WORLD capitalism is on the verge of an even bigger, catastrophic economic collapse and there is absolutely nothing the central banks or governments can do to stop it.
This is the message that is being put out clearly by the most powerful financial institutions in America, the Federal Reserve and the US Treasury, who are both on the point of ‘draining liquidity’ from the financial system.
They are preparing to cut off the supply of free money that has been continuously pumped into the banks in order to prevent their complete collapse following the crash of 2007. All this worthless money was pumped out through quantitative easing programmes and near zero rates of interest by the central banks under the promise that all this money would be lent by the banks to industry to kickstart a capitalist revival.
In reality all this free money flowed into the pockets of the bankers and speculators who used it to enter a massive debt-fuelled inflation of asset prices. Stock markets throughout the world have ballooned out of all proportion to the actual value of the companies they are supposed to reflect the value of.
Massive companies in the US, while making record losses, have been able to declare sky high valuations on the stock markets. All around the world speculators have feasted on these cheap loans, mainly in dollars, that cost virtually nothing to repay in terms of interest.
The Fed has been desperately worried for some years that this massive expansion of dollar debt throughout the world can only end in disaster as the debt bubble inevitably explodes. According to the Institute of International Finance (IIF) global debt stands at an ‘eye-watering’ £170 trillion.
In order to try and avoid a world financial collapse, the Fed has embarked on ‘winding down’ QE, it is estimated that it has printed $12.3 trillion since 2008, while admitting that this could cause a terminal shock to a banking system that has become addicted to free money.
At the same time the US Treasury has just announced that it will run down its cash balance sheet to almost zero this year. In other words, it intends to put its cash permanently in the vaults of the Fed, leaving only £386 billion as a cash buffer for emergencies, so cutting the dollar supply even further and causing an even bigger shock to the world’s banks.
While the Fed and the US Treasury have taken this dangerous path in the vain hope that it will not cause the world to collapse around their ears, the European Central Bank and the Bank of England are hanging on to see how it works out, scared stiff of stopping QE. This is with good reason. They know full well that European banks are drowning in a sea of bad debt and ‘non-performing’ loans and will be pushed over the fiscal cliff if this lifeblood dries up.
According to a financial health report by the financial consultancy Bain and Company, more than a quarter of all European banks were in the ‘high risk’ category regarding ‘profitability, asset and liability health and stability of the operating environment’. Nine of the giant banks in Britain, Germany or France were found to be in the highest category of risk.
The plain fact is that every attempt to keep the capitalist financial system going through QE and zero interest rate levels has only inflated the financial debt bubble to the point where it will burst, while all these attempts to ‘drain’ the system of free money will equally bring on a worldwide crash.
There is no way out for capitalism, their only hope is that the bankers can survive the crash, run off with their billions and leave the working class to pay for their crisis through having their savings and wages seized and all social spending ended to pay off the banks’ debts.
For the working class the only answer to this crisis is to put an end to this bankrupt capitalist system through socialist revolution that will expropriate the bankers and bosses as part of a planned socialist economy.