A WAVE of corporate defaults is imminent throughout the US and Europe, analysts at the German Deutsche Bank warn in its annual study released today.
It points to the steady increase in interest rates by the US Federal Reserve, the European Central Bank, and the Bank of England as colliding head-on with the massive debts taken on by corporations and investors leading to an unprecedented wave of defaults on debt repayments and bankruptcy.
The Deutsche economists warn: ‘Our cycle indicators signal a default wave is imminent. The tightest Fed and ECB policy in 15 years is colliding with high leverage built on stretched margins. And tactically, our US credit cycle gauge is producing its highest non-pandemic warning signal to investors since before the GFC (Global Financial Crisis).’
The aggressive increase in interest rates by all the central banks as they attempt to rein in spiralling inflation is driving the world into a global recession.
Germany is already officially in recession, and the UK is heading that way fast, while the US, the biggest capitalist economy in the world, is diving headlong into the abyss.
The financial crisis that gripped the US with the collapse of three of its biggest regional banks in March this year – along with the revelation that half of America’s 4,800 banks are already insolvent – is now set to be driven through the roof by a crash in commercial real estate values.
Some $1.5 trillion in real estate mortgages are held by US banks and are due for renewal shortly.
The Fed has increased interest rates for the 10th time, pushing up rents for commercial properties at a time when offices across the country are already lying empty as companies go bust.
A rent increase forced by interest rates threatens to push down property values, leaving banks with up to $1.5 trillion of worthless mortgage loans.
The bankruptcy of three US banks in March was just the start of a banking collapse that will spread like wildfire throughout the capitalist financial world.
Senator John Kennedy, a senior member of the Senate Banking Committee, said in an interview: ‘Am I worried? The short answer is yes,’ before adding ‘The long answer is hell, yes.’
Kennedy is right to be worried sick, but the fact remains that the capitalist class have no way out of this world crisis except to inflict it on the backs of the working class.
Every economic weapon has been deployed by the central banks to avert a global financial crash.
Following the Global Financial Crisis of 2008/09, they turned on the money taps, flooding the world with trillions of dollars, pounds, and euros to prop up the banks so racking up a massive debt mountain that could only be sustained through near zero-level interest rates.
When this money printing inevitably led to an inflationary spiral that couldn’t be ignored, they attempted to turn off the tap and drive up interest rates.
This policy has rebounded with a vengeance, and is now, as the Deutsche study reveals, on course to a tsunami of corporate and banking crashes.
Having exhausted any economic ‘solution’ the only option for the ruling class is to openly launch a class war on workers and their trade unions.
In the US last week, the Supreme Court ruled in favour of an employer to file a lawsuit for compensation for damages incurred because of a strike.
This ruling lays every trade union in the US open to crippling damages if its members take strike action.
In Britain, the Tories have brought in anti-strike laws to force workers to cross picket lines or face immediate dismissal while their unions can be fined up to a million pounds if they refuse to cooperate in strike busting by the employer.
The powerful working class will not be cowed by the capitalist law courts and allow itself to be beaten into poverty and hunger to save the bankers and bosses, but will act across the world to defend its wages and conditions by putting an end to bankrupt capitalism through the victory of the world socialist revolution.
This means building sections of the International Committee of the Fourth International worldwide to provide the leadership for the victory of the World Socialist Revolution.
