THE SWISS-based Bank for International Settlements (BIS) in its annual ‘health check’ on the world’s financial system has once again warned about the huge international debt pile that will soon collapse, bringing down the world banking and financial system.
At the start of 2019, total world debt stood at $244 trillion – three times the value of the entire global economy.
The BIS report highlights the rapidly increasing danger of a massive surge in companies and corporations who generate little or no profit taking out huge loans to bolster their stock market prices and paying inflated dividends to their shareholders.
Agustin Carstens, BIS general manager, said that he is most concerned that corporations are evading the controls brought in after the 2008 world banking crisis, which were rules designed to stop the banks from speculating by making huge loans to companies that could not repay them, and which led to the banking crash and the banks being bailed out through massive austerity inflicted on the working class.
But, as Carstens warns, these rules have not prevented a surge in ‘collateralised loan obligations’ – where a number of dodgy, risky loans to companies and corporations that can’t actually repay them and struggle just to meet the ultra-low interest repayments (zombie companies the BIS calls them) – which are then parcelled up together and sold on to investors as cast iron ‘assets’.
These are termed ‘leveraged loans’ and the BIS estimates that there are over $3 trillion of them – mainly in the US and Britain. They are, the BIS warns, ‘reminiscent’ of what ‘amplified the sub-prime crisis’ of 2008.
Seeking to explain this latest development of the financial crisis Carstens said: ‘Credit standards have been declining as investors have searched for yield.’
In their insatiable drive to produce a profit for the investors these banks and other financial institutions like hedge funds (which are exempt from any regulations) have created an even bigger debt time-bomb. This is what is terrifying the Swiss bankers at the BIS who rightly fear that the dominance of finance capitalism means the banks cannot be controlled or regulated.
Instead, they have gorged on all the cheap money supplied by government bailouts and massive handouts through Quantitative Easing to run up a debt bubble that is set to explode, crashing the world financial system.
So precarious is the capitalist financial system that any ‘shock’ could send the entire debt mountain collapsing down leaving banks, corporations, industries and entire countries bankrupt and, as the BIS warns, there is no shortage of fast-developing shocks.
Trump’s trade war with the US’s capitalist rivals and with China, they warn, could trigger a recession in many countries.
In fact, across Europe and in the US economic recession is already hitting home with the large-scale collapse of the car and steel industry being the prime examples – along with the rise of the zombie companies.
Added to this, is US imperialism’s drive to war against Iran to steal its oil wealth which would lead to the closure of the Strait of Hormuz through which over 20% of the world’s oil supply has to travel, which would have devastating consequences economically for Europe, the far East and for the US itself.
Already, the OPEC oil cartel, led by Saudi Arabia, has this week decided to cut back on production in the face of declining demand due to recession forcing the price of oil up to $66.47 a barrel and, with analysts predicting that a combination of Trump’s attacks in the region and worldwide recession, the price will shoot up to above $100.
This will have a devastating effect on inflation and on the cost of living for workers and their families. One thing is clear, capitalism is in the grip of a historic crisis from which it cannot escape except by wars against its rivals and by dumping its economic crash on the backs of the working class.
The only way forward for workers and the people of the world is to put an end to this bankrupt capitalist system though the victory of the world socialist
revolution.