Committee for the Abolition of Illegitimate Debt

Forecasts of a sharp downturn in US and global growth have mushroomed. The latest is that of 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 in its April World Economic Outlook. The IMF forecasts that global growth will be 0.8%pts lower than previously forecast for 2025, down to 2.8% this year, due to the tariff hikes by the US and uncertainty about what will happen next. But the IMF does not forecast a global recession. It said the chances that the world’s biggest economy would fall into recession have risen from 25% to about 40%, but still less than 50%.

The IMF economists reckon a global recession will be avoided on its current estimates of the impact of the tariff war because “global trade was quite resilient until now, partly because businesses were able to re-route trade flows when needed.” But the IMF now expects that global trade growth will dip more than output, to 1.7% in 2025. As for the US, the IMF’s economists point out that the US economy was already ‘softening’ before The Donald’s tariff moves, and so it expects US 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. growth to drop to 1.8% this year. At the same time, it expects the US headline 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. rate to go back up to more than 3% by the end of the year. China’s growth rate target was 5% for this year; but the IMF reckons that it will be lucky to achieve 4%.

As usual, in its latest report, 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.

, the UN’s trade agency, is much more pessimistic. UNCTAD forecasts that global growth will slow to just 2.3% this year, which is below the UNCTAD ‘benchmark’ for a world recession, which is put at 2.5%. UNCTAD correctly emphasis that while “the slowdown will affect all nations”, it’s going to hit hardest most “developing countries and especially the most vulnerable economies”. Just 10 of the nearly 200 U.S. trade partners account for almost 90% of its trade deficit. Yet the least developed countries Least Developed Countries
LDC A notion defined by the UN on the following criteria: low per capita income, poor human resources and little diversification in the economy. The list includes 49 countries at present, the most recent addition being Senegal in July 2000. 30 years ago there were only 25 LDC. and small island developing states – responsible for just 1.6% and 0.4% of the US deficit, respectively – are being affected the most. Many low-income economies now face a “perfect storm” of worsening external conditions, unsustainable debt levels and slowing domestic growth.

When it comes to the US, it’s not only JP Morgan that is forecasting a recession by the end of 2025. Morgan Stanley economists now forecast that the US economy will contract 0.3% this year and unemployment will jump to 5.3%, a 1% pt rise. Also, money markets have tripled the odds they placed on recession. As of 19 April, Polymarket shows a 57% chance of recession in the coming year, and Kalshi comes in at 59% – about four times the level in a normal year (15%).

Then there are the GDP forecasters using a range of economic indicators to forecast US growth in each quarter. The most widely followed is Atlanta Fed’s GDP Now forecast. The GDPNow model estimate for real GDP growth in Q1 2025 is -2.4% and after adjusting for exceptional gold trades, -0.4%. So the Atlanta Fed 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/ reckons the US economy was stagnant at best from Jan-March. This compares with the consensus forecast of economists at 0.4%.

These are forecasts, but what about actual economic indicators? First, consider the so-called purchasing managers indexes (PMIs). These are surveys of company sentiment on likely orders, prices, costs and sales for several countries. If the survey finds that more than 50% of those asked have experienced some improvement, then expansion is indicated; anything below indicates contraction. The April PMIs for Japan, Europe, the UK and the US, show that manufacturing everywhere remains depressed and Trump’s tariff hikes are still to come. Worse, the services sectors in the major economies are now also declining. Only the US showed some expansion, but even there that is slowing.

Second, the regional branches of the US Federal Reserve do a monthly survey in their areas of economic sentiment and manufacturing sector progress. The latest ones show significant signs of slowdown and outright recession. The New York Fed manufacturing survey for April showed business outlook at -7.4 (down 44 points over the past three months), the weakest since 2001 and the second lowest in the survey’s history. “Firms expect conditions to worsen in the months ahead, a level of pessimism that has only occurred a handful of times in the history of the survey.” The Philadelphia Fed survey reported that “new orders fell sharply, from 8.7 in March to -34.2 in April, its lowest reading since April 2020.”

Source: Phil Fed

However, these are all ‘sentiment’ indicators. As yet, the real indicators for the economy are not showing a recession (although hard data for the economy always lags). Unemployment is still low, inflation is still well under 3% a year, consumer spending has not dived and corporate profits are still rising. After an initial fall from Trump’s tariff announcements, the stock market has stabilised and made a modest recovery – and, after all, stock prices are still way higher than they were at the end of the pandemic slump. This has led some to say that the forecasters are crying wolf.

The Wall Street Journal challenged the recession forecasters. “GDP, after growing 2.5% over 2024, is likely to be flat in the first quarter or even contract. But that seems to reflect unusual import behavior and the effect of weather on consumption.” But the WSJ had to admit that Trump’s tariffs have yet to bite. And American manufacturers are already pulling back on their capital spending plans because of tariffs. A survey by the Equipment Leasing Finance Foundation (ELFF), an organization that represents lenders that help manufacturers obtain new capital equipment for factories, found that in April more than 61% said they expect spending to fall. Ford is halting sales of some American-made cars to China. GM is laying off American factory workers too. Cleveland Cliffs, the steel company, is laying off 1200 workers.

As for investment in productive sectors of the economy (‘Main Street’), US companies, apart from those investing heavily in AI capacity, are not acting. Durable goods orders for non-defense capital goods (i.e. that are not for arms manufactures) have risen only 1.6% since 2022.

Source: FRED

Even in the AI sector, recent regional surveys from the Federal Reserve, show businesses expecting to cut back on IT and capital expenditure on software, having already cut spending in prior months.

For me, the best guide to whether there will be a slump is what is happening to corporate profits. US companies are reporting on their earnings results over the next couple of weeks. But if we look at the official figures for corporate profits up to Q4 of 2024, then all seems reasonably fine. US corporate profits have risen markedly since the onset of the Covid-19 pandemic, reaching near $4 trillion at the end of 2024. Profits from domestic nonfinancial industries, which averaged 8.1% of national income over the 2010-19 period, rose to 11.2% by the last quarter of 2024. Relative to national income that is a 2.3% pts rise compared to the pandemic. Globally too, corporate profits are still rising, if at a relatively weak pace.

Source: national data, author

As long as corporate profits keep rising, then a recession is unlikely. However, much of the US rise has been achieved mainly through a fall in interest rates lowering the cost of debt. And corporations have not invested most of these increased profits into new equipment and plant. Instead, 76% of the growth in corporate profits has gone into dividends rewarding shareholders. Only 15% was invested (the rest went in tax).

This failure to invest productively is striking and structural. It is driven by long-term changes in the profitability of the productive sectors of the US economy. The gap between the ‘whole economy’ rate of 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. and the rate of profit in the productive sectors of the US economy has been widening since the early 1980s. While the overall rate has been pretty static since 1997, profitability in the productive sectors, after rising modestly in the 1990s, has fallen back sharply since. So US companies are switching much of their profits into buying back their shares to drive up prices; or into increased dividends to shareholders.

Source: BEA, author

However, the 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. rate environment for companies in the 2010s has come to an end. Real 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. (ie. after inflation is deducted) are at their highest level since just before the global financial crash in 2008. That suggests to me that if Trump’s tariff war starts hitting corporate revenues in the US and elsewhere and at the same time inflation rises and interest rates follow, then the squeeze on profits will tighten.

Source: FRED

Given that global debt is at record levels, particularly corporate debt, then any rise in interest rates could also provoke a financial meltdown.

Source: IMF

That could be accelerated by the Trump administration. Treasury Secretary Scott Bessent is calling for the easing of regulations on banks that supposedly ensure that they have enough capital to meet any loans turning bad and bankruptices. Apparently, the experience of the recent regional banking collapse of 2023 has been quietly ignored. At the same time, Trump wants the Federal Reserve to cut interest rates immediately even if inflation picks up – he realises that a dive in profits alongside high interest costs would be hugely damaging to his big business backers. Trump has even hinted on trying to remove Fed Chair Powell if he does not act. This has shocked the banking sector which appreciates an ‘independent 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 ’ that does their bidding. They don’t want an unpredictable president determining interest rates.

But that’s the game of the Trumpists. They aim to upturn the traditional institutions of the state and finance in order to deliver gains for their faction in the ruling class ie the oligarchs of Main Street. The rest of the world must bend to their will and that includes Wall Street and the international agencies. Treasury Secretary Scott Bessent made that clear in a recent speech to Institute of International Finance, just before the semi-annual IMF-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.

meeting. Bessent launched a scathing attack on the IMF accusing it of ‘turning a blind eye to China’s export-led economic dominance and neglecting its core responsibilities in favour of climate and social policy work’. Bessent basically said that the IMF had gone ‘woke’ by emphasising climate change, gender equality and social issues. “These are not the IMF’s mission,” he declared; they were “crowding out” proper work on “financial stability and trade surveillance.“

The sharpest criticism was reserved for the IMF’s treatment of China “We will not abide the IMF failing to critique the countries that most need it—principally, surplus countries,” he said. “The IMF needs to call out countries like China that have pursued globally distortive policies and opaque currency practices for many decades.” On the other hand, Bessent only had nice words to say about the huge loan that the IMF has just agreed to give Milei’s Argentina. “Argentina is a fitting example. I was in Argentina earlier this month to demonstrate the United States’ support for the IMF’s efforts to help the country reset financially. Argentina deserves the IMF’s support because the country is making real progress toward meeting financial benchmarks.”

Bessent’s attacks were soon acknowledged by IMF chief Georgieva. In her usual fawning manner, she basically accepted Bessent’s critique and blamed trade surplus countries like China for the tariff war (which by the way are most of the major economies!).

Indeed, in her latest personal policy agenda released at the IMF meeting, Georgieva dropped all references to climate change mitigation or social policies. Instead, she “will stay focused on promoting macroeconomic and financial stability”. So much for past talk about ‘inclusive’ policies on dealing with inequality and the environment.

There is much talk that Trump’s tariff policies are partly designed to weaken the dollar in world currency markets so that US exports are more competitive, just as Nixon’s ending of the gold standard in 1971 and the Plaza Accord pact in 1984 aimed to do. And there is a further argument is that this is beginning of the end of dollar dominance and the ‘extraordinary privilege’ that US capital enjoys by owning the world’s largest trading Market activities
trading Buying and selling of financial instruments such as shares, futures, derivatives, options, and warrants conducted in the hope of making a short-term profit. and reserve currency.

Well, the first thing to note is that, while the US dollar may have weakened in the last few months as investors search for an alternative to hold or transact with, the dollar is still very strong historically. Federal Reserve data show that the real value of the dollar still stands nearly two standard deviations above its average since the start of the floating exchange rate era in 1973.

Dollar depreciation from here does not mean that the dollar is losing its status as the world’s dominant currency, just as Nixon’s move and the Plaza accord eventually proved. The dollar is still too large in world markets for other currencies to replace it. The dollar has fallen somewhat because private foreign holders (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. , corporates, banks etc), which now hold larger holdings than the central banks, have stopped buying. For years, official holders of the dollar (central banks round the world) have gradually stopped building their dollar reserves. But they have made no big moves to reduce them following Trump’s tantrums.

What a weaker dollar will do is drive up US inflation by adding to the impact of the tariff increases on US imports. So it appears that the US economy is heading for a sharp slowdown and probably an outright slump by year-end, while inflation moves back up. There will be blood.