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The Economic Crisis and the Central Banks
by Eric Toussaint
25 March 2019

Everything is in place for a new international financial crisis to occur. We don’t know exactly when it will break out. But it will, and its impact will be felt all over the planet.

The major factors contributing to the crisis situation are:

- first, the very large increase in corporate private debt, and then the growing speculative bubble involving financial instruments – securities in stock exchanges, debt securities, securities market, and – in certain countries including the USA and China – the real-estate sector again. The two factors are closely interconnected.

Even companies who have enormous amounts of cash at their disposal, like Apple, take on massive debt because they can take advantage of the low interest rates to lend the money they borrow to others. Apple and many other companies borrow to lend, rather than to invest in production. Apple also borrows in order to buy its own stock on the market. I explained this in an article entitled “The mountain of corporate debt will be the seed of the next financial crisis” (, published 14 November 2017).

The speculative bubbles mentioned above are the result of the policies of the big central banks (the Federal Reserve in the United States, the ECB, the Bank of England for the last ten years, and the Bank of Japan since the bursting of the real-estate bubble in the 1990s), which have injected thousands of billions of dollars, euros, pounds sterling and yen into the private banks to keep them afloat. These policies have been referred to as “Quantitative Easing.” The financial resources the central banks have distributed so profusely have not been used for productive investments by the banks and major capitalist corporations in other sectors. Instead they have served to acquire financial assets – stocks, corporate bonds, sovereign public securities, structured financial products and derivatives, etc. That has created a speculative bubble on the stock market, the bond market and, in certain places, in the real-estate sector. All the major corporations are overindebted.

This policy on the part of the central banks demonstrates the fact that the decisions their directors make are determined totally by the short-term interests of the major private banks and large capitalist corporations in other sectors – namely, preventing cascading failures and the resulting considerable losses for their large shareholders.

This policy also stems from a characteristic of contemporary financialized capitalism: a smaller and smaller part of the new value that is created is reinvested in production (see François Chesnais, “De nouveau sur l’impasse économique historique du capitalisme mondial” [“More on world capitalism’s historic economic dead end”]),, read 17 March 2019 [in French]). An increasing part of that new value is spent in the form of dividends for shareholders, re-purchases of shares, and speculative investments, in particular in “structured products” and derivatives. François Chesnais mentions “an ever-more-massive influx of non-reinvested profits of financial groups with a strong industrial component.” [1]

Let’s return to the policy adopted by the central bankers to face the crisis that broke out in 2007-2008. Their intervention did not result in cleaning up the system; on the contrary, the weakest elements were maintained or increased: the ratio between equity (the company’s capital) and the debt taken on by the company is much too low. That ratio is not sufficient to deal with the loss of value that would be caused by a fall in the price of stocks, bonds or other financial assets held by the company, be it a bank or a company like Apple or General Electric, to use only two examples. All companies are heavily indebted because borrowing costs them very little since interest rates are very low (0% in the Eurozone, -0.1% in Japan, 0.75% in the UK and 2.5% in the USA), and huge masses of capital are seeking maximum financial yield, even if it means buying junk debt securities issued by companies in financial trouble. Thus companies like Apple, which have good reputations in terms of financial health, borrow funds and use them to purchase junk securities with high yields. The failing companies who issue these high-yield junk securities conduct an ongoing policy of indebtedness – they borrow in order to repay earlier loans.

In late December 2018, a major stock market crash nearly happened in the USA and the contagious effect was immediate. It was yet another signal of an impending major crash.

The real-estate market in the US has once again become fragile. Real-estate prices have increased by 50% since 2012, reaching a higher level than they were at just before the crisis that began in 2005-2006 and caused the huge international crisis of 2008-2009. Some specialists feel that we might be on the edge of a new real-estate crisis because sales of homes are decreasing and business is slowing.

Continued Quantitative Easing in Europe and its supposed end in the USA are both crisis factors.

The big private banks referred to as “systemic” are extremely fragile and the value of their shares dropped sharply in the US and in Europe in the second half of 2018, with the drop continuing in the first quarter of 2019. The big private banks are being kept on life support by the central banks of their respective countries. The Fed is not honouring its commitment to sell off toxic private debt securities (the famous Mortgage Backed Securities or MBS). In March 2019, it still held an enormous volume of $1,600 billion in MBS (see, read 17 March 2019) acquired in 2008-2009 from the big banks in order to bail them out. The Fed knows very well that if it were to massively sell these MBS as it promised to do, their price would plummet and the collapse would take the bond market in the United States down with it. It also knows that if it were to increase the interest rate to above 2.5%, a large number of indebted companies would face serious difficulties in repaying/refinancing their debts. Not to mention that it would also increase the cost of repaying public debt.

The ECB, on the other hand, continues lending cash to banks at 0% interest and has just promised them not to increase that rate before 2020 (see Martine Orange, “La BCE face à ses limites” (“The ECB up against its limitations” [in French]),, published 8 March 2019 and Delphine Cuny (La Tribune), “La BCE choque les marchés en repoussant la hausse des taux” (“The ECB shocks the markets by postponing rate increase” [in French]),[l-actu-du-jour]-20190308, published 7 March 2019). In addition, the ECB is going to grant the private banks more massive middle- and long-term loans, called TLTROs (Targeted Longer-Term Refinancing Operations). The Italian and Spanish banks are the ones who need this credit most (according to JPMorgan, they account for 55% of the amount borrowed during the last round of TLTROs), but since all banks are interconnected, they all depend more or less directly on them. We should add that the European banks massively spend the money they borrow at zero interest to purchase sovereign debt – preferably from their own States, but also from other European States – which brings them a positive yield on securities that are considered safe because they are issued by the State.

The infatuation with public debt securities on the part of the banks and the other participants in the financial markets is impressive: all the States in the Eurozone have succeeded in borrowing large sums over the first three months of year 2019 (as they did in 2018). Each new bond-issue announcement is answered by a flood of purchase offers. Generally, when a State wants to borrow 1 billion €, the banks offer 4 billion; that’s how much cash they have on hand (cash that comes largely from the central banks that serve them); that’s how eager they are to buy profitable, safe public-debt securities. Further, as I explained in my book Bankocracy, buying government bonds lets banks artificially increase their debt-to-equity ratio with the help of the system that allows them to weight assets by risk (see “Dancing on the Volcano” and Bankocracy, Chapter 12). But as soon as the crisis takes a catastrophic turn, the dominant media and the bankers will once again accuse States of engaging in excessive public spending and issuing too much debt.

Very weak growth in general, stagnation or strong recession in a number of cases

Economic growth in the “old,” most industrialized countries remains weak and is down in several key countries, in particular in Europe, where after slight growth in 2017 the year 2018 ended with stagnation, and in Germany’s case a drop in industrial production in the fourth quarter of 2018 and the first quarter of 2019 (Financial Times, “German industrial production drops unexpectedly,” 11 March 2019, The German authorities have revised their growth forecast downward for 2019, to 1% (whereas in 2016-2017 the annual growth rate was above 2%). Investments in the EU took 12 years to return to the level where they stood in 2007, before the outbreak of the crisis (Financial Times, “EU investment rebounds to level before 2008 financial crash,” 9 March 2019).

In the Eurozone, growth in the third quarter of 2018 was only 0.2%, the lowest figure in four years. Italy is in recession. France has experienced a slight upturn thanks to a slight increase in consumption – the result of the Gilets Jaunes (Yellow Vests) movement, which led French president Macron to break with fiscal discipline (see my article “The Challenges for the European Left regarding Debt and the Banks,” 23 January 2019,

In Japan, growth for the period April 2018 - March 2019 is approximately 0.9%, also down compared to 2017. The US economy is also in a slowdown phase – the IMF predicts growth at 2.5% in 2019 compared to 2.9% in 2018. Other experts foresee a lower growth rate than that. That led the United States Federal Reserve to temporarily suspend the increase in interest rates undertaken since late 2016.

Growth in China is still slowing, even if China continues to act as the world’s locomotive. Growth is forecast to be in the neighbourhood of 6% – the lowest rate in 25 years. In China, a financial crisis can erupt at any time, causing domestic and worldwide growth to plummet and deteriorating living conditions for hundreds of millions of Chinese.

The economies of the other BRICS countries are also slowing, with the exception of India, which has a growth rate of a little over 7%. Russia is experiencing very weak growth, around 1.2% in 2018 and a forecast of 1.3% for 2019. South Africa was in recession during the first half of 2018, and is now seeing a slight upturn. Brazil, which underwent a strong recession in 2015-2016, has returned to growth, but only at a low rate of barely over 1% in 2018.

Serious crises are already affecting a series of so-called “emerging” countries – Turkey, Argentina, Venezuela, Indonesia, etc. – who are undergoing currency devaluations and major difficulties in continuing to repay external public and private debt.

A number of peripheral countries who are among the poorest in the world such as Mozambique are facing an acute debt crisis. It is only the beginning of a list that will only grow longer.

Despite the very low level of economic growth worldwide, and in particular in the major older, highly-polluting industrial countries, the factors that contribute to accelerating climate change are not being attenuated. We have visible proof of that in the effects of climate disruption and global warming we are witnessing directly all around the planet. In light of this crisis, whose dramatic consequences are increasing, governments are content to merely pay lip service – which fortunately is resulting in strong reactions among the population in general, and among youth in particular.

An assessment of the ECB’s actions

We have seen that since the beginning of the 2007-2008 crisis, the ECB has played a vital role in saving the big private banks and their owners and directors, while at the same time guaranteeing the continuity of their privileges. We can clearly see that without the ECB, the big banks would have sunk and that would have forced the authorities to take very severe action against them. We should add that the ECB’s actions have increased the concentration of the banking sector for the benefit of the twenty or so major banks that play a dominant role. The ECB has actively contributed to maintaining and developing banking monsters who are too big to fail. In addition to bailing out the big shareholders of these major banks, the ECB is charged with maintaining an inflation rate of around 2%. From this point of view the ECB has failed, because the inflation rate in the Eurozone was only 1.6% in 2018 and was decreasing during the first quarter of 2019.

The ECB has three more objectives, which can be summarized as follows:
- To defend the euro, which is a straitjacket for the weaker European economies and for all the people of Europe. The euro is an instrument that serves the big private companies and the European elites (the richest 1%). The Eurozone countries cannot devalue their currencies because they have adopted the euro. But the weakest countries in the Eurozone should devalue in order to recover competitiveness faced with economic giants like Germany, France, Benelux (Belgium, Holland, Luxembourg) and Austria. Countries like Greece, Italy, Portugal and Spain are restricted by their membership in the Eurozone. So the European authorities and governments implement “internal devaluation,” which in reality means pay-cuts for the workers.
- To consolidate the domination of Europe’s strongest economies (Benelux, France, Germany) where the big European corporations have their bases, thus maintaining important differences between the strong European economies and the others.
- To actively support the attacks of Capital against Labour in order to increase business profitability and to make the big European companies more competitive on the global market against competitors in the USA, China, Japan, Korea, etc. One could cite many examples of the ECB’s interventions in order to attain that goal in Italy, Greece, Cyprus, Portugal, Ireland, Spain, etc.

The ECB’s determination to contribute to the ongoing attacks against the dispossessed has been clearly expressed once again. In March 2019, the ECB and the Eurosystem banks refused to return a part of the profits made at the expense of the Greek people to Greece under the pretext that the government of Alexis Tsipras had not carried social counter-reforms far enough. One such counter-reform pushed by the ECB was to eliminate the last existing obstacles to expelling Greeks who are unable to continue repaying mortgage debts on their homes. No sacrifice is too great to ask of the Greek people, who are the expiatory victims of the Troika, within which the ECB plays a key role. [2]

The need for radical solutions

The approaching new financial crisis falls within a much broader systemic crisis of global capitalism and is multi-faceted, with economic, environmental, social, political, moral, and institutional dimensions.

We need to make a radical break with the mind-set of today’s leaders and take urgent measures. Those who are responsible for bank meltdowns must be obliged to pay for the bailouts, as opposed to the current system of giving golden handshakes to those responsible for the economic disasters, instead of holding them accountable

The measures announced to regulate the banks are superficial. Centralised supervision of Eurozone banks, creation of a European deposit guarantee scheme, prohibition of certain operations (concerning only 2% of global banking activities), capping of bonuses, transparent banking activities and even the new banking rules are merely recommendations, promises, or at best, completely inadequate measures compared to the problems to be resolved. Instead, strict, universally applicable rules must be imposed.

To get beyond this crisis, measures that would affect the very structure of the financial world and capitalist system should be implemented. [3]

The banking business is too crucial to be left in the hands of the private sector. The banking sector must be socialized, which means expropriating the banks and placing them under popular control (by bank employees, customers, associations, and representatives of local public institutions), because banks should be run as a public service and the revenues generated by banking activities used for the common good.

Public debt incurred to save the banks is clearly illegitimate and must be repudiated. A popular audit must be conducted to determine other illegitimate, illegal, odious or unsustainable debts, and to help to create mobilisation through which a credible anti-capitalist alternative can emerge.

These two measures must become part of a broader programme which we have laid out elsewhere. See: “Gilets Jaunes (Yellow Vests): Learning from history and acting now” (

The central banks must be radically reformed, and their missions must be redefined. They must resume their role of printing money and contribute actively to financing the environmental transition and the struggle against social injustice.

Citizen mobilization and social self-management are indispensable conditions for putting the different proposals for solutions into practise.

Translated by Snake Arbusto and Christine Pagnoulle

Footnotes :

[1I follow François Chesnais’s conclusion in the mentioned article: “[Causes of the current predicament] are first the pervasive public policies of austerity, but also a situation in which companies and the retail industry have to persuade households whose purchasing power stagnates that they want to buy commodities they already have beyond their daily needs. Simultaneously in global value chains prime contractors are increasingly pressing subcontractors and maritime and road transporters. The curve of accumulation of interest-bearing capital reinforces the economic and political weight of fund and asset managers and managers of industrial and commercial financial groups obsessed with the security of interest flows and the distribution of dividends. Thus, the contraction processes that currently run global economy go together with an acceleration in the squandering of mining resources, deforestation and soil depletion. Simultaneously, the amount of public investment required by any “ecological transition” is impossible to achieve without the cancellation of public debts, which is more than ever an absolutely central democratic demand.” (Translation by CADTM) Read his book:

[2About the ECB’s odious profits at the expense of the Greek people see Eric Toussaint, ‘The ECB’s Odious Profits on the Backs of the Greek People’, published on 17 October 2017 and ‘The Troika’s Policy in Greece: Rob the Greek people and give the money to private banks, the ECB, the IMF and the dominant States of the Eurozone’, published on 28 August 2018.

[3I fully agree with Michael Roberts’ approach in his article “Secular stagnation, monetary policy and John Law”,, accessed on 17 March 2019.

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Greece 2015: there was an alternative. London: Resistance Books / IIRE / CADTM, 2020 , Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012, etc.
See his bibliography:
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.