In November last year The Economist, that foremost economic journal of capitalism, stated that "The world is entering a third stage of a rolling debt crisis...". The first one centred on the US with the collapse of the real estate market (2008), the second one centred on the European Union and its members’ sovereign debt crisis and now the current or third one on the Emerging markets - places like China and Brazil.
The financial crash that we have been witnessing at the end of 2015 and the beginning of 2016 may be far larger as it unfolds than in 2008, possibly causing the entire global economy to grind to a halt.
Global and Central Banks cause the crisis
As usual the large global banks and financial institutions are up to their necks in this crisis. With the collapse of oil and gas prices these banks are at risk because their loans to energy companies are now bad debts.
Europe's biggest bank, the Deutsche Bank, has suffered a loss of more than 9 per cent (due to its loans exposure to energy companies) and has hit Australian banks hard.
Morgan Stanley investment bank reported that 'Australia's big four banks' are owed $31 billion from energy companies. The Commonwealth Bank has the biggest risk of $11.6 billion owed to it. Since the beginning of this year, the market values of Australia's two major banks have nose-dived: ANZ down 18.66 per cent and Westpac 14.5 per cent.
J.P. Morgan bank reported that private-sector debt in emerging markets climbed from 73% of GDP at the end of 2007 to 107% of GDP by the end of 2014. The emerging markets debt figure rises even more sharply to 127% of GDP if credit from non-bank financial institutions (so-called “shadow banks”) is included.
The US Federal Reserve and other major central banks through the policy of quantitative easing (printing money), have pumped trillions of dollars into the global financial system. This led to an outbreak of borrowing by corporations in emerging markets, quadrupling their debt from $4 trillion in 2004 to over $18 trillion by 2014. This money is now heading out of the emerging economies and in the process crippling them.
Stock market and financial panic
The current panic sell-off on stock markets in China, Europe, US, and including Australia has seen trillions of dollars wiped out from global share values. As a result of investors getting spooked over fears of the world economy the Australian share market has lost more than $40 billion so far this year.
Money has flooded out of stocks with any trace of risk causing a 'bear market' of panic selling in stock markets worldwide; and Australia's stock market has fallen quicker and more violently than others in the developed world.
'Australian banks' are not shielded from the contamination of tumbling oil prices onto their financial accounts as energy companies become crippled by debt.
It ought to be remembered that 'Australian banks', especially the big four would've collapsed during the 2008 GFC had the Federal Government not come to their rescue and guaranteed them. They were unable to refinance their overseas loans because the global credit markets had come to a standstill.
The 2008 crisis saw Australian banks borrow $120 billion at the taxpayers’ expense. This was the biggest bailout of an institution in our history.
In September last year overseas borrowings by Australian banks had reached 53 per cent of GDP. Obviously they refuse to learn any lessons from the 2008 GFC.
Now Banks and hedge funds are gripped with terror and alarm as they are forced to confront week after week of collapsing share prices and asset values. Close to 1000 hedge funds in the US were closed down in 2015.
When the US Federal Reserve lifted interest rates above zero whilst the dollar rose, commodity (oil and gas) prices crumpled putting huge a burden on energy companies and economies. Then rivals Japan and some European countries went into negative with their interest rates.
Now central banks are at war with each other by pushing their currencies lower to get whatever trade advantage they can with exports. No doubt central banks and governments will be having serious but covert meetings haggling over what to do with capitalism's latest anarchic economic crisis.
The shift to negative interest rates, as has quantitative easing, will inevitably damage the global banking system. The Royal Bank of Scotland’s advice (which was scoffed at early in January this year by the financial media) to its clients to “sell everything..." and that 2016 could be a “cataclysmic year” appears now to be wise counsel.
Day of reckoning for the destruction of production
The Bank of International Settlements (the banker's bank) contends that there has not been enough wiping off the value of useless investment, what Marxists call de-valorisation. In other words the unthinkable is our reality; the present economic crisis is in fact the implosion of the capitalist system.
The BIS has stated that there needs to be a day of reckoning where huge wipe off from assets and investments needs to occur; which in effect means the closing down of plants all over the world. For example China has excess capacity in steel-making that is larger than the entire steel-making capacity of Japan.
Up till now governments' economic policies have been the postponement of the day of reckoning, because they are politically scared of what the social and political consequences of such actions will be.
However, from the capitalist point of view, there is no alternative to the BIS plan of recovery but to slash government debts and wipe out excess capacity - close down firms, plants, machinery etc. What has happen to Greece will now occur throughout the world!
The free trade agreements with Japan, Korea and China and the Multinational corporations investment protection agreement called, the Trans Pacific Partnership, are a way of forcing through de-valorisation i.e. the wiping out of excess firms, plants, machinery etc.
Wave of job losses follow the day of reckoning for firm closures
A wave of job cuts world-wide demonstrates the declining depression-like conditions of the global economy. In the US 40,000 coal mining jobs have gone; Wal-Mart slashed 10,000 jobs and 154 stores; and the freight transport industry is in a slump.
Here in Australia whilst the Australian Bureau of Statistics (ABS) reports an unemployment rate of 5.8 per cent (727,000) the Roy Morgan survey for January gives a more realistic unemployment rate of 10.3 per cent (2,575,000).
Two major retailers have collapsed: Dick Smith Electronics has placed in jeopardy 3,300 jobs and 393 stores; Woolworths announced it will exit its Masters hardware business, threatening 7,000 jobs and 63 stores.
Last year Chevron cut 1,200 jobs in Australia. In January Clive Palmer's Queensland Nickel Yabulu refinery closed with 237 jobs gone.
The loss of jobs in the mining industry in Australia is never ending:
CBH Resources - 116 jobs
Panoramic Resources - 50 jobs
Mincor Resources - 90 jobs
Independence Group - 28 jobs
Newcrest Mining - 100 jobs
Oz Minerals - 100 jobs
ANGLO American - 245 jobs
Other industries are also carrying out job cuts:
Freight carrier Pacific National - 46 jobs
Ship builder BAE - 325 jobs
Ship repairer Forgacs - 150 jobs
Auto parts manufacturer SMR Automotive - 140 jobs
Banking giant Barclays - 80 jobs
Bank of Queensland - 50 jobs
Lion Beer, Spirits and Wine Australia - 39 jobs
The University of Western Australia - 300 jobs
CSIRO - 120 jobs
Arrium (formerly OneSteel) – hundreds forecast along with possible closure of Whyalla steelworks
The federal government - 700 jobs
WA government - 1,163 jobs
Only a different mode of production can overcome the economic crisis and threat of war
It is obvious that finance capital through its central bankers and capitalist governments has only expanded and intensified the continual waves of economic crisis that it inflicts on the world. They are only interested in the accumulation of capital for themselves and consequently like mad men pour cash into financial markets sparking off speculation and parasitic mergers and fire-sale buy outs.
This finally brings about the day of reckoning of widespread destruction of productive activity (wipe out excess capacity - close down firms, plants, machinery) and job and welfare losses to the working class.
The escalating global economic crisis additionally risks igniting the geopolitical pressures and the drive to war by the US and other imperialist countries.
The US military strategy of the 'Asia Pivot' and the conflicts it has sown in the Ukraine and Syria are pointed directly at blunting competition from China and Russia.
As Marx pointed out long ago only a different mode of production, socialism then communism, will remove the exploitation and oppression that the working class has to endure under capitalism. However this requires that the working class wrest state power from the capitalists and imperialists, and destroy all the capitalist state’s functions and structures.
The state’s role in a capitalist society is to enforce upon the worker the task “…to satisfy the need of existing values for valorization (i.e. creating growth of and for capital). In contrast to capitalism, communism is“…the inverse situation, in which the objective wealth is there to satisfy the worker’s own need for development.”
The humane purpose of communism is that “…the free development of each is the condition for the free development of all.”