OVER the past few months there has been an increasing concern being expressed in the pages of the financial press about the huge bubble of debt that has been created in the so-called ‘junk bond’ market internationally.
The headlines in yesterday’s bourgeois press screamed of a panic situation gripping the world’s capitalist financial system as the realisation that the huge mountain of trillions of dollars worth of debt is about to come crashing down, bringing the entire banking and financial system with it.
At the immediate centre of this fiscal tsunami are junk bonds or ‘high yield bonds’.
These are extremely risky bonds issued by companies that promise a high rate of return on the loan, simply because there is a high risk that the loan will never be repaid.
With interest rates being kept artificially low by all the main central banks, the speculators and hedge funds were desperate to buy into these risky bonds to make super profits.
They were encouraged to do this by the huge amounts of worthless paper money flooding into the system through Quantitative Easing.
These loans were used by companies to buy back their own shares, inflating their share prices and providing for big juicy payouts to shareholders and inflated bonuses.
In 2007/8, the international capitalist banking system was brought to the point of collapse by the sub-prime mortgage crisis in the US, where huge sums were lent in mortgages to people who just couldn’t afford the repayments.
The mortgage industry didn’t care, they just repackaged the debt as an asset and sold it on to other banks.
When this bubble burst, banks across the globe faced collapse, and had to be bailed-out by countries assuming their debt, and forcing the working class to pay off this new ‘national debt’, through austerity cuts.
In March 2007, the total size of the sub-prime mortgage debt in the US had reached $1.3 trillion. In March of 2014, the total size of the junk bond market worldwide crossed $2 trillion – nearly twice the size of the mortgage asset debt that brought down the banking system seven years ago!
This crisis in junk bonds is accompanied by news that another bubble, in the gas and oil sector, is also set to explode.
According to a review by the US Energy Information Administration, the world’s leading oil and gas companies have taken on huge debts and are having to sell assets on an unprecedented scale in order to cover their costs and continue to pay out massive dividends to their shareholders.
A review of 127 companies found that they had increased their debt by $106bn in the year to March and sold off a net $73bn of assets.
The hugely expensive fracking technology – that was supposed to rescue US capitalism from its energy crisis – has been financed by these companies by running up massive debts that they can no longer repay.
This can only intensify American imperialism’s drive to war to seize complete control of the mineral wealth of the world in order to rescue US capitalism.
The stark fact remains that all the measures taken by international capitalism to resolve its economic crisis have only had the effect of deepening the crisis until it has reached breaking point.
For capitalism to survive it must wage war on the working class at home, forcing workers to pay for the crash by smashing up every gain they have made, while at the same time waging brutal war against the people of the world to regain markets and control of their oil and gas.
The huge obstacle to this is the undefeated strength of the working class internationally and the determination of the people of the ex-colonial countries to fight imperialist aggression.
The time has come for this strength to be mobilised in order to put this anarchic, bankrupt capitalist system out of its misery through the socialist revolution. This means building revolutionary parties of the Fourth International in every country to lead the world socialist revolution.