THIS WEEK, the global banking body, the Institute of International Finance (IIF), revealed that global debt had shot up to an eye-watering $281 trillion by the end of 2020 and is set to rise even higher in 2021.
This debt pile is over 355% of the global Gross Domestic Product (GDP) – the measure of wealth actually produced by all the countries.
According to the IIF – governments, companies and households have taken on $24 trillion in the past year as a result of borrowing to survive the coronavirus pandemic.
The IFF director of sustainability research, Emre Tiftik said that governments with the biggest debts and budget deficits are set to increase debt by another $10 trillion this year but that they had little choice but to keep on borrowing as: ‘Political and social pressure could limit governments’ efforts to reduce deficits and debt, jeopardising their ability to cope with future crises.’
Of particular concern to the IIF are the economies of Britain and Europe which have the highest debt to GDP ratios.
Although the coronavirus pandemic has accelerated the world debt crisis for capitalism, it was only surviving through debt long before.
Last year, the IIF warned of the existing ‘unexploded bomb’ of debt that would be ignited by the pandemic.
In April 2020, Tiftik warned that ‘a global shock could destabilise the mountain of debt that’s been created in the last decade, creating an avalanche of defaults,’ adding: ‘We’re in the midst of the destabilising shock we were worried about. A sharp, upward trajectory in debt levels looks all but certain.’
Today this forecast of catastrophic collapse is about to be realised as a capitalist system that relies entirely on debt to survive is caught between the rock and the hard place over what to do.
As the IIF says in its report, the only two options open to capitalism are both fraught with danger for: ‘Premature withdrawal of supportive government measures could mean a surge in bankruptcies and a new wave of non-performing loans.’
However, if governments carry on borrowing or printing money to keep companies and banks from collapse, this poses ‘systemic risks’ as well by encouraging ‘zombie’ firms – the weakest and most indebted corporations – to take on even more debt.
It’s not just the ‘zombie’ firms that are only existing through debt.
The IIF report reveals that: ‘Financial corporates had the biggest annual jump in debt ratios in over a decade.’
The banks and financial institutions themselves have been kept going only through running up debt and having trillions of pounds handed to them through Quantitative Easing.
Yesterday in Britain, Barclays Bank announced a 30% fall in pre-tax profits to £3.1 billion, down from £4.3 billion in 2019.
At the same time, it revealed it was forced to set aside £4.8 billion to cover loans that are unlikely to be paid back.
This didn’t stop Barclays from announcing at the same time it was restarting dividend payments to shareholders or that it would be buying back its own shares to drive up their price and hand even more profit to its owners.
Even faced with their profits being wiped out, the banks and large corporations are confident that the capitalist state will step in to bail them out as they did in 2008 by making the working class pay.
Tory Chancellor Rishi Sunak has made no secret that he is determined to bring down the UK national debt, and the only way that can be achieved is by carrying out austerity cuts a thousand times greater than those imposed by the Cameron Tory government.
This will revolutionise the working class in Britain and across the world who will not tolerate being driven into the gutter to save this bankrupt capitalist system, and are seeing that the only future is to put capitalism out of its misery through socialist revolution.
The immediate issue before the working class and people of the world is to build sections of the Fourth International in every country to lead the fast developing struggle for power and going forward to the victory of the world socialist revolution.