JUST six years after the beginning of the 2008 financial collapse – at a time when Cameron and Co. are talking about a recovery, and the EU is in the middle of a war over whether to launch a massive quantitative easing money printing operation, while the US administration is preparing to raise interest rates along with the Bank of England – a dire warning has been issued in the just published Geneva Report.
The Geneva Report on the World Economy is concerned about a ‘poisonous combination’ of record and still-rising global debts and chronically slow growth.
The 16th Annual Report says that interest rates will have to stay low for a ‘very, very long’ time to let people, companies and governments pay down their ballooning debt loads, or the world will be thrown into another financial crisis.
The report has been published just as the sharp divergence between the growing US economy and the declining German and EU economies is fuelling a growing panic.
The US Federal Reserve Board is to start raising interest rates next year while other central banks are leaning the other way. The US is abandoning quantitative easing at the same time as a Franco-German war is raging over plans to launch a massive quantitative easing money printing programme to load more debt onto the already debt ridden EU.
The Geneva Report warns that raising interest rates while the world is still so heavily in debt ‘would risk killing the “recovery”. Beyond pushing the economy into a prolonged period of stagnation, this would also put at risk the deleveraging process which is already very challenging.’
The report said that ‘contrary to widely held beliefs, the world has not yet begun to de-lever’.
It estimated total debt of all kinds (government, corporate and consumer) at a record 212 per cent of annual global gross domestic product, up from about 185 per cent in 2008!
While the world’s advanced economies have curbed the pace of debt accumulation since the crisis, emerging markets have accelerated debt growth amid historically low global interest rates – with China leading the way.
It adds: ‘This group of countries are a main source of concern in terms of future debt trajectories, especially China and the so-called “fragile eight” (Argentina, Brazil, Chile, India, Indonesia, Russia, South Africa and Turkey), which could host the next leg of the global leverage crisis,’ the authors said.
It adds that the advanced economies are caught in a ‘vicious loop’ of high debt and slow growth.
It finds that debt reduction through austerity reduces spending and thus slows growth; slower growth reduces incoming revenues and thus limits the ability to reduce debt.
The US Fed’s looming rate increases come as many other central banks are taking action to weaken their currencies, in what some observers see as the beginning of currency wars in which countries race each other to the bottom to try to boost exports in the world market but hugely increasing the cost of imports.
In fact the record level of $158.8 trillion in global debt, together with low economic growth is creating the basis for the greatest economic catastrophe in the history of capitalism.
The report says: ‘Contrary to widely held beliefs, the world has not yet begun to deliver, and the global debt to GDP ratio is still growing, breaking new highs.’
The World Bank data showed that in 2013 global GDP was $74.909 trillion.
The report warns that unless policymakers kept a lid on risks in the financial system, especially overpriced property and stock markets, a trend for investing in assets with borrowed money will run out of control.
It further warned Europe that: ‘Further procrastination in implementing these by now urgent policy measures would risk, in the medium term, the resurgence of pressures on the sustainability of the eurozone itself.’
The programme of the Tory government in this situation is to postpone raising interest rates for as long as possible, to try to postpone the bankrupting of millions of home-owners, while heaping austerity measure after austerity measure onto the working class to make it pay for the crisis.
These measures are accompanied by savage attacks on basic rights to try and hamper the organisation of the working class to fight back against the capitalists and bankers. However, more and more workers are becoming convinced that the only solution to the crisis of capitalism is a socialist revolution.
