Committee for the Abolition of Illegitimate Debt

Source: JPM

In effect, the major economies remain in what I call a Long Depression that started after the Great Recession of 2008-9. In the last 17 years, economic expansion (as measured by real GDP 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. , investment and productivity growth) has been well below the pre-2008 rate, with no sign of any step change. Indeed, after the pandemic slump of 2020, the rate of growth in all these indicators has slowed further. Whereas world real GDP growth averaged an annual 4.4% before the Great Recession of 2008-9, in the 2010s, it managed only 3% and since the 2020 pandemic slump, annual average growth has slowed to 2.7% a year. And remember, this rate includes the fast-growing economies of China and India. And also, in some key countries (the US, Canada, the UK) it has (until recently) been net immigration boosting the labour force that supported real GDP growth; per capita GDP growth has been much lower.

Source: 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 , 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.

Above all, the profitability of capital in the major economies remains near a historic low and well below the level before the Great Recession.

Source: EWPT 7.0 series, AMECO, author’s calculation

In its latest economic forecast released last week, the IMF improved its forecast for global growth slightly, but still predicted a slowdown. “We now project global growth at 3.2 percent this year and 3.1 percent next year, a cumulative downgrade of 0.2 percentage point since our forecast a year earlier.” The IMF economists reckon US real GDP will rise just 2.0% this year, down from 2.8% in 2024, and then increase by just 2.1% next year. And that’s the best performance expected in the top G7 capitalist economies, with Germany, France, Italy and Japan likely to record less than a 1% increase this year and next. Canada will also slow to well under 2% – only the UK will improve (to a very modest 1.3% this year and next). But even these forecasts are in doubt as the outlook “remains fragile, and risks remain tilted to the downside”. The IMF is worried about: 1) a burst in the AI bubble; 2) a productivity slowdown in China; and 3) rising government debt Government debt The total outstanding debt of the State, local authorities, publicly owned companies and organs of social security. and servicing.

The OECD OECD
Organisation for Economic Co-operation and Development OECD: the Organisation for Economic Co-operation and Development, created in 1960. It includes the major industrialized countries and has 34 members as of January 2016.

http://www.oecd.org/about/membersandpartners/ economists are just as pessimistic. In its September Interim report on the world economy, the OECD expects global economic growth to slow to 3.2% in 2025 and 2.9% in 2026, down from 3.3% in 2024. Indeed, the OECD economists reckon that US real GDP growth will be at its slowest since the pandemic and so will China’s. And the euro area, Japan and the UK will grow just 1% or less. Growth in the US is expected at 1.8% in 2025 and 1.5% in 2026. China’s growth is seen easing to 4.9% in 2025 and 4.4% in 2026 – although that rate is still nearly three times as fast as the US and four times as fast as the euro area, which is projected to expand 1.2% in 2025 and 1.1% in 2026. Unlike the IMF, the OECD expects the UK to slow to just 1% a year in 2026, while Japan is forecast at 1.1% and 0.5% over the same period.

The UN’s trade and development agency (UNCTAD UNCTAD
United Nations Conference on Trade and Development This was established in 1964, after pressure from the developing countries, to offset the GATT effects.

) has also released an advanced preview of its Trade and Development Report 2025. It makes for sober reading on the prospects for global growth and trade. UNCTAD economists see “faltering global growth which shows no signs of picking up in the near term. Global output growth continues to lag behind pre-pandemic trends. Momentum remains fragile and clouded by uncertainty. Investor anxiety has boosted financial markets, but not productive investment.”

Nevertheless, the major economies have not slipped into a new slump as experienced in 2008-9 and in the 2020 pandemic slump. Instead, the crawl has resumed. But neither does capitalism show any signs of leaping forward: the major economies are increasingly stuck in a period of ‘stagflation’ ie stagnating growth alongside rising inflation.

Why is this? In the Marxist theory of crises, a long boom would only be possible if there was a significant destruction of capital values, either physically or through price devaluation Devaluation A lowering of the exchange rate of one currency as regards others. , or both. Joseph Schumpeter, the Austrian economist of the 1920s, taking Marx’s cue, called this ‘creative destruction’. By cleansing the accumulation process of obsolete technology and failing and unprofitable capital, new innovatory firms would prosper, boosting the productivity of labour and delivering more value. Schumpeter saw this process as breaking up stagnating monopolies and replacing them with smaller innovating firms. In contrast, Marx saw creative destruction as raising the rate of profitability as the small and weak were eaten up by the large and strong.

For Marx, there were two parts to ‘creative destruction’. There was the destruction of real capital “in so far as the process of reproduction is arrested, the labour process is limited or even entirely arrested and real capital is destroyed” because the “existing conditions of production …are not put into action”, ie firms close down plant and equipment, lay off workers and/or go bust. The value of capital is ‘written off’ because labour and equipment etc are no longer used.

In the second case, it is the value of capital that is destroyed. In this case “no use value is destroyed.” … instead, “a great part of the nominal capital of society ie of exchange value of the existing capital, is completely destroyed.” And there is a fall in the value of state bonds and other forms of ‘fictitious capital’. The latter leads to a “simple transfer of wealth from one hand to another” (those who gain from falling bond Bond A bond is a stake in a debt issued by a company or governmental body. The holder of the bond, the creditor, is entitled to interest and reimbursement of the principal. If the company is listed, the holder can also sell the bond on a stock-exchange. and stock prices from those who lose).

Marx argued that there is no permanent slump in capitalism that cannot be overcome by capital itself. Capitalism has an economic way out if the mass of working people do not gain political power to replace the system. Eventually, through a series of slumps, the profitability of capital could be restored sufficiently to start to make use of any new technical advances and innovation. That happened after the end of WW2, when the profitability of capital was very high and companies could thus confidently invest in the new technologies developed during the depression of the 1930s and the war. If profitability could be raised sharply now in 2025, then the diffusion of new technologies like AI that are already ‘clustering’ in the current depression could possibly take off and create a step change in the productivity of labour in the major economies.

This theory of creative destruction has been taken up by mainstream economists. Recent Nobel (Riksbank) prize winners for economics, Philippe Aghion and Peter Howitt noted that the speed of the rise of new firms with new technology and the fall of old firms with old technology is positively correlated with labour productivity growth.“This could reflect the direct contribution of creative destruction and possibly also an indirect effect of creative destruction on incumbent efforts to improve their own products.” But there is no role for profitability in this mainstream theory of creative destruction. Aghion and Howett stick closely to the Schumpeter view of innovation by small firms. However, Aghion and Howett do note that firm exit and entry rates into sectors have both fallen in the US in recent decades. The employment 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. of new entrants (firms less than five years old) fell from 24% to 15%. In other words, the main form of reviving capitalist investment and production has dissipated. As ‘creative destruction’ is an essential contributor to growth, “this declining ‘business dynamism’ has contributed to the slow and disappointing US productivity growth”.

AI and other new technologies, even if they are effective (and that is in doubt), will not deliver sustained and higher growth because there has been no ‘creative destruction’ since 2008. Instead, there has been an unprecedented expansion of cheap credit money to support businesses, large and small, in an attempt to avoid slumps. There has been no collapse in stock and bond prices or massive corporate bankruptcies – on the contrary, new record highs in financial and property assets are continually reached. Instead of liquidation, there have been a growing number of corporate ‘living dead’ or zombie capitals, which do not make enough 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. to service their debts and so just borrow more. There is also a sizeable layer of ‘fallen angels’, ie corporations with mounting debts that could soon make them zombies too.

Back at the start of the Great Depression of the 1930s, there was a division of opinion among the strategists of capital on what to do. The then Treasury Secretary Andrew Mellon told the then President Hoover to ‘Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.’ He said: ‘It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people.’ But just as now, the liquidation policy was rejected by the rest of administration, not because it was wrong economically, but for fear of the political repercussions. Hoover was nevertheless opposed to planning or government spending to mitigate the slump. “I refused national plans to put the government into business in competition with its citizens. That was born of Karl Marx. I vetoed the idea of recovery through stupendous spending to prime the pump. That was born of a British professor. I threw out attempts to centralize relief in Washington for politics and social experimentation.”

Perhaps the only recent policy example of ‘liquidation’ is the attempt of President Milei in Argentina. But his drastic cuts in the public sector, while sustaining high 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. and restricting the money supply, have not produced any ‘creative’ outcome. Instead, his attempt to ‘cleanse’ the system of Argentina’s ‘unnecessary’ spending, unproductive workers and weak firms, to make the economy ‘leaner and fitter’, has pushed the Argentine peso currency to the edge of collapse, as foreign exchange reserves run out and facing huge FX debts soon needing to be paid back. So Trump and his Treasury Secretary Bessent have come to Milei’s aid with a bailout, just as the US banks got in 2008. Again, fear of the fall of Milei has led to the opposite of liquidation.

And the result is more debt. In trying to avoid slumps, governments and central banks have pumped in money and allowed companies and governments to build up debt. Global debt has reached nearly $340trn, up a massive $21 trillion so far this year, as much as the rise during the pandemic. Emerging markets accounted for $3.4 trillion of the increase in Q2, pushing their total debt to $109 trillion, an all-time high. The total debt-to-GDP ratio now stands at 324%, down from the peak in the pandemic slump, but still above pre-pandemic levels.

To solve the growth and debt problem, the IMF calls for cuts in public spending (“governments must not delay further. Improving the efficiency of public spending is an important way to encourage private investment.”) ie destruction; while pushing for increased support to the capitalist sector (“Governments should empower private entrepreneurs to innovate and thrive.”) ie creation. The destruction here is only in public services and welfare, while the private sector can expect more of the same: 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, tax cuts and subsidies to ‘empower private entrepreneurs’.