Committee for the Abolition of Illegitimate Debt

 Part 1: The context of extreme financial devaluations

The World Economic Forum is meeting in Davos this week. The gathering of many of the wealthiest corporate elites and state leaders compels consideration of directions global capitalist chaos may take us in 2023. What lessons did we learn from the devaluation Devaluation A lowering of the exchange rate of one currency as regards others. of so many economic assets – including the lead plutocrats’ own wealth – in 2022, amidst so much geopolitical, environmental and socio-economic suffering?

In part reflected in the Forum’s new Global Risk Report 2023, there’s a new sense of nervousness among than 2,700 attendees, who this year – the 53^rd such meeting under Klaus Schwab’s direction – include leaders of the European Union, North Atlantic Treaty Organisation, Germany, Finland, Greece, Spain, the Philippines, South Korea and South Africa, along with at least 100 billionaires (but none from Russia due to sanctions).

The Forum theme, “Co-operation in a Fragmented World” reflects the use of a new term (popularised recently by Columbia University political economist Adam Tooze): “We have this risk of polycrisis emerging,” Schwab’s successor Saadia Zahidi argues, “because so many things are happening at once.” In a time of near-useless multilateral interventions, New York University economist Nouriel Roubini’s latest book boils these global crises down to ten MegaThreats.

Most Forum attendees are acutely aware of the economic dimensions of polycrisis. Even beyond the several trillions of dollars’ worth of destruction associated with Russia’s invasion of Ukraine, energy and food market upheavals, climate calamities, durable Covid-19 or China’s abrupt end to pandemic lockdowns, there have been other tectonic shifts in how assets are valued that worry these elites, many of whom come to Davos much poorer than the prior meeting last May.

And such concerns could also guide social, labour and environmental movements – and perhaps a few leaders of progressive governments – when assessing the changing fields of capital accumulation that they struggle on, a point taken up in the next essay.

For example, 2022’s sovereign debt Sovereign debt Government debts or debts guaranteed by the government. crises and wild stock market and currency fluctuations – mainly associated with rising interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation. applied by the U.S. Federal Reserve FED
Federal Reserve Officially, Federal Reserve System, is the United States’ central bank created in 1913 by the ’Federal Reserve Act’, also called the ’Owen-Glass Act’, after a series of banking crises, particularly the ’Bank Panic’ of 1907.

FED – decentralized central bank : http://www.federalreserve.gov/ and allied central banks, to combat relatively high price inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. – are important indicators. They not only already inform the world’s renewed economic justice (“cost-of-living”) movements, but also reflect a deeper unravelling that by nearly all accounts will in coming months cause terrible social pain and prevent desperately-needed environmental healing.

We can start by recalling how extreme uneven development processes have been caused by both structural economic contradictions and counter-productive state policies over the last 50 years, since the 1973 catalysts of power shifts within the global political economy:

• long-term (50-year) tendencies to the “overaccumulation of capital” – i.e., excess capacities emerging in the world economy’s productive sectors, inventories, financial assets and labour markets – that have never been properly resolved, but instead displaced, such as via East Asia’s long boom;
• a resulting stagnation in Western capitalist output, aside from the extractive industries which were occasionally dynamic – from 2005-014 and 2020-22 – as “commodity super-cycle” price hikes enticed investors and rewarded the extractive circuits of capital;
• the closures of many labour-intensive industries that once boasted mega-factories, and widespread replacement of workers with machines;
• the ascendant class power of not only domestic and international financial capital, but also in many economies, export-oriented and mercantile capital; and
• the dominance of “Washington Consensus” ideology, promoting neoliberal deregulation, privatisation and for-profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. provision of not only goods and services but also infrastructure (and hence the systematic underinvestment in areas of the word not deemed sufficiently lucrative).

Following the first stage of global overaccumulation crisis in the 1970s, mainly taking the form of “stagflation” (stagnation combined with inflation), the 1980s were for the Third World a lost decade as a result of debt overhangs. From the late 1980s, periodic outbreaks of financial bubbles – and partial bursts – became obvious, leading the U.S. Federal Reserve to a bail-out policy for institutions deemed “too big to fail.” As financial laxity continued through the mid/late-1990s emerging markets crises, Long Term Capital Management’s failure, the dot.com crash, so too did inequality soar.

Official Western central bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

ECB : http://www.bankofengland.co.uk/Pages/home.aspx wisdom began to include “Quantitative Easing” – running the currency printing press at full speed – on top of bail outs and ultra-low interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. rates from late 2008, as investment banking, insurance and then wider economic meltdowns moved from the U.S. across the world. The process was repeated from March 2020 until November 2021, and with the financialisation of economies at record high levels, poverty and inequality worsened alongside Covid-19 suffering, as at least 15 million people died (with another million Chinese anticipated to perish in early 2023 as tight lockdowns were eased).

This was all satisfactory to those at the very top of the pyramid of wealth, until 2022. Earlier, from March 2020 until November 2021, the wealth of the world’s ten richest men soared from $700 billion to $1.5 trillion.

At that stage, the rich list was led by a Pretoria-born, Johannesburg-raised tech entrepreneur, Elon Musk, whose main firms were Tesla and SpaceX. By late 2021, his wealth peaked at nearly $300 billion, having exploded by more than 1000 percent during Covid-19. Amazon shopping founder Jeff Bezos claimed just over $200 billion in assets, and in the 4^th-8^th positions were tech and Big Data tycoons Bill Gates, Larry Ellison, Larry Page, Sergey Brin, Mark Zuckerberg and Steve Ballmer, all between $104-138 billion.

 The plutocrats’ roller-coaster

But matters changed radically in 2022, as most of the world’s dozen wealthiest portfolios collapsed by year’s end:

The world’s dozen wealthiest people, December 2022, according to Forbes

Source: https://www.forbes.com/real-time-billionaires/

Due to factors largely beyond the control of even these plutocrats, during 2022 they suffered unprecedented wealth shrinkage, with the top 500 individuals and families down $1.4 trillion. Musk halved to $146 billion after gambling $44 billion on buying his social-media hobby, Twitter. Tesla’s share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. value crashed by 65 percent in 2022 given renewed investor mistrust in his time management, maturity and common sense, with early 2023 providing no end in sight to the losses. Bezos’ net worth also collapsed, to $107 billion, mainly due to Amazon losing half its value (and the aftermath of a wealth-debilitating divorce).

This left French luxury goods tycoon Bernard Arnault as the world’s richest man, but nearly all the other ultra billionaires were from the U.S., with the exception of two Indians – Gautam Adani and Mukesh Ambani – and Mexican telecommunications privatiser Carlos Slim. The overall Forbes’ 2022 rich list recorded geographically-specific declines among 2,668 billionaires: “The most dramatic drops have occurred in Russia, where there are 34 fewer billionaires than last year” (oligarchs hit hard by financial sanctions included Vladimir Potanin, Leonid Mikhelson, Vladimir Lisin, Alisher Usmanov, Alexey Mordashov, Roman Abramovich, Gennady Timchenko, Suleiman Kerimov, Victor Rashnikov, Alexei Mordashov and others).

Meanwhile in China, Beijing’s strict regulation of Big Tech shrunk the number of Chinese billionaires from 694 to 607 (second to the U.S. with 735), including those in Hong Kong and Macau. The two most famous, “Pony” Ma Huateng of Tencent and Jack Ma of Alibaba, fell to less than $40 billion in assets each.

William Robinson writes in his new book, Can Global Capitalism Endure?, that this group represents leadership of a Transnational Capitalist Class forged from global “integration of the leading sectors among national capitalist classes.” But the durability – and capacity to act in unison – of “the owners and managers of the giant transnational corporations and financial conglomerates that now drive the global economy” certainly came into question in 2022.

 Transnational capitalists’ strategic void

While rhetorically there appears to be such a grouping, with names and ideas either made public or left discrete (through the likes of the World Economic Forum, Bilderberg Group and other elite networks), it is in turning words into action that the coherence of a class can be identified. And the class power of transnational capitalism is in question, given its lead institutions’ recent failures, especially in multilateral inter-state fora: notably the Bretton Woods Institutions and World Trade Organisation WTO
World Trade Organisation The WTO, founded on 1^st January 1995, replaced the General Agreement on Trade and Tariffs (GATT). The main innovation is that the WTO enjoys the status of an international organization. Its role is to ensure that no member States adopt any kind of protectionism whatsoever, in order to accelerate the liberalization global trading and to facilitate the strategies of the multinationals. It has an international court (the Dispute Settlement Body) which judges any alleged violations of its founding text drawn up in Marrakesh.

, or even the most useful venue Big Oil enjoys against climate regulation of fossil fuels – the 1994 Energy Charter Treaty, which provides an Investor-State Dispute Resolution mechanism favoring capital and preventing decisive emissions-reductions policies.

To be sure, the failure of multilateralism in recent decades does indeed reflect transnational corporate libertarian hostility to the kinds of international solutions required for the current round of global crises. As Robinson puts it, these elites and their hired politicians still “lack functional political structures to resolve the crisis, stabilise a new global power bloc, and reconstruct capitalist hegemony, given the disjuncture between a globalising economy and a nation-state-based system of political authority.”

Without a coherent approach to capital accumulation, the lead financial managers appeared to become ever more frivolous, for “As opportunities have dried up for speculative investment in one sector the Transnational Capitalist Class simply turned to another sector to unload its surplus,” Robinson observed. Indeed in 2022, the boom in monetised Big Data may have ebbed (at least temporarily, as did a Dot.Com bubble burst in 2000-01), especially among the founders of the 2010s’ explosive FANG shares (Facebook, Apple, Netflix and Google) and China’s two biggest companies (Tencent and Alibaba).

Nevertheless, massive share value appreciation during 2022 did occur in other sectors. The world’s largest corporate finance market – the New York Stock Exchange (NYSE) – witnessed soaring valuations of “fictitious capital” (what Karl Marx termed the paper representations of assets, such as stock market shares) in three sectors: Big Oil, the Military-Industrial Complex and Big Pharma. This good fortune was a result of the energy crisis, Russia’s invasion of Ukraine and provision of 13 billion Covid-19 vaccinations in 2021-22, respectively.

The U.S. firms Exxon and Chevron led the NYSE in 2022 gains, at 80 and 53 percent share price increases respectively, while the next four largest – Norway’s Equinor, London-based Shell and BP and Paris-based Total – all witnessed share value increases from 28 to 40 percent in 2022. From Big Pharma, the two main winners were Merck and Eli Lilly at 45 and 32 percent, respectively, following dramatic 2020-21 price increases once Covid vaccine and treatment profits were boosted by the Trump regime’s unprecedented “Operation Warp Speed” subsidies.

 Fictitious capital’s vanishing act

But these were the exceptions, because with the U.S. Federal Reserve raising interest rates from late 2021, economic growth slowed and debt stresses emerged. With interest-earning assets now a better investment bet, the Wiltshire Index of all U.S. listed shares dropped 21 percent during 2022, and among the top 500 firms (the S&P500) there were only 132 gainers and the rest losers.

Aside from Tesla, the next major firm to suffer a formidable NYSE crash was Zuckerberg’s Meta (Facebook), down 64 percent, followed by three other major West Coast IT companies: Advanced Micro Devices (55 percent), Bezos’ Amazon (50 percent) and Nvidia Semiconductors (also 50 percent). The values of the largest content providers – Netflix and Disney – collapsed by 51 and 44 percent, respectively. The NYSE’s two biggest shares, Apple and Microsoft, fell 27 and 29 percent respectively. The two biggest banking shares – Bank of America and JP Morgan – also lost 26 and 15 percent of their valuation, respectively.

In Asia, the single most valuable firm in recent years was Tencent, listed in Hong Kong with a peak early-2021 market capitalisation of US$916 billion. But by October 2022, at the point Xi was re-elected at the Communist Party’s conference (causing many international investors to dump Chinese shares given his hostility to private-sector Big Tech), Tencent’s market value was down to US$251 billion, a 74 percent collapse (though it soon doubled in value). The second most valuable Asian firm, Alibaba (dual-listed in Hong Kong and New York), peaked in late 2020 at $868 billion but after being investigated for violations of competition and consumer legislation, fell 81 percent to a low of $168 billion two years later.

So much for the blind faith that so many investors harbored, that Blue Chip shares would best ride out the storm of devaluation. The top 100 firms on the world markets lost $7.2 trillion in share values in 2022. The losses were greatest in the strongest bastion of world capitalism, the U.S., host to 16 of the top 20 firms (the non-U.S. corporations were second-place former Saudi oil parastatal Aramco, 11^th-largest Tencent, 14^th-placed Taiwanese semiconductor producer TSMC; and Arnault’s 15^th-ranked Louis Vitton, or LVMH).

 Geographically-uneven overvaluations

The devaluations were predictable, given stock market overvaluation fueled by loose monetary policies, but geographically uneven. In late 2020, near the peak moment for speculators, the “Buffett Indicator” – i.e, market capitalisation (the total worth of listed firms) divided by Gross Domestic Product GDP
Gross Domestic Product Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another. – helps assess where features of national markets provide signals of where financial capital flowed or instead became stuck, typically due to exchange controls. There are several anomalies. In first through third places in the Buffett Indicator, and indeed the fastest-rising indexes during the late 2010s, were Hong Kong (with a 1777 Buffett Indicator in December 2020), Iran (508) and Saudi Arabia (345).

All three had unique features. First, the Hong Kong Hang Seng index hosted both Tencent and Alibaba – Asia’s two largest companies until 2022 – and hence peaked in early 2018, prior to the first round of Beijing’s clampdowns on Big Data. The index then crashed 57 percent to its recent low in October 2022. Second, the Saudi Tadawul Stock Exchange soared mainly due to the Initial Public Offering of Aramco in late 2019, rising to a peak in April 2022, after which the market fell 26 percent through the end of 2022. Third, the Tehran Stock Market had boomed in March-August 2020 due to three factors: partial privatisation of 49 state-owned enterprises, government’s use of its sovereign wealth fund Sovereign Wealth Fund A sovereign wealth fund or SWF is an investment fund owned by a State. It is funded by exports of high-value raw materials or by large trade-balance surpluses. In 2013, such funds managed approximately $5.2 trillion in assets. ’s foreign revenues to invest in the local market, and roaring inflation that channeled many households’ spare cash into shares (so as not to lose funds in banks due to depreciation). By August 2020, the Tehran bubble reached break point, and over the subsequent nine months crashed nearly 50 percent before a slight recovery.

The fourth-to-sixth most expensive share markets in late 2020, as defined by the Buffett Indicator using primary stock markets, were South Africa (312), Switzerland (277) and the United States (193). After dramatic 2021 increases and then 2022 crashes, these ratios were relatively unchanged. South Africa’s was most volatile since so much of the local share capitalisation depended upon Tencent, given that nearly one-third ownership in the Chinese firm was due to a lucky 2001 investors’ bet of $35 million in Pony Ma’s vision. That led his firm – the apartheid-era white-power media firm Naspers – to soar in price, encompassing nearly 30 percent of the Johannesburg Stock Exchange at peak before 2018.

In the next tier among major stock markets were better-established, less volatile markets: Singapore, Sweden, the Netherlands, Canada, France, Japan, Australia and South Korea.

When measuring the markets’ absolute sise (not the Buffett Indicator’s relative terms), the United States reached nearly $40 trillion by late 2022, followed by China at $10 trillion, Japan and Hong Kong at around $5 trillion, and then much smaller markets in the UK, France, Canada, India and Switzerland.

Stock markets weren’t along. Other speculative financial assets rose and crashed much further, such as Bitcoin’s value, down from nearly $1 million each in November 2021 to $293,000 by early 2023, as total cryptocurrency valuation fell from $3 trillion to $850 billion over the same period (Bitcoin typically represented nearly 40 percent of the market, followed by Ethereum at 18 percent). As the craze came to an end, one of the main marketplaces – FTX, founded by Sam Bankman-Fried – was unveiled in late 2022, during a humiliating high-profile bankruptcy, as a fraud-riddled Ponzi scheme. (Also noteworthy was that he had backed dozens of corporate-neoliberal Democratic Party office-holders with $40 million in 2022 campaign contributions – mainly in the primaries against progressive alternative candidates – in order to receive more rapid legislative and regulatory support for his endeavors.)

A great deal of the speculative froth entailed in these fictitious capital price dynamics – first upward and then from early 2022 downward – could be traced to central bank managers’ macro-economic powers. Thanks to Quantitative Easing, bank bailouts and low interest rates in 2009-13 and 2020-21, fictitious capital gained in price, far beyond genuine valuation of underlying asset Asset Something belonging to an individual or a business that has value or the power to earn money (FT). The opposite of assets are liabilities, that is the part of the balance sheet reflecting a company’s resources (the capital contributed by the partners, provisions for contingencies and charges, as well as the outstanding debts). values.

But herd instincts prevail, and control over vast flows of funds in the world’s stock markets have remained concentrated far too much in the hands of several lead investment houses: BlackRock with $9.6 trillion in asset management in late 2022; Vanguard Group, $8.1 trillion; Fidelity, $4.2 trillion; Union Bank of Switzerland, $4.4 trillion; State Street, $4.0 trillion; Morgan Stanley, $3.2 trillion; JP Morgan Chase, $2.9 trillion; Crédit Agricole, $2.9 trillion; Allianz, $2.8 trillion; Capital Group, $2.7 trillion; Goldman Sachs, $2.4 trillion and the like. The ultimate beneficiaries of absurd stock market capitalisations were mainly these and other institutional investors Institutional investors Entities which pool large sums of money and invest those sums in securities, real property and other investment assets. They are principally banks, insurance companies, pension funds and by extension all organizations that invest collectively in transferable securities. .

 The desired demise of the dollar

Starting in late 2021, central bankers should also be blamed for strangling the real economy with tighter-than-appropriate monetary policy. Fed chair Jerome Powell’s aim was to halt fast-rising inflation, even though it was increasingly obvious through 2022 that the primary source of price increases was not excess consumer demand and worker wage increases. (Progressives instead blamed corporate oligopolies’ pricing power.)

The inflationary surge represented a direct devaluation of money’s intrinsic worth, which in turn hurts poor people whose income typically does not have inflation adjustments. But with inflation, so too do debt obligations – repayment of both principal and interest – fall in real terms (for at least those liabilities Liabilities The part of the balance-sheet that comprises the resources available to a company (equity provided by the partners, provisions for risks and charges, debts). that were not priced on a variable rate basis, i.e. rising with the market interest rate).

But even if inflation was useful (as a devaluation process) to those borrowers with fixed-rate loans, the overarching problem for the period ahead was the world’s debt load. Indeed, if Quantitative Easing is not reapplied during times of future stress so as to displace the financial crisis once again, a full-fledged domino debt-default effect could transpire.

In October 2022, the IMF IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org ’s October 2022 World Economic Outlook conceded that the burst of post-Covid optimism had run its course:

“Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades. The cost-of-living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering Covid-19 pandemic all weigh heavily on the outlook. Global growth is forecast to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023.”

On the other hand, global capitalist managerialism had, by the time of the 2008-09 world financial meltdown, become good at postponement and other crisis-displacement tactics. Hence repayment of dollar-denominated debt by the world’s largest borrower, the U.S. Treasury, was still readily funded by international creditors. The simple reason for such flows moving even into low-return assets like U.S. Treasury Bills, is the role that the U.S. dollar currency has had as a safe haven, since 1944. To be sure, there was a brief late-1970s interlude when gold took over due to U.S. inflation.

As Polish-based political economist Richard Westra remarks of that period, with the “dollar as global hub currency, US domestic inflationary travails were exported throughout the world. Advanced economy competitors, in particular, began flirting with ways to replace the dollar in its post WWII position.” In spite of the capacity of the Treasury and Federal Reserve to abuse that global-scale macroeconomic power, nevertheless the dollar held firm, even with, reminds Westra,

“dollars flooding world markets under conditions where real interest rates were below rates of dollar inflation, creating a surreal global dollar borrowing paradise, Federal Reserve Chair of the day, Paul Volcker, unilaterally raised US interest rates. Nominal rates would soon spike to around 21 percent.”

Similarly, amidst the current volatility, the dollar rose against most other currencies in 2022, just as in 2020 and 2008. Whether an alternative currency arrangement can emerge from the Brazil-Russia-India-China-South Africa grouping, as is often hypothesised by enthusiastic supporters, remains to be seen. But given the bloc’s major differences and economic instabilities, and precedents for BRICS leaders promising much in the way of global financial reform but delivering next to nothing (merely a small, corruption-riddled World Bank World Bank
WB The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

-style New Development Bank), a full-fledged attack on the dollar’s power seems extremely unlikely. Hopes for an alternative to the IMF (the $100 billion “Contingent Reserve Arrangement”), or to the biased New York credit ratings agencies, or to the BRICS economies’ reliance on dollars for international trade, never materialised.

However, there is an anticipated expansion of the bloc, a “BRICS+” process, perhaps as early as August when the leadership summit will be held in South Africa. Amongst a dozen potential new members are several dictatorial petro-states – Saudi Arabia, UAE, Iran, Kazakhstan, Egypt, Nigeria and Algeria, which won the support of Beijing and Moscow in 2022 – which may shift the calculus.

It was, after all, the 1973 “petrodollar” arrangement (oil priced in dollars and mainly-Arab windfall profits recycled through New York banks) that gave the U.S. currency durable clout after Richard Nixon revoked the 1944 Bretton Woods Agreement in 1971. His default on $80 billion worth of what were U.S. liabilities – i.e., to pay one ounce of gold stored in Fort Knox for every $35 presented by international dollar holders – plus inflationary stagnation (“stagflation,” in part reflecting tight labour market conditions and stronger trade unions at that time), had thrown Washington’s monetary hegemony into question. Volcker’s high-interest regime was the central decision that changed U.S. fortunes (at the expense of a world recession), restoring dollar hegemony for at least the period 1980-2020.

Today, many weaknesses in U.S.-centric economic management are abundantly apparent, not least of which is, once again, stagflation. Yet notwithstanding all the recent discussions about a new monetary and payments-system strategy, the role of the dollar in international capitalism remains profound. In early 2023, nearly 60 percent of the world’s foreign exchange reserves held by central banks were in dollars (down from a 65 percent average from 2000-20). The dollar’s share of foreign exchange transactions was then 90 percent, of cross border loans 52 percent, of international debt securities 50 percent, of trade invoicing 50 percent and of SWIFT payments 42 percent (even before Russia was evicted in March 2022). The U.S. economy can today claim only 22 percent of global GDP and 12 percent of global trade, so the use of dollars by the world’s capitalists gives the Fed enormous clout.

Moreover, when it comes to the currency denomination of preferred investments, it still appears that the second largest single investor in U.S. Treasury bills, China (with more than $900 billion in late 2022, slightly behind Japan’s $1.078 trillion), is uninterested in rocking that boat at this stage, notwithstanding Beijing’s steady, gradual sale of dollars. The other major locales each hosting the holders of more than $100 billion in U.S. Treasuries were U.S. allies or self-interested investors unwilling to engage in a mass sell-off for political reasons, to dislodge dollar power: the United Kingdom ($638 billion), Belgium (327 billion), the Cayman Islands ($297 billion), Luxembourg ($296 billion) and Switzerland ($263 billion). With between $100 and $250 billion in T-bill holdings, are another half-dozen generally Western-centric economies: Ireland, Brazil, France, Taiwan, Canada, India, Hong Kong, Singapore and Saudi Arabia.

Powell appears to be following the older script of dollar restoration, no matter how painful. After all, in 1979 the Volcker Shock had caused a global recession and unprecedented debt crises for households, companies and dozens of middle-income and poor countries. In the early 2020s, with the Fed using its power to raise global interest rates, the possibility remains that a return to global recession would catalyze another round of what could become contagious debt crises.

Global economic growth anticipated in 2023 and beyond was lower – and also much more unevenly distributed – than the levels required to outrun indebtedness experienced in most economies. In even China, property markets and major housing developers had begun to collapse by 2022. New York University’s Nouriel Roubini, one of the very few mainstream economists to predict the 2008-09 meltdown, expressed concern about unprecedented levels of explicit overborrowing, as well as the West’s

“implicit debts such as unfunded liabilities from pay-as-you-go pension schemes and health-care Care Le concept de « care work » (travail de soin) fait référence à un ensemble de pratiques matérielles et psychologiques destinées à apporter une réponse concrète aux besoins des autres et d’une communauté (dont des écosystèmes). On préfère le concept de care à celui de travail « domestique » ou de « reproduction » car il intègre les dimensions émotionnelles et psychologiques (charge mentale, affection, soutien), et il ne se limite pas aux aspects « privés » et gratuit en englobant également les activités rémunérées nécessaires à la reproduction de la vie humaine. systems – all of which will continue to grow as societies age. Just looking at explicit debts, the figures are staggering. Globally, total private- and public-sector debt as a share of GDP rose from 200 percent in 1999 to 350 percent in 2021. The ratio is now 420 percent across advanced economies, and 330 percent in China. In the United States, it is 420 percent, which is higher than during the Great Depression and after World War II.”

This “megathreat” (one of ten), for Roubini, was the basis for:

“a hard landing – a deep, protracted recession – on top of a severe financial crisis. As asset bubbles burst, debt-servicing ratios spike, and inflation-adjusted incomes fall across households, corporations, and governments, the economic crisis and the financial crash will feed on each other. To be sure, advanced economies that borrow in their own currency can use a bout of unexpected inflation to reduce the real value of some nominal long-term fixed-rate debt. With governments unwilling to raise taxes or cut spending to reduce their deficits, central-bank deficit monetisation will once again be seen as the path of least resistance.”

Concludes Roubini, “The mother of all stagflationary debt crises can be postponed, not avoided.”

To its credit, the World Economic Forum is aware of these contradictions, and in its new Global Risk Report lists a series of concerns, including many reflecting these economic contradictions:

• Asset bubble bursts: Prices for housing, investment funds Investment fund
  Investment funds Private equity investment funds (sometimes called ’mutual funds’ seek to invest in companies according to certain criteria; of which they most often are specialized: capital-risk, capital development funds, leveraged buy-out (LBO), which reflect the different levels of the company’s maturity. , shares and other assets become increasingly disconnected from the real economy, leading to a severe drop in demand and prices. Includes, but is not limited to: cryptocurrencies, energy prices, housing prices, and stock markets.
• Collapse of a systemically important industry or supply chain: Collapse of a systemically important global industry or supply chain with an impact on the global economy, financial markets or society leading to an abrupt shock to the supply and demand of systemically important goods and services at a global scale. Includes, but is not limited to: energy, food and fast-moving consumer goods.
• Debt crises: Corporate or public finances struggle to service debt accumulation, resulting in mass bankruptcies or insolvencies, liquidity Liquidity The facility with which a financial instrument can be bought or sold without a significant change in price. crises or defaults and sovereign debt crises.
• Failure to stabilise price trajectories: Inability to control the general price level of goods and services, including commodities Commodities The goods exchanged on the commodities market, traditionally raw materials such as metals and fuels, and cereals. . Inclusive of an unmanageable increase (inflation) or decrease (deflation) of prices.
• Proliferation of illicit economic activity: Global proliferation of illicit economic activities and potential violence that undermine economic advancement and growth due to organised crime or the illicit activities of businesses. Includes, but is not limited to: illicit financial flows (e.g. tax evasion); and illicit trade and trafficking (e.g. counterfeiting, human trafficking, wildlife trade).
• Prolonged economic downturn: Near-zero or slow global growth lasting for many years leading to periods of stagnation; or a global contraction (recession or depression).

The dilemma, though, is that these are only the economic problems on the table. Far more durable environmental, social, geopolitical and health megathreats loom, as well. And as the next essay will show, the current incapacity of multilateralism – even imperialist/subimperialist combinations such as the G20 G20 The Group of Twenty (G20 or G-20) is a group made up of nineteen countries and the European Union whose ministers, central-bank directors and heads of state meet regularly. It was created in 1999 after the series of financial crises in the 1990s. Its aim is to encourage international consultation on the principle of broadening dialogue in keeping with the growing economic importance of a certain number of countries. Its members are Argentina, Australia, Brazil, Canada, China, France, Germany, Italy, India, Indonesia, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, USA, UK and the European Union (represented by the presidents of the Council and of the European Central Bank). – to address the polycrisis hasn’t appeared as profoundly debilitating, for at least the past 80 or so years.