THE International Monetary Fund (IMF) yesterday produced its latest report on the state of the world capitalist financial system, in which it warned that the global banking system remains at ‘risk’ from the impact of rising interest rates.
In this global financial stability report, the IMF warns that although the financial system appeared to survive the ‘acute stress’ of the collapse of the US Silicon Valley Bank (SVB) in March 2023 ‘a sizeable tail of weak banks remains’.
The IMF also warns that ‘adverse feedback loops’ caused by an abrupt increase in interest rates and cutting back on money printing could ‘again test the resilience of the global financial system.’
That is putting it mildly.
A study conducted by economists immediately after the collapse of SVB found that nearly half of America’s 4,800 banks have assets worth a fraction of their liabilities.
A major global banking crash was only averted by the US central bank stepping in to bail out the banks while the German Deutsche Bank, the largest and most important bank in Europe, had to be rescued from complete collapse.
Similarly, after the disastrous mini-budget of Liz Truss last year the Bank of England was forced to step in to bail out the pound and prevent the collapse of the massive UK pension industry.
All these rescues came at the cost of the central banks being forced to print hundreds of billions in worthless paper money to pump into the global financial system to keep it staggering on.
This is the doom loop that the central banks have no escape from – print worthless money to bail out the banks which, in turn, drives up inflation forcing them to increase interest rates.
The theory behind pushing up interest rates is that it makes borrowing money more expensive for people and forces households to spend less.
For workers struggling with a cost-of-living spiralling out of control, it means spending less on food and heating just to keep paying the rent.
For the banks, industry and governments that rely on debt to survive, this has the effect of pushing up the repayments on their loans – or in the case of governments the bonds they sell on the open market to finance all their spending.
But all this pain inflicted by pushing interest rates up, the Bank of England and the Tories were quick to assure workers, was worth it in the fight to bring inflation down.
The wishful thinking by the Bank of England economists that the inflationary spiral was just some temporary blip and the UK would quickly see a reduction in the interest rate, has been dealt a huge blow by this latest IMF report.
Far from inflation in the UK coming down, the IMF expects Britain to have the highest inflation and slowest growth next year of any of the G7 nations including the US, France, Germany, Canada, and Japan.
In fact, the IMF is predicting another five years of high interest rates in the UK, destroying all the boasts being peddled at Tory and Labour Party conferences about ‘growing the economy’ out of crisis.
There is no possibility of growing British capitalism out of crisis – every attempt at an economic solution to the doom loop of raging inflation, recession and the collapse of the world banking system has only accelerated the crisis.
The only solution open to the capitalist class is to try to ensure that, in the fast developing economic crash, the working class will pay the cost through mass unemployment and savage austerity cuts to wages and services. The working class will never accept being driven into poverty and destitution by a bankrupt capitalist system.
The way forward for the powerful working class is to force the TUC leaders to either take action by calling a general strike to kick out the Tories and bring in a workers’ government and socialism, or be removed and replaced by a leadership prepared to lead the struggle to put an end to capitalism.
We urge workers and youth to join the WRP and Young Socialists to build up the leadership required for the victory of the socialist revolution. There is no time to lose.