COLLAPSE OF THE GLOBAL FINANCIAL SYSTEM?

After the last war a new financial system for the world was adopted. The dollar became the international ‘reserve’ currency for trade between countries. Its value was fixed to gold and so the dollar was ‘as good as gold’. All other currencies were fixed in relation to dollars. This meant that international trade favoured the dollar because local currencies had to be converted into dollars to be used.

This survived until 1971 when it became clear that the dollar had inflated against gold – too much money had been printed to finance US spending, particularly during the Vietnam War. The dollar became a floating paper (or fiat) currency with its value and the value of other currencies determined by money markets determined by the perceived health of their economies.

Governments finance spending from taxes or by borrowing by issuing bonds. Bonds underwritten by Governments are attractive as low-risk forms of investment.

To protect dollar dominance, countries were cajoled into buying US bonds and therefore funding US borrowing and so increasing US debt. In this way the US created huge amounts of money to invest across the world. Much of it funded the military-industrial complex and its vast arsenal. These arms companies donate huge funds to politicians in support of the arms industry.

US debt now stands at 36 trillion dollars. The total size of the US economy is 29 trillion dollars. The debt is now considerably greater than the size of its total economy. It is the ‘achilles heel’ of the US Empire.

The strength of the dollar can only continue if investors continue to buy US bonds and fund US debt. There are threats to this.

First, the scale of the debt means that the US has now to borrow even more to pay the bonds when they mature and this costs over a trillion dollars a year in interest payments which is adding to the debt.

Second, if there is a financial crisis the debt will not go away and investment in bonds may become unattractive and cease.

Third, if the US sanctions countries by freezing investments deposited in its banks countries and individuals will refuse to buy bonds on the basis that their investments may be confiscated – just as recently has been attempted with Russian bank deposits.

During the 2008 financial crisis which was triggered by a housing market collapse in the USA and again during the COVID crisis in 2020 the process of ‘quantitative easing’ was used to massively increase the money supply to keep the economy afloat. This hugely increased debt, devalued currencies and thereby increased the value of tangible assets such as property. Interest rates were held down to try and avoid inflation but with a

substantial amount of money circulating the monetary value of things increased hugely. Prior to 2008 we talked about millions. Today we talk about billions. A huge number of billionaires have been created. Inequality has massively increased.

THIS IS A BOMB WAITING TO EXPLODE...