving forward the world socialist revolution – this requires building revolutionary parties of the Fourth International in every country to put an end to capitalism. There is not a moment to lose!
