THE Bank for International Settlements, the central bank of central bankers, in its latest quarterly review of the world banking system has just issued its bleakest assessment yet on the prospect for a worldwide banking collapse.
Central to this report is its mortal fear that the Chinese banks are in the midst of a full-blown debt crisis far exceeding the one that precipitated the world banking collapse in 2008.
According to the BIS China’s credit to GDP gap is 30.1 in the first quarter of 2016, up from 25.1 a year ago. This gap is the amount being borrowed by the country in relation to the size of the total wealth being produced by the economy (GDP).
Such a sharp divergence between the wealth being created and the amount of debt being run up is setting off alarm bells for the economists of the BIS whose job it is to warn the world’s central banks of impending crisis.
Going on data from previous banking crises throughout the world over the past 60 years, the BIS has a rule that states any score over 10 pushes banks into a danger zone. To put figures on these points the BIS have calculated that China’s outstanding loans have reached a staggering $28 trillion which is as much as the combined banking systems of the US and Japan.
Government, corporate and household debt in China reached 255% of GDP last year in a desperate attempt to shore up the country’s economic growth following the financial crash in 2008. It was after this crash that capitalism looked to the massive economic expansion of China as the way out of crisis.
This colossal debt, run up by the Stalinist bureaucracy in an effort to ape the central bankers in the capitalist world by trying to achieve a debt fuelled expansion after 2008, can never be repaid. The fears keeping the central bankers awake all night is that the shock of any collapse in China’s banking system will bring the whole international financial system, along with the economies of every country, crashing down.
Of course this latest threat to the capitalist banking system will be used in the latest round of blaming China for the crisis. China is blamed for causing everything from steel jobs being destroyed to the collapse of manufacturing across the capitalist countries and now the next bank crash.
In fact China is not the cause of either, the world economic collapse or the banking crisis – it is a reflection of the world crisis of the capitalist system. A crisis the capitalist class and bankers have tried to postpone by a massive expansion of credit which has turned into unrepayable debt that now threatens to bring the entire system down.
A year ago a report by the BIS accurately placed the cause of the debt crisis at the door of central banks printing money through quantitative easing and near zero interest rates, flooding the world with cheap, or free, money in a desperate and forlorn attempt to keep the banks from going bust.
The Stalinist leadership of China embraced the capitalist road, openly encouraging capitalist regions in the country with the promise of providing limitless cheap labour and cheap commodities to the capitalist world, are now facing the consequences of this policy.
The inference from this latest BIS report that China represents the greatest danger to the world capitalist banking system is a diversion. A world banking crash is inevitable arising as it does from the insoluble contradictions within capitalism itself.
This crisis is threatening all the gains made by the Chinese and Russian revolutions with the Stalinist bureaucracies in both of these degenerated workers’ states prepared to take on their workers in order to assist world capitalism.
It places on the immediate agenda before the workers of China and Russia the issue of the overthrow of the Stalinist bureaucracy through the political revolution to impose socialism throughout both countries.
They must be encouraged by the workers of the West stepping up their fight to overthrow capitalism and the rule of bankers and win the struggle for the world socialist revolution.
