THE INTERNATIONAL Monetary Fund (IMF) can no longer act as the world’s ‘lender of last resort’ according to a task force of currency experts established by the G20 group of the leading world economies.
This warning has huge implications for the fast developing financial crash that is gripping the entire capitalist financial and banking system.
The fact that the IMF no longer has the ‘firepower’ to bail out the banks and entire countries from crashing into bankruptcy spells the final nail in the coffin of all the structures put in place in the 1940s to stabilise the world capitalist system, and ensure that catastrophic economic crashes that occurred in the past could never happen again.
Central to these plans – the Bretton Woods Agreement – was the establishment of the IMF as a lender of last resort to countries facing bankruptcy.
The IMF was there to bail out these countries by forcing on them ‘loans’ which were always accompanied by IMF diktats to impose massive austerity cuts and privatisation as a condition.
But today the IMF is no longer in a position to bail out anyone, faced with a massive debt mountain that is growing by the day it simply lacks the financial resources to act as a lender of last resort.
After central banks and governments have flooded the world with trillions of worthless paper money through quantitative easing and ultra-low interest rates, all that has been produced is a mountain of debt so unstable that it can crash at any moment.
What is worrying the experts now is the emergence of a ‘dollar crunch’. This happens when borrowers, especially in the emerging markets, start to panic and rush to buy dollars in the belief that this is a ‘safe’ currency backed up by the US.
Already, as the report says, ‘Banks outside the United States currently have dollar debts which exceed the total liabilities of banks operating within the US. Their dollar funding is vulnerable to any dollar liquidity shock.’
What this means is that a mad rush into dollars by the speculators will push up the price of the dollar making the debts held by the banks even bigger.
This will trigger a massive world banking crash on a scale far exceeding that of 2008, while corporations in Europe and in the emerging markets – already up to their neck in debt with big dollar liabilities – will find it impossible to repay their loans or roll them over as the price of the dollar soars.
The resources of the IMF amount to only 1% of all the world debt liabilities – completely dwarfed by the debt mountain. As the report notes: ‘The global safety net is too small.’
There is no ‘safety net’ for capitalism today, it can be sent crashing by any ‘upset’ – as we are seeing in the economic repercussions of the coronavirus epidemic.
This has already had a major impact on the world economy, not just in China but increasingly across the world.
The massive Chinese market has closed down for all the foreign-owned factories, and vital component suppliers to high tech industries and car manufacturers are drying up.
Hyundai became the first major car maker to stop production outside China because of a shortage of parts, while Fiat Chrysler has warned it may close production in Europe.
As an article in last week’s Telegraph said: ‘The Chinese economy is 17 per cent of the world economy and deeply integrated into international supply chains. You cannot shut it down for long without shutting down the world.’
Having exhausted all the fiscal weapons in its economic arsenal, and with no safety net available, the only way out for the capitalist class will be to dump the full weight of the crash onto the backs of the working class. The working class will not stand for seeing their lives destroyed to keep bankrupt capitalism going.
Workers across the world are already rising up against capitalist austerity and this will rapidly be transformed into a mass revolutionary movement to put an end to capitalism and advance to socialism.
This is the only way forward for the working class today.