THE INTERNATIONAL Monetary Fund (IMF) this week produced its latest Global Financial Stability Report, its half-yearly analysis of the state of the world’s banks and financial markets.
The week before, the new head of the IMF, Kristalina Georgieva, had foreshadowed this report in a speech that warned that the world capitalist economy is on the point of crashing under the weight of a global $19 trillion (£15tn) debt ‘time bomb’ and she issued an urgent call for a ‘synchronised’ response from central banks and governments in order to prevent financial Armageddon.
With the report’s publication, however, it is clear that Georgieva was in fact being optimistic in believing that anything can be done to prevent a complete economic and financial global collapse that will dwarf the banking crash of 2007-08.
The report reveals that 40% of the debt owed by corporations in eight of the leading countries – the US, China, Japan, Germany, Britain, France, Italy and Spain – would be impossible for these corporations to service.
Any slight downturn in the economy would mean they would go bankrupt overnight as they would not have the money to repay the interest on the massive loans taken out by these corporations.
Tobias Adrian and Fabio Natalucci, two senior IMF officials responsible for the Global Financial Stability Report, said: ‘Corporations in eight major economies are taking on more debt and their ability to service it is weakening. We look at the potential impact of a material economic slowdown – one that is half as severe as the global financial crisis of 2007-08. Our conclusion is sobering: debt owed by firms unable to cover interest expenses with earnings, which we call corporate debt at risk, could rise to $19tn.’
Cheap money and interest rates of near zero (or in some cases even below zero) have fuelled this mad rush by companies which produce little or no real profit to take on vast amounts of debt to boost their share prices and boost the pay for the bosses and massive payouts to shareholders.
Companies, boosted by free money handed out by central banks, have engaged massive debt-funded expansions and takeovers ‘signalling increased bets on future gains despite a weakening outlook’.
Already, workers have seen what this means when the giant construction company Carillion was forced into bankruptcy last year with debts of over £1.3 billion and a pension deficit of over £1 billion. Drowning in debt, Carillion still paid out millions to shareholders and multi-million pound bonuses to the bosses.
The working class was forced to pay for this collapse through thousands of jobs being lost and tens of millions of pounds being paid out of the public purse to pick up the cost of Carillion’s collapse.
Carillion was not a one-off rogue company; its collapse marked a decisive stage in the collapse of the entire bankrupt capitalist system and the IMF report makes clear that it is a debt bomb that will explode not just one company but will wipe out corporations and banks throughout the world.
Although the IMF can see the world crash is upon us, it has absolutely no policies or programmes to prevent it apart from calling for ‘urgent’ action to stop the debt bomb growing any bigger. There is no action, urgent or otherwise, that capitalism can take to avert this world crash.
Every attempt to ‘stimulate’ capitalism after the banking crash through handing out trillions of free money to the bosses and bankers has only resulted in building up the debt time bomb to the point of explosion today.
The issue posed point blank to the working class today is that capitalism has reached the end of the road and can only stagger on by inflicting its crisis on the backs of workers and their families.
The only way forward from this world crisis is for the working class to become, as Marx said, the gravediggers of capitalism, by putting an end to this bankrupt system by taking power and expropriating the bosses and bankers and advancing to socialism.
This requires the building of a revolutionary leadership of the Fourth International in every country to lead the world socialist revolution to victory.