|The News Line: Editorial
Tuesday, 28 March 2017
US credit experts warn a crash is coming
NEWS IS quietly emerging from the top of the US banking fraternity that, despite the wild euphoria that has gripped the world financial centres since the election of Donald Trump, a massive crash is behind the scenes well underway.
The bankers and speculators rallied when Trump was elected taking heart when his election promises to end the domination of big business and bankers were quickly exposed as electioneering tripe.
Far from being ‘anti-establishment’ Trump swiftly filled the government with the representatives of big business and the very bankers he had denounced while moving to end all restrictions on the banks by repealing the Dodd-Frank Act introduced after the 2008 financial crash.
This act placed some very minor restrictions on the banks, restrictions that they railed against as being an intolerable restriction on their right to speculate wildly and make as much money as possible regardless of the risk of collapsing the economy.
Trump’s pledge of unlimited freedom to make money and the promise of huge tax cuts from 35% to 15% for the corporations led to soaring stock market prices in the shares of these corporations and the banks.
US capitalism went on a speculation binge secure in the knowledge that banks could make huge profits on paper and that any crash would fall on the backs of the US and world working class. It is now becoming apparent even to some financial insiders that this crash is coming more quickly than they believed possible.
The euphoria of the financial markets will shortly be brought crashing down as signs emerge of what is described as a ‘sudden and rare contraction’ of lending by US banks, a massive credit crunch in other words, even bigger than that of 2008 that precipitated the world financial crash.
According to data from the US Federal Reserve, commercial and industrial loans and corporate borrowing are falling at a much faster rate than that seen before the collapse of Lehman Brothers bank that heralded the start of the crash.
Credit experts at the big US banks are quietly warning that this is a sign of extreme danger and have expressed their surprise at how it is being ignored by the banks and speculators. Experts from Morgan Stanley pointed out that ‘Historically, credit downturns have led recessions. The plunge could reignite concerns that a highly leveraged US corporate sector may react strongly to even limited interest rates increases.’
Interest rates have just been hiked up by the Fed with more increases in the immediate pipeline on the back of the euphoria about Trump making US capitalism ‘great’ once again. This spells disaster for capitalism’s banking system. The rapid contraction of credit will expose all the contradictions and essential bankruptcy of capitalism in the era of dominance by the financial system and bankers.
All the trillions of dollars generated by Quantitative Easing and cheap loans courtesy of near zero interest rates is coming back to bite them. While the world’s stock exchanges have soared to giddy heights the manufacturers and corporations have not used all this free money to invest in their companies or pay workers a decent wage. It has been used exclusively to buy back their own stocks, thus assuring their bosses of giant bonuses, or to pay inflated dividends to shareholders.
These corporations are ‘highly leveraged’ meaning they exist only by piling up debt. With credit drying up and interest rates increasing they will simply go bust overnight with massive repayments on their debts that they will not be able to pay.
The working class in the US and across the world will be left to pick up the pieces as capitalism is determined that, as in 2008, those who caused the crisis escape and those workers who suffered through years of austerity to bail them out continue to suffer – this time even worse.
The working class is already rising up across the world and refusing to accept this as inevitable and being forced to recognise that the only answer to this crisis is to put an end to bankrupt capitalism once and for all through the world socialist revolution.
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