AN ARTICLE in Wednesday’s Daily Telegraph by its chief economics commentator, Ambrose Evans-Pritchard, highlighted the inevitable consequences following the massive amount of borrowing carried out by governments and central banks.
Last week the global banking body, the Institute of International Finance (IIF) revealed that global debt by the end of 2020 had shot up to $281 trillion (over 355% of the world Gross Domestic Product) and was set to increase even more in the coming year.
The US has led the way in pumping out trillions of dollars to keep American capitalism from collapse, accelerated by the coronavirus pandemic.
The US federal government has already authorised an unprecedented $3.5 trillion in spending to shore up the economy and the new administration of president Joe Biden is set to push through a further $1.9 trillion in a financial relief package.
All this massive accumulation of debt and printing of worthless money by central banks cannot continue indefinitely, as it leads inevitably to massive inflation and the collapse of currencies.
Financing of government spending by printing money is precisely what led to the hyper-inflation that destroyed the German economy and made its currency worthless in the 1920s. Today’s massive debt has been kept going by the central banks holding interest rates at near, or even below, zero meaning that debt is cheap for companies and governments.
However the pressure, as Evans-Pritchard reports, is growing on the Federal Reserve to increase interest rates and attempt to rein in the debt by cutting back buying up US government bonds – the main method of financing US government spending.
But even the threat of an increase in interest rates and any ‘tapering off’ of printing money will cause a complete meltdown in the stock market.
Evans-Pritchard points out that every previous attempt by the Federal Reserve to ease back on Quantitative Easing (QE) has brought on a ‘taper tantrum’ from Wall Street, with the world stock market prices crashing at even the suggestion that the supply of free money would be cut back.
In a previous article he wrote: ‘Every time since the Lehman crisis that the US Federal Reserve has tried to dial down quantitative easing (QE) and restore normality, it has been forced to beat a hasty retreat. It famously happened under Ben Bernanke in 2013 when tough talk sent the emerging market universe into a tailspin.’
In his latest article he writes: ‘The scale of US stimulus is so enormous that the US Federal Reserve will be forced to change tack sooner rather than later. It will have to start tapping the brakes to prevent overheating and to counter ever louder talk of an incipient inflation supercycle akin to the late 1960s.’
Last month, the World Bank warned stimulus spending and ‘dangerous’ debt crisis could trigger recession.
The pandemic has made the growing wave of debt ‘even more dangerous,’ World Bank officials said, warning that although unprecedented spending has thus far helped calm financial markets, historically low interest rates could be concealing problems many countries will have with paying back their debts in the future.
The global investment bank Morgan Stanley added its voice to the worries about inflation running riot saying ‘we think the risk for more acute price spikes is greater than appreciated’ and noting that the ‘rapid rise of investment in bitcoin and other cryptocurrencies is a sign that the speculators are starting to realise that currencies like the dollar are on the point of crashing.’
Bitcoin electronically produced and with no intrinsic value, has soared in price this year in a manic surge by speculators desperate to seek a profit in the face of a collapsing dollar and the immediate prospect of industries, corporations and entire countries collapsing under the weight of debt.
The World Bank knows full well that capitalism internationally is on the brink of a world recession that will exceed anything seen before, but it has no answer to this crisis.
Only the working class can provide an answer by putting this bankrupt crisis-ridden capitalist system out of its misery by overthrowing it and going forward to socialism. There is no other way forward!