CAPITALISTS are quaking in their boots at the prospect of the next worldwide banking crash. All eyes are on Italy going the same way as Greece, drowning in a sea of debt, triggering a European-wide financial collapse.
The Bank for International Settlements (BIS), in its latest report, rang alarm bells yesterday warning that the fundamental structure of the entire capitalist system is ‘unstable’, and if one section goes it will trigger a ‘chain reaction’ which will spread around the world.
The BIS points to the giant ‘central counter-parties’ (CCPs), these are seen as pillars of capitalism. A CCP reduces the risk of big settlements by splitting them up, dividing the risk between multiple counter-parties. They assess derivatives. A derivative is only based on what a company is worth depending on the ‘performance of its assets’ it has no relation to its real ‘value’.
The BIS fears that these giant CCPs are themselves at risk of collapse. The BIS said in its quarterly report that the CCPs could cause ‘a destabilising feedback loop, amplifying stress.’ This, the BIS warns, is a worry ‘looming ever larger as rising US interest rates expose the weak links in global debt markets.’
Only last month the Bank of England had its own stark warning about Europe, of a financial ‘doom loop’ tightening around the neck of the Italian banking system. A crash which they fear will send the Italian state itself into bankruptcy and will spread like an infection across Europe and the UK.
What the BIS is highlighting is yet another factor feeding into the crisis, which is equally, if not more, concerning to the capitalists than the financial ‘doom loop’ of Europe. The BIS warned that regulators have created a ‘CCP-bank nexus’ – ‘somewhat akin to the sovereign/bank doom loop in the eurozone’.
The rotten apple contaminates the ‘healthy’ banks. A firesale of assets spreads contagion. Banks are then forced to hoard liquidity to protect themselves. The BIS said ‘balance sheet interlinkages’ and what it calls the ‘CCP default waterfall’ would then unravel with ‘potentially system-wide effects’.
This is something which actually happened on a much smaller scale back in September when a Scandinavian counter-party came close to total meltdown and shocked the global authorities. In that case, £114 million ($200 million) was lost, a minuscule amount compared to what is at stake worldwide.
The fake ‘value’ of the derivatives cleared worldwide is 4.4 times the world Gross Domestic Product (GDP), up from 2.8 times at the time of the last financial crash in 2008. JP Morgan alone has a $30 trillion US portfolio.
This is casino capitalism gone mad, a madhouse of gamblers buying and selling each other’s debt, bluffing that companies are worth millions, if not billions, even when they have not turned a penny profit, solely on the basis of the ‘performance of their assets’.
Meanwhile, they have all been busying themselves artificially creating fake ‘value’ by electronically creating billions of pounds, and trillions of euros and US dollars through ‘quantitative easing’, while pushing interest rates as close to zero as they can to encourage even more borrowing.
For money to be a measure of value it has to be backed by gold. What they now term ‘value’ is an electronically created fiction – which the BIS admits is about to collapse. The International Monetary Fund warned this year that CCPs ‘increase the risk of a failure of the infrastructure itself’ predicting it could lead to a ‘catastrophe’.
The BIS admits that the world economy is very near this point. What this means for the workers of the world is they must take action! Poverty in Britain is even more widespread than it is in France and workers have suffered massive austerity which has seen the growth not only of food banks but of baby banks to keep children alive.
Now British capitalism is visibly collapsing with thousands of jobs set to go, from Jaguar Land Rover (JLR) to the high streets, where mass closures have already led to 93,000 jobs being axed.
What began in France with the ‘Yellow Jackets’ rising up against the cost of fuel, has spread like wildfire throughout Europe, Belgium, Hungary, Greece and even the Netherlands.
The only way forward is to build sections of the International Committee of the Fourth International in all of the major capitalist states, to overthrow the bankrupt world capitalist system and replace it with a worldwide planned socialist economy based on satisfying the needs of the people. This is the only way out of the capitalist crisis.