By Daniel Campos
On August 5, 2024, one of the largest stock market collapses in the world in the history of capitalism took place. But the most important thing was not the dimension of the collapse, but its significance. The significance of the collapse is that the world economy is heading towards stagflation, a horrific combination of recession and inflation on a global scale, a prospect that appears on the horizon of the world capitalist system. The collapse of August 5 is the product of the fear that this prospect of global stagflation provokes in the capitalists.
Bailouts and financial rescue will not be able to prevent capitalism from entering this phase in the midst of the crisis that has dragged on for more than 20 years. The data that caused the collapse of August 5 were: 1) Firstly, the bursting of the Yen bubble that caused the collapse of the Tokyo stock exchange, 2) The data on the entry of recession in the US economy, 3) The data on fighting in the Middle East between Palestinian and Lebanese militias against the Israeli army, a state that is a pillar of global capitalism and aggravates its crisis in the face of the 3rd Intifada. Of all these data, the most relevant was the entry into recession of the United States economy.
The data on the recession in the United States is the most relevant because capitalism has been involved in global inflation since 2021. Then, if the recession data of the US economy is confirmed, to which are added the data from China, Japan and Europe that are already in recession, the prospect of the combination of recession and inflation, that is, stagflation, opens up. Stagflation is the term used by bourgeois economists to define the combination of both symptoms of capitalism’s crisis.
It’s a term coined in 1965 by then-British Chancellor of the Exchequer Ian McLeod in a speech to Parliament when he said: “We now have the worst of both worlds: not just inflation on the one hand or stagnation on the other, but both together. We have a kind of “stagflation”. And, in modern terms, history is being made” (Ian Norman Macleod, House of Commons’ Official Report, November 17, 1965). Paraphrasing McLeod, “the worst of both worlds” that in 1965 was “a modern novelty” and a definition to be applied in national economies, is now presented as another “modern novelty” that is the application on a global and world scale of this definition. In turn, the perspective of “global stagflation” illustrates the gravity and depth of the world crisis of capitalism.
A collapse that combines inflation and recession
The trend towards stagflation occurs in the midst of the collapse that capitalism is going through, consisting of the combination of several factors such as the generalization of poverty, the cutting off of the supply chain or global gridlock, the collapse of trade, the destruction of productive forces, generalized precariousness, global recession, the devastation of nature, etc. climate change, bubbles, speculative maneuvers, the crash or bankruptcy of global corporations and banks, pandemics, wars, etc. It is in the context of this global situation of collapse that global inflation has been unleashed in 2021, hitting the entire world, which combined with the recession throws a picture of stagflation.
What is the problem facing imperialism if the world capitalist economy is heading for stagflation? That the tools available to imperialism to overcome the crisis are increasingly limited and complex to apply. In general, since 2008/09, every time the economy faced recession or the danger of generalized bankruptcies, the officials of the Central Banks and capitalist governments resorted to bailouts and financial bailouts to overcome the crisis, the so-called QE (Quantitative Easing).
QE is “injecting” money into global corporations to avoid their bankruptcies, which “heats up” the engines of the economy, temporarily reviving it and causing the stock markets to rise. On the other hand, the Bailouts drove inflation and developed dangerous speculative maneuvers known as “bubbles”, which is actually the phenomenon that Marxists call “overaccumulation” of capital, when enormous masses of capital accumulate in an asset, commodity or branch of production, seeking profits.
The bursting of the “bubbles” causes serious economic and social crises, for example the bursting of the “punto.com” bubble in the 2000s initiated the current world crisis of capitalism, and unleashed the wars in Iraq and Afghanistan that led to the military defeat of NATO and imperialism. Another example is the bursting of the “sub prime” bubble between 2007/08 that unleashed the bailouts and the 3 revolutionary waves that we are currently experiencing against capitalism. The response of capitalist-imperialist officials and governments to the danger of the bursting of “bubbles” has been QT (Quantitative Tightening), an operation that means “withdrawing” money from corporations, which produces an economic “cooling” with the aim of curbing bubbles, and avoiding inflation. In this way, what characterizes the policy of world imperialism in the face of the global crisis of capitalism in the last 16 years has been a successive alternation of QE with QT.
The alternation of QE and QT in the last 15 years
The alternation of QE and QT began with the first tranche of bailouts that was called QE1 in September 2008, until March 31, 2010, when the world economy again showed symptoms of recession. There began the second round of bailouts on November 3, 2010 called QE2 until June 30, 2011, which failed to remove the danger of crisis, which led to a third round of bailouts called QE3, which began on September 13, 2012 until October 29, 2014. when he stopped in the U.S. In Europe, QE was developed during 2015. But inthe face of the danger of speculative bubbles bursting, the bailouts were stopped and imperialism varied its policy by going towards the QT that began from October 2014 until October 2019 when the outbreak of the repo crisis occurred that threatened to bankrupt the Global Corporations again.
The threat of bankruptcies forced imperialism to launch a new round of bailouts inMarch 2022 when QE4 began,with which the equivalent of the bailouts implemented in the previous 10 years was injected in 3 years. With an even more accelerated and dizzying speed, QE4 coincided with the development of theCoronavirus pandemic and constituted the largest rescue operation in history, in which the Central Banks multiplied by 7 the masses of money injected into the Global Corporations, going froman average of 120 billion dollars per month between the years 2008-2019, to an average of more than 833 billion dollars per month between March 2020, and March 2022. If you want read more about the QE4 click here
The image shows the alternation of QE1, QE2, and QE3 with QT1 between 2008 and 2019. Source: Federal Reserve
The brutal injection of such a large amount of masses of fictitious capital into the economy triggered global inflation, which exploded the increase in prices in the 5 continents, from countries that have been living with chronic inflation for years, to countries that had not known inflation for decades. If you want read more about the world inflation click here
With global inflation having skyrocketed to these dangerous levels, the economic authorities of world capitalism went to a new QT and withdrew the QE4 Bailouts to implement for the second time an operation to withdraw the masses of capital and a rise in interest rates of up to 5 and 5.5 percentage points. The withdrawal of the QE4 bailouts pushed capitalism into a wave of bankruptcies in the United States, Europe, and China during 2023. If you want read more about the bankruptcies click here
The collapse of Silicon Valley Bank broke out in the United States, whose English branch was bought by HSBC for $1, followed by the crisis of First Republic Bank, and Signature Bank, after which the authorities announced that 186 banks were in danger. In Europe, Credit Suisse, one of the 10 largest corporations that dominate the global economy based in Switzerland, went bankrupt, which was resolved through a merger with the Union of Swiss Banks (UBS), while in China the bankruptcy of Evergrande, the most important corporation in the country’s real estate industry, was agreed.
To sustain and rescue the economy from these bankruptcies, imperialism carried out the Central Bank Agreement concluded on March 19, 2023 between the main 6 Central Banks of the world: The US Federal Reserve, and the United States. The Bank of Canada (BofCa), the Bank of England (BofE), the Bank of Japan (BoJ), the European Central Bank (ECB) and the Swiss National Bank (SNB) signed an agreement that introduced the “novelty” of bailouts that are implemented on a “daily” basis, through the mechanism of “swap lines”, a “window” that provides money 24 hours a day to constitute and form a “money security mesh”. that provides loans for all the world’s millionaires and their Global Corporations. If you want to read more about the Central Banks Agreement click here
The image shows the QT1 and QT2. Source: Reuters
It should be clarified that the implementation of these measures is carried out simultaneously and in a coordinated manner by all capitalist governments and leading officials of capitalism throughout the world. QE and QT are implemented in the US. The United States, Japan, Canada, China, and Europe by mutual agreement, otherwise the measures would not have an effect.
Despite the crazy theories that try to portray China as “confronting the United States” or “disputing global hegemony” the reality of
more than 15 years of capitalist crisis is that all capitalist-imperialist governments, as well as the sub-metropolises, whether China, India, Israel, Brazil or South Africa, act in a centralized and disciplined manner following the guidelines set by the Central Bank of the United States called the Federal Reserve, the “Fed” in the jargon of bourgeois economists.
When it comes to rescuing capitalism there is no “decoupling”, nor “hegemonic dispute”, on the contrary, the hegemony of Wall Street and the US imperialist corporations is total and indisputable for the economic authorities of the entire world. The application of QE and QT is carried out by all the Central Banks of the main capitalist economies of the world, they are categorical facts that belie all the charlatanism of a “3rd World War” or the existence of “blocs” between China and Russia on the one hand and the US. On the other hand, they are at odds with each other. Far from this fantasy, all the governments, officials and authorities of the capitalist countries of the whole world act with the same policy subordinated to the orders of US imperialism. and Wall Street. That is to say, the crisis of capitalism, instead of being a factor of “division into blocs”, acts by unifying the ruling classes and their representatives in defense of capitalism.
The monstrous “bubble of everything”
With the Central Banks’ Agreement, the stage of the “alternation” between QE and QT ended, and a simultaneous combination of both mechanisms began. From 2023 onwards we began to observe that on the one hand QT2 was still in force, which included an interest rate hike of between 5 and 5.5, while on the other hand and simultaneously, the Central Banks’ Agreement was developed, which is in fact a QE, although imperialist officials refuse to declare and publicly acknowledge it. so as not to “scare” the markets, and not to suffer the worldwide “repudiation” of the population in the face of the rescue of the millionaires.
It is precisely this prospect of stagflation that began to be drawn on the horizon of capitalism throughout 2023 when, in the midst of the outbreak of global inflation, the “wave of bankruptcies” began to develop that has led imperialism, the authorities and Central Banks to this need to combine QE, and the QT. Both tools alone can no longer provide an answer to the crisis of capitalism, which opens up a very complex, very difficult situation for the authorities of world imperialist capitalism.
Speculative real estate bubbles in 2022 in the red are those at risk of bursting. Source: VisualCapitalist
Now the governments and officials who run capitalism must use both tools in combination but in a very difficult way because QE prevents bankruptcies but triggers inflation, while QT prevents inflation but develops bankruptcies. It is like trying to inflate a balloon by blowing air while pricking it with a needle simultaneously, two operations that are opposite but must be carried out simultaneously. You cannot “cool” and “heat” the economy simultaneously, but this is the challenge that governments and central banks of the imperialist countries are facing, a very hard and difficult road for world imperialism that is perceived by Wall Street produced the “crash” of the stock markets on August 5.
In turn, the alternation of QE and QT for more than 15 years in the world economy has caused a real disaster that pushed capitalism into greater and more serious dangers. By having injected these enormous financial parasites with bailouts, the development of all kinds of speculative maneuvers such as share buybacks and fraudulent activities exploded, with which criminal financial activities multiplied, which according to capitalist analysts themselves are “weapons of mass destruction.”
If what had caused the outbreak was a crisis in US mortgages, then there is a crisis in the United States. In the US, now that mortgage crisis had multiplied by 12 and spread to 11 countries. Thesize of the companies that dominate the world economy, the “too big to fail” Global Corporations, are now real monsters bigger and more dangerous that have developed a monstrous global speculative bubble that bourgeois analysts call the “Bubble of Everything”. Financier Jared Dillian explains it this way: “… In 2000, we had the dot-com bubble. In 2007 we had the real estate bubble… In 2017, we have the bubble of everything…” (Capital Bolsa 29/6/17). In China, a gigantic bubble was formed that is called “the mother of all bubbles”
What has been the result of 15 years of QE, bailouts, or bailouts? They have inflated the largest, most horrific, and colossal speculative bubble in the history of capitalism, what Wall Street analystscall the “bubble of everything,” a kind of financial hurricane that can wipe out the entire planet because it is a bubble that, if it bursts, can bankrupt global capitalism. That is to say, capitalism does not arrive at this situation suddenly and randomly, but as a product of a genesis, a development of crises that it is important to evaluate in order to understand how it has arisen and how the capitalist governments and functionaries themselves have built the “bubble of the whole”.
The dot-com bubble in the 2000s (dot.com bubble), the housing bubble in 2008 (housing buble) and the “Everything bubble” shot up as the biggest and most monstrous. Source: The Board of Governors of the United States Federal Reserve
The collapse of August 5 exposed the seriousness of the phenomenon faced by governments and officials of global capitalism, for which they must use tools that place them before an arduous perspective. A phenomenon that they must face taking into account that the tools they have are already limited, which makes the whole process very difficult to face, and solve. But they need to face the political-social consequences that the crisis of capitalism means for capitalist governments.
This is so because the crisis of capitalism is the basis on which the revolutionary waves and the workers’ and people’s uprisings that sweep the world in the last century are sustained.
XXI. With the skyrocketing inflation, a wave of workers’ strikes broke out worldwide in the United States, France, England, Germany, Japan and developing countries, which underpinned the process of trade union reorganization and global “political revolution”. That is why the desperate measures they are already taking will not prevent stagflation from occurring. For example, in China, bailouts and bailouts of the People’s Bank of China (PBOC) have begun, driven by the concern of Xi Jinping’s regime about the slowdown in China’s growth rate.
The truth is that China’s collapse forced the start of QE with a reduction in the central bank’s base interest rate from 1.7 percent to 1.5 percent, a further reduction from 0.25 to 0.5 percentage points later this year, the injection of 142,000 million dollars to the banks, $71 billion in bailouts of brokers, insurance companies, stock buyouts, and $300 billion available for share buybacks.
The governor of the PBOC, Pan Gongshen, stated that such measures could be doubled or tripled if they work, with which China acts in conjunction with the United States authorities, who at the same time announce the reduction of interest rates with which they begin to leave QT2 to go towards QE5. Imperialism globally in conjunction with the capitalist government of China implements the same measures that only seek to save the oligarchy of Wall Street, and its junior partners such as the oligarchy of the CP of China. To read more about U.S. oversight of China’s economy, click here.
The Basel III “Endgame” farce
All these manoeuvres that begin in China and the US are not the same. The U.S. bailouts are the beginning of QE5, a new round of bailouts that seeks to pull the global economy out of the crisis. But we already anticipate that QE5 will not succeed in preventing the world economy from heading towards stagflation, an inevitable course as the struggles and revolutions of workers and peoples place a limit on the attempts of governments and officials to save capitalism.
After the sharp peak of the world crisis of capitalism developed between 2008 and 2009, capitalist governments and officials applied bailouts, financial bailouts and QE, but at the same time the reality of the need for supervision of corporations that carry out maneuvers and scams without any type of regulation by the states was imposed. and capitalist governments. During that time, the Basel Committee on Banking Supervision, a group convened by the Bank for International Settlements (BIS), stipulated that the capital requirement for a corporation to be considered solvent and financially sound was 19% of deposits in relation to loans and other financial instruments. this agreement of the Central Banks was called the “Basel III Framework”.
But, after the outbreak of the “bankruptcy wave” in 2023, the heads of Global Corporations pushed for the Basel rules to be modified, in favor of bankers. In July 2023, the Fed’s head of regulation, Michael Barr, published a new set of rules known as Basel III Endgame, in which the capital requirements that a bank must have to be considered solvent, and not be considered bankrupt, had been halved. Now the requirements have gone from 19% to 9%, which for corporations such as JP Morgan, Goldman Sachs, Bank of America, or Citigroup was a “godsend” because they freed up 100,000 million dollars to continue speculating.
Ironically, “Endgame” means “End of the Game”. The professional swindlers of Wall Street, the millionaire oligarchs of the 1%, the heads of the Global Corporations, applaud Basel III because it is a permission to continue to swindle the entire world while continuing to command a social system that is collapsing day by day. We repudiate Basel III, the bailouts, and all the speculative maneuvers that bring millions of dollars into the pockets of the rich, to be richer every day while 99% of the world’s population is poorer every day. The time has come to put an end once and for all to capitalism, whose crisis threatens humanity, in order to move towards Global Socialism.
Source by www.revolucion.org.es
