Bank crisis spreads while US government faces running out of money on June 1st – only socialist revolution can end capitalist crisis

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THE BANKING crash has continued, with First Republic being the third US bank to collapse within three months.

First Republic was taken over by the giant US investment bank JP Morgan in a deal hastily rushed through on Monday.

This followed the collapse of Silicon Valley Bank and Signature Bank in March.

This was written off at the time by the banking authorities and the US central bank (the Fed) as a unique problem in the highly particular sector of the banking industry that concentrated almost exclusively on the high-tech computer industry around Silicon Valley.

No chance of it being the outlier for further crashes spreading throughout the capitalist world banking system, we were assured.

What is causing panic today, is that First Republic was not some niche bank engaged in high risk finances but was following the normal banking polices of investing heavily in ‘safe’ long-term assets, such as mortgages and government securities, and relying on near zero interest rates to make these investments profitable.

What went disastrously wrong was the Fed pushing up interest rates in a bid to combat inflation, which the Financial Times noted ‘left it (the bank) sitting on large paper losses on its mortgage book when rates rapidly climbed.’

Depositors took fright and rushed to withdraw their money, with $100 billion of deposits pulled from the bank in three months.

The Financial Times said: ‘The failure of a bank that was, on the surface, highly successful and not engaged in obviously risky activities is alarming.’

Alarming doesn’t begin to cover the sense of panic as it becomes clear that the collapse of these US banks is not isolated, that the fundamental banking practices of First Republic are the same as those carried out by all the major banks across the world and that the contagion of collapse will spread.

According to a report in the Telegraph yesterday, almost half of America’s 4,800 banks are already insolvent!

A banking expert at Stanford University, Professor Amit Seru, said: ‘It’s spooky, thousands of banks are underwater. Let’s not pretend that this is just about Silicon Valley Bank and First Republic. A lot of the US banking system is potentially insolvent.’

To add to this alarm on Monday the US Treasury Secretary Janet Yellen warned that the entire US government will run out of money on June 1st unless Congress agrees to increase the current limit of $31.4 trillion (£25.1tr) on government borrowing.

The Republicans are holding up any agreement on increasing the already massive government debt unless President Joe Biden agrees to sweeping spending cuts for the next decade, including savage cuts to welfare and Medicare that will hit US workers hard.

So far, Biden has refused to move, accusing the Republicans of wanting to make US workers and families pay the price of all the $10 trillion lost to the government through tax cuts to the rich.

If the US government runs out of money on June 1st it will default on its huge debt repayments and bring down the global financial markets.

Experts are warning that a default would push the US into immediate recession and mass unemployment, while it would also mean that government employees, benefit recipients and the military would have their pay and benefit cheques stopped.

Banking crashes are spreading across the globe, and now the biggest capitalist economy in the world is on the brink of default unless it plunges even deeper into debt.

The dominant world financial capitalist system is facing the biggest ever crash and the ruling class is determined that the working class in the US and across the world will be made to pay the huge bill through savage austerity and mass unemployment.

Workers and youth across the world have come to the conclusion that if capitalism cannot provide any future then capitalism must go and that the only way out of this world crisis is the victory of the world socialist revolution.

The only way forward is to build sections of the International Committee of the Fourth International in every country to organise the victory of the world socialist revolution.