World debt crisis can only be resolved through world socialist revolution

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JEROME Powell the new chairman of the US central Bank, the Fed, will be pushing for an increase in interest rates this week with a further three increases expected this year. The result of these increases will be catastrophic for the developing countries according to the charity the Jubilee Debt Campaign which has revealed that 126 of them were devoting more than 10% of all their revenues to repaying the interest on national debt, with five spending over a third of their government revenues servicing their debts.

External loans to developing nations have shot up since the world capitalist crisis broke in 2008, fuelled by the Fed’s Quantitative Easing programme and near zero-rate interest rates which handed trillions of dollars to the banks to prevent their collapse. This created a huge amount of free money which was used not to invest in growth, as they claimed, but in a mad orgy of imposing debt through massive loans.

For the banks and financial speculators this was easy money as, unlike private companies, countries are not allowed to declare themselves bankrupt and so cancel debt. The demand, led by the Jubilee Campaign for countries to be treated like corporations has been most strenuously opposed by the US and Britain – no way were they going to allow a situation where their banks would suffer any loss.

They are determined that the pain of bankruptcy would fall squarely on the backs of the working class and poor of these nations as they are forced to hand over the wealth and industry of their countries to repay these debts as the bankers and hedge funds demand their pound of flesh. External loans to the governments of the developing nations increased from $200 billion a year in 2008 to $390 billion by 2017, far above the levels seen before the world banking crash.

With the vast majority of this debt in US dollars any increase in US interest will mean economic collapse for these countries who already are suffering under the threat of historic debts run up decades ago. Tim Jones from the Jubilee Campaign said: ‘Where there are debt crises, the risk is that the IMF will bail out reckless lenders, and the debt will remain with the country concerned. Instead, reckless lenders need to be made to bear some of the costs of economic shocks through lower debt payments, allowing governments to maintain spending on essential services.’

This isn’t a risk, it’s an absolute certainty.

But it is not just the developing countries of the world that face economic disaster under capitalism.

Only last week, the Bank of England warned that US corporate debt is at levels not seen since the crash of 2008. The debt of US non-financial companies has increased to $8.7 trillion, more than 45% of GDP as these companies have used cheap loans not to increase growth but to buy up their own shares, thereby pushing up share prices and ensuring the million dollar bonuses of the bosses.

The increase in debt servicing through interest rate hikes will mean these companies will go the same way as the developing nations, drowned in a sea of unrepayable debt. The effects on US workers will be equally catastrophic as the total of household debt stands at an all-time high of $13.15 trillion with mortgages, student and car loans and maxing out the credit card at levels higher than ever.

In Britain, unsecured household debt is around £15,000 per household and this excludes mortgages.

If the Bank of England increases interest rates in line with the Fed, which it will most certainly do, then millions of households in Britain will be plunged over the financial abyss.

Capitalism today is in its death agony, surviving only just through massive debt that it will try and force the workers and poor of the world to pay. This has established concretely the unity of the working class and poor internationally as it is clear that the only way forward for humanity is to overthrow capitalism and advance to a socialist society. This debt crisis makes the victory of the world socialist revolution an historical necessity.