THE NEWLY-appointed head of the International Monetary Fund (IMF) this week issued the starkest warning yet that world capitalism is on the point of crashing under the weight of a global $19 trillion debt ‘time bomb’.
In her first speech as managing director of the IMF, the international lender of last resort to the world banks and countries, Kristalina Georgieva condemned the trade war being waged by the US against China and Europe for bringing global trade growth to ‘a near standstill’.
She warned that a result of the tit-for-tat tariff increases on imported goods started by President Trump has been to fuel the collapse of economic growth and manufacturing across the world.
Georgieva warned that the upcoming IMF forecast on the World Economic Outlook would forecast that, due to the trade war, a total of $700 billion will be wiped off world output by next year, saying:
‘Everyone loses in a trade war. For the global economy, the cumulative effect of trade conflicts could mean a loss of around $700bn by 2020, or about 0.8% of GDP. As a reference, this is approximately the size of Switzerland’s entire economy.’
She continued: ‘The global economy is now in a synchronised slowdown. This widespread deceleration means that growth this year will fall to its lowest rate since the beginning of the decade.’
It is not just the global collapse of industrial and manufacturing output that is giving the IMF nightmares.
Hand-in-hand with this collapse is the massive build-up of corporate debt, with Georgieva warning that: ‘Our new analysis shows that if a major downturn occurs, corporate debt at risk of default would rise to $19 trillion, or nearly 40 per cent of the total debt. This is above the levels seen during the financial crisis.’
She is referring to the bank crash in 2007/8 when a financial crisis in the US sub-prime industry spread rapidly from the bankruptcy of one investment bank, Lehman Brothers, throughout the world banking system.
Then, capitalism’s central banks and government stepped in to bail-out their bankrupt banks by printing trillions of worthless money that was handed to the banks while at the same time cutting interest rates on loans to near-zero levels.
This ‘synchronised’ action by the US, Britain and the EU to ‘save’ banks that were ‘too big to fail’ unleashed an avalanche of free money and cheap loans – loans that are simultaneously debt.
None of this free or cheap money was used to stimulate capitalism through investment in industry as workers were promised by the bankers and governments – instead it was used, as Georgieva admits, by companies piling on cheap debt to give the appearance of profitability and provide their shareholders with huge returns and for the financial fund holders to engage in ‘riskier investments’.
She said: ‘We see such an increase of risk-taking by investors broadly around the globe.’
What is clear from the IMF boss’s speech is that they have no solution to the crash they can see unfolding rapidly.
All Georgieva could do is urge central banks to keep interest rates low ‘where appropriate’, despite the fact that she blames them for fuelling the economic crash in the first place!
The reality is that world capitalism has no way out of its historic crisis.
Trump’s trade war may be accelerating the crash but it is not the primary cause but rather the response of the US ruling class desperate to try and survive the coming crash by bankrupting its rivals.
With no way out, world capitalism is split and divided, its ruling classes at war with one another and crucially at war with their ‘own’ working class.
Across the world, workers have risen up against the brutal austerity cuts inflicted on them to bail-out the bankers and the fast developing economic crash, that will far exceed that of 2008, will pose point blank the issue of putting an end to bankrupt capitalism through socialist revolution.
The burning issue today is the building of a revolutionary leadership of the Fourth International in every country to lead the struggle for power, going forward to the victory of the world socialist revolution.