Yesterday saw a ‘rout’ in the global government bond market with government bonds in the US, UK, Europe and across the world being sold off by the international speculators who fund government spending.
The US, as the most powerful capitalist nation, has long enjoyed the privilege of being considered the safest country for hedge funds and financial institutions to park their money, with the possibility of America defaulting on its debt dismissed as fantasy.
However, this ‘fantasy’ has now become a very real possibility as the US is drowning under a mountain of debt that last month reached the historic high of over $40 trillion.
The breakneck speed with which the US debt hit this milestone, doubling in just 10 years, shocked central bankers and caused panic across the financial system.
This has led to a mass self-off of government bonds as speculators seek safe havens for their money, which in turn has led to those still prepared to risk investing in bonds to demand higher rates of interest.
Added to the debt mountain are the trillions of dollars being borrowed by the giant tech companies to fund their data centres and artificial intelligence infrastructures.
Stephen Innes, a former bond and currency trader in Toronto, Tokyo and Singapore, was quoted as saying that investors are reassessing where central bank interest rates should be, as global markets grapple with soaring government deficits and spending on AI infrastructure by tech ‘hyperscalers’.
Innes put it bluntly, saying: ‘Governments need funding. Hyperscalers need funding. Corporates need funding. Everybody is arriving at the bond auction window with an empty bucket at roughly the same time.’
He added: ‘Somebody has to buy all that paper.’
This massive sell-off of government bonds has driven up the interest rate charged, hitting the US, the UK and the rest of the world, and tearing up all the Labour government’s pledges to invest and grow the UK’s economy out of bankruptcy, as the country faces an increase in annual debt interest of £6 billion.
This will drive up the national debt leading to investors demanding an even higher ‘risk premium’ as the UK, along with the US, is seen as a ‘risky’ investment.
This crisis has been accelerated by the war waged by US imperialism against Iran in an attempt to assert American domination across the Middle East and seize control of the Strait of Hormuz, the vital chokepoint for 20% of the world’s oil and gas supplies.
The frustration of the Trump administration over the defeat of the American military and the failure of their latest plan to economically strangle Iran to the point of submission – a plan that fell apart when China, the biggest economic partner with Iran, rejected it out of hand – erupted on Monday with an attack on Larak Island situated in the Strait.
This was met with a speedy and decisive response from the Iranian military targeting US bases and military infrastructure in the region.
The effect on oil prices was a dramatic increase above $91 a barrel, driving up inflation across the global economy.
Capitalism is in its final stage of imperialist death agony, collapsing under the weight of unrepayable debt and diving over the cliff into bankruptcy.
The working class in the US, UK and across the world is expected to pay the cost of this historic crisis that is plunging capitalism into bankruptcy and an economic crash far worse than the Great Depression of the 1930s.
The powerful working class will never accept being driven into the gutter to keep a bankrupt capitalist system that cannot be ‘fixed’ – as Labour and trade union leaders claim – from going under.
The immediate task today is to put capitalism out of its misery by the working class taking power and replacing bankrupt capitalism with a socialist planned economy.
This requires the building up of the WRP and Young Socialists and sections of the International Committee of the Fourth International in every country to organise the victory of the world socialist revolution.
