The crisis of capital is driving masses of voters to the AfD – even if influential capital managers publicly polemicize against right-wing extremists.

Tomasz Konicz

There are indeed fascistic definitions of fascism. These views, most prevalent among the brown decay products of old leftist currents, see fascism, which is often driven by conspiracy mania, as a conspiracy itself. The basic idea is that the evil rich, acting in the background, use fascist straw men to set the good poor against each other in order to profit from it or to secure their rule.[1] Such pseudo-leftist conspiracy beliefs are usually an expression of a right-wing hegemony that has already been largely achieved. It gains popularity in the final phase of the fascization of a society, when even its opponents are unconsciously caught up in it.

The historical model for these ideologemes goes back to the rise of fascism in the first half of the 20th century. While the Nazis hallucinated the world as an absurd “Jewish-Bolshevik world conspiracy,” in which Soviet Bolsheviks and American finance capitalists were said to be pulling the strings together, the Dimitroff thesis, popular under Stalinism, saw the finance capitalists behind fascism. The definition, named after the Bulgarian communist Georgi Dimitroff and which became the canon of orthodox Marxism-Leninism, defined fascism as the “terrorist dictatorship of the most reactionary, most chauvinistic and imperialist elements of finance capital.”[2]

At the moment, however, it seems that Dimitroff’s thesis has been turned on its head, as it is precisely the “elements of capital” that are publicly positioning themselves against the threat of fascism. The president of the Federation of German Industries (BDI), Siegfried Russwurm, issued an urgent warning against the AfD at the end of December, calling it a “party that is detrimental to the future of our country.”[3] Voting for the right-wing extremist movement is not a “harmless” protest, because Germany lives “on cosmopolitanism and international trade,” Russwurm warned. With this, the capital functionary contradicted the common, long-standing trivialization of the AfD as a mere “protest party.”

“Poison for the Location”

Wolfgang Große Entrup, Managing Director of the German Chemical Industry Association, called the AfD “poison” for Germany as a business location and a major “threat to Germany” that even overshadows “high energy prices” and “excessive bureaucracy.”[4] According to the capital functionary, it would be “fatal” if the “right-wingers in Germany,” who are currently only “occasionally in power,” were to gain further momentum in the 2024 election year, arguing that the “growing number of indifferent people” should be motivated to “vote for an open society.” Former Siemens CEO Joe Kaeser, who has warned of the danger of the AfD on several occasions, expressed similar sentiments at the end of December.[5] The prominent industrial manager expressed his concern for the continued existence of democracy in the Federal Republic of Germany, as the majority of Germans would no longer support its preservation – with Kaeser openly drawing parallels to 1933.

Capital functionaries have sporadically taken a stance against the AfD in recent years, including Kaeser[6] and the presidents of the BDI, who criticized the impending “retreat into nationalism” in 2017,[7] or described the right-wing party’s platform as “poison for us as an export nation” back in 2016.[8] Nevertheless, the Handelsblatt complained in mid-2023 that while many “business leaders” harshly criticized the policies of the traffic light coalition, for example on energy issues, they would hardly take a stand against the AfD.[9]  There is a “conspicuous silence” here, although “no other party” “defames and discriminates against people who think differently” to such an extent. A corresponding “discourse” has long since been set in motion, which is also eating into the “variously positioned companies with their millions of employees.”

Mövenpick in Buttermilk[10]

High energy prices are more important to Germany’s captains of industry than the high poll ratings of right-wing extremists. Russwurm & Co. are functionaries of capital, not politicians. But why are several business representatives suddenly criticizing the AfD? The public managerial intervention against the rising tide of fascism effectively looks like damage control and image cultivation. Not so long ago, it became known that billionaire and dairy producer Theo Müller (Müllermilch, Weihenstephan, Landliebe, among others) met with AfD leader Alice Weidel in Cannes last fall to discuss the program of the movement,[11] which is constantly drifting to the right. According to a statement from Müller, the dairy billionaire was unable to find “the slightest hint” of Nazi ideology in a party that even the Federal Office for the Protection of the Constitution, which produced Hans-Georg Maaßen,[12] largely classifies as “definitely right-wing extremist.”[13]

At first glance, these seem to be different political views, even among the ruling elites, pointing to the political division of the crisis-ridden metropolitan societies. Müller, who is said to have financed the right-wing populist “Republicans” back in the 1980s,[14] simply seems to have a similar personal preference for right-wing movements as the German “Mövenpick billionaire” Baron August von Finck, who lives in Switzerland and is said to have financed the AfD during its rise.[15] The big difference between the hotel chain owner Baron von Finck and the dairy prince Müller is that the Swiss tax exile went to great lengths to maintain secrecy, while Müller acts openly and has even announced further talks with Weidel. This open chumminess between a billionaire and the leadership of a party that is drifting towards fascism is indeed tantamount to a further breach of the dam.[16] This also explains the violent reactions of managers and BDI officials, who are worried about, among other things, the international reputation of Germany as a business location.

Brown Movement in Crisis

Something begins to slip when German billionaires begin to openly absolve the AfD of Nazi ideology, while someone like Björn Höcke is elected as the top candidate in Thuringia. The right-wing parties that are making inroads in many western core countries are not test-tube products, they are not political dummies behind which reactionary “finance capitalists” pull the strings, even if they may receive start-up funding from reactionary billionaires. They are real, genuine mass movements in authoritarian revolt, driven by an extremism of the center.[17] And they are usually perceived as disruptive factors by the functional elites in business and politics – especially when they are in their start-up phase.

These pre-fascist movements are the brown outflow of the crisis process that is driving the capitalist world system towards collapse.[18] Fascism is above all a crisis ideology. The economic and ecological dimensions of the systemic crisis are fueling its political boom. The AfD’s electoral successes are therefore merely an expression of the reactionary dynamic that is emerging at the heart of society in response to its crisis-ridden upheavals. Authoritarian personalities who cling to a society in disarray are particularly susceptible to this extremism of the center, which paradoxically speaks of overthrow in order to return to the good, old, “racially pure” times. The parallels drawn by Kaeser with 1933 are therefore entirely appropriate, for the Nazi seizure of power would have been unthinkable without the global economic crisis of 1929.

Fascism can be seen as a terrorist form of capitalist rule that emerges out of crisis as an attempt to maintain the capitalist system through barbaric methods and delusional ideology, even when it threatens to collapse due to its contradictions. However, the social and ecological crisis that is gripping the late capitalist world system is much deeper than the world economic crisis of 1929. The central difference is that it has become impossible to resolve the contradictions and the crisis of capital through a new model of accumulation that sucks in masses of profitable labor (like postwar Fordism), not even through a war economy. So there can only be a prolongation of the crisis, not a solution to it. It is no coincidence that even the bourgeois press is now talking about multiple crises, although they remain misunderstood.

Every new social upheaval gives new impetus to this reactionary, far-right dynamic, whose rise has been fueled by the crises of the past two decades: Hartz IV and the Sarrazin debate, the financial and euro crises, the refugee crisis, the climate crisis and the climate movement, the pandemic and the war in Ukraine, inflation and stagnation. What exactly drives right-wing and far-right ideology to extremes in times of crisis? On an identitarian level, it is national identity; on an ideological level, it is capitalist competitive thinking, which is enriched with nationalism and racism.

The ideological reflex is always the same, as we saw during the Sarrazin debate:[19] A crisis surge is attributed to the hallucinated racial or cultural inferiority of the victims of the crisis. The causes of the crisis are thus personalized: The unemployed are to blame for impoverishment and unemployment, the southern Europeans for the euro crisis, the Arabs for war and state collapse in their region, the climate kids for fomenting panic and ruining our economy, and so on. These are the typical right-wing narratives, most of which go hand in hand with structurally anti-Semitic conspiracy ideologies (e.g., conspiracies about banking and financial crises, the pandemic, or the climate crisis). The deal that fascism offers to wage earners is simple: without the foreign groups who are labeled as boogeymen and who are not counted as part of the national collective (the unemployed, foreigners, etc.), we will have enough, even in times of crisis.[20]

The crux of the matter is that this authoritarian revolt will never come to power unless a substantial part of the ruling elite chooses this fascist option. Hence the intervention of the BDI and the public criticism of the AfD by top managers, since the billionaire Mr. Müllermilch could have read the party’s program on the Internet and is probably more interested in exploring the modalities of a possible AfD government policy. There are signs of an open split within the German ruling elite regarding the government participation of a party that is drifting to the extreme right – this was last the case during the euro crisis.[21] This is the decisive breach in the dam, because the Nazis were not a “party of chauvinist finance capital” either, but they would never have remained in power without the consent of powerful capital factions, without Potsdam Day.[22]

Export Slump – AfD on the Rise?

This is where the Dimitroff doctrine mentioned at the beginning becomes fully recognizable as an ideology, as a false consciousness that contains a core of distorted reality: Fascist movements come to power only in times of crisis, when the shocks and upheavals have reached such proportions that functional elites perceive these movements as the “lesser evil.” To put it vividly: only when capital managers are so deeply mired in the crisis that they are up to their necks in water do they hold their noses and reach out to the far right. And then there is no stopping them, because the fascist authoritarian revolt, which always craves the approval of the authorities, is fueled even more by this (which, by the way, also nullifies the left’s intention to shake up its supporters by exposing the powerful fascist backers. Authoritarian personalities are not deterred, but rather are attracted by the cronyism of AfD functionaries and billionaires).

In times of crisis, the reactionary vanguard within the functional elite tends to be made up of small business owners and SMEs, as can be seen from the links between the association of “family entrepreneurs” and the AfD.[23] Capitalists focused on the domestic market, such as Baron von Finck or Mr. Müller, also seem more inclined to consider far-right options than export entrepreneurs. The faction of capital that is most resolutely opposed to the AfD’s participation in government is therefore the German large-scale and export-oriented industry. It is precisely the globally active big business that tends to think strategically, that has to compete for top talent, that has also built up global production chains in the era of globalization and that has to worry about its image as the world’s export champion in its sales markets. It is not only personal political preferences, but also – and above all – tangible economic interests shaped in the era of globalization that have prompted the BDI and Siemens to harshly criticize the AfD.

And it is precisely the German export industry that is currently experiencing a downturn,[24] which actually marks only the beginning of the end of the export-driven German economic model.[25] The sharp decline in exports in 2023 has contributed significantly to Germany’s poor economic performance, which is unlikely to improve in the coming years.[26] There is a good reason for this: the economic dimension of the crisis that has gripped the global system[27] appears to be a crisis of overproduction, which has led to the accumulation of ever larger mountains of debt, with which a commodity production choking on its own productivity could be maintained “on credit.”[28] In the era of globalization, after the internal devaluation caused by Hartz IV and Agenda 2010, Germany managed to export the consequences of this systemic crisis – such as deindustrialization, debt and unemployment – through export surpluses. But this will soon come to an end, as protectionist measures are now increasingly being implemented worldwide. The United States in particular, as one of Germany’s most important trading partners, is increasingly resorting to protectionism,[29] turning globalization into a process of deglobalization[30] (not unlike the protectionist response to the crisis of the 1930s).

But this also means that Germany’s years of prosperity, made possible by export surpluses, will inevitably come to an end. The power-political weight of the German export industry will therefore diminish at a time when, for the first time in a long time, Germany is also entering a prolonged period of crisis, from which the New Right threatens to benefit once again. The AfD is already the second strongest force. The fact that the rise of the AfD took place during a period of relative economic prosperity shows just how thin the civilizational ice is in Germany; it was fueled by German fear of a crisis, not by an actual outbreak of crisis, as southern Europe had to endure during the euro crisis. Since the refugee crisis, the entire bourgeois-liberal anti-fascism, which has largely been in line with the arguments of the export industry, has emphasized the economic “usefulness” of globalization, open borders for the movement of goods and immigration. Refugees are economically useful because of Germany’s aging population, and the export country must remain attractive to skilled workers, at least according to the common arguments.

However, these narratives cultivated in the liberal mainstream will disappear as soon as stagnation and recession become entrenched in Germany, and exports will continue to decline, further fueling the “German fear” that so easily turns into hatred of the socially disadvantaged. Perhaps now is the last historical moment to prevent the AfD from marching to the far right, before pre-fascism is back by permanent stagflation.[31] Focusing on the anti-fascist struggle in broad alliances, calling for prohibition procedures and, above all, aggressively searching for systemic alternatives[32] to the escalating permanent capitalist crisis should now really be a priority for all non-fascist forces in Germany. Maybe it is not yet too late.

I finance my journalistic work mainly through donations. If you like my texts, you are welcome to contribute – either via Patreon, via Substack, or by direct bank transfer after consultation by e-mail:

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[1] This belief in conspiracy often goes hand in hand with the trivialization or legitimization of fascist violence, especially among right-wing, old-left Querfronter, if it is only committed by socially underprivileged right-wing extremists. Here is an example from the magazine Konkret (12/2022), which is quite willing to be lenient in the case of pogroms and arson attacks if the Nazi only claims to be plagued by “fears of social decline”: “Those who are kept so busy with trips to the office, work and fears of social decline that they can’t think can only be blamed to a limited extent if they act out what public speech and government policy claim: namely that migrants are not people.”

[2] https://www.marxists.org/reference/archive/dimitrov/works/1935/08_02.htm

[3] https://www.tagesschau.de/inland/bdi-warnung-afd-100.html

[4] https://www.welt.de/wirtschaft/article249146036/Standort-Krise-Noch-gefaehrlicher-fuer-Deutschland-ist-das-Gift-der-AfD.html

[5] https://www.faz.net/aktuell/wirtschaft/der-fruehere-siemens-chef-joe-kaeser-sorgt-sich-um-die-demokratie-19401907.html

[6] https://www.stern.de/wirtschaft/news/joe-kaeser-ueber-die-afd-ich-kann-intoleranz-und-ausgrenzung-nicht-ausstehen-8557180.html

[7] https://www.spiegel.de/wirtschaft/unternehmen/bdi-chef-dieter-kempf-gegen-afd-schaden-vom-standort-deutschland-abwenden-a-1169718.html

[8] https://www.tagesspiegel.de/politik/politik-der-afd-ist-gift-fur-uns-als-exportnation-3762061.html

[9] https://www.handelsblatt.com/meinung/kommentare/kommentar-afd-umfragehoch-das-schweigen-der-wirtschaft/29192600.html

[10] TN: Mövenpick is a corporation that owns hotels and produces expensive ice cream. They financed the AfD in its early days. The Müller company’s most popular product, müllermilk, is a buttermilk with way too much sugar in it. This section title is supposed to invoke disgust, by comparing the AfD to a very sweet concoction.

[11] https://www.konicz.info/2016/08/01/die-bewegung-als-bewegung/

[12] https://www.spiegel.de/politik/deutschland/hans-georg-maassen-innenministerium-verweigert-auskunft-ueber-ex-verfassungsschutzpraesident-a-5fc25a9d-f553-4dd9-a142-ada63e0c9838

[13] https://www.rnd.de/politik/afd-und-junge-alternative-wo-gelten-sie-als-gesichert-rechtsextrem-und-was-bedeutet-das-BEOYLLR67FCABBNQ6ESSRUZJWM.html

[14] https://www.fr.de/wirtschaft/muellermilch-bleibt-rechts-92707167.html

[15] https://www.konicz.info/2017/09/14/die-masken-fallen/

[16] https://www.merkur.de/politik/hoecke-ist-spitzenkandidat-der-thueringer-afd-zr-92681629.html

[17] https://www.konicz.info/2016/08/01/die-bewegung-als-bewegung/

[18] https://konkret-magazin.shop/texte/konkret-texte-shop/66/tomasz-konicz-kapitalkollaps?c=10

[19] https://www.konicz.info/2010/09/21/sarrazins-sieg-11/

[20] Leo Löwenthal already described these patterns of argumentation in his study “False Prophets” among fascist agitators in the United States in the first half of the 20th century. Leo Löwenthal, False Prophets, Studies on Fascist Agitation, Suhrkamp, 2021

[21] https://www.konicz.info/2017/09/14/die-masken-fallen/

[22] https://en.wikipedia.org/wiki/Potsdam_Day

[23] https://blog.campact.de/2016/08/reich-maechtig-im-zentrum-der-hauptstadt-die-lobby-der-superreichen-firmenerben/

[24] https://www.tagesschau.de/wirtschaft/konjunktur/aussenhandel-export-import-china-usa-deutschland-100.html

[25] https://www.konicz.info/2012/12/21/der-exportuberschussweltmeister/

[26] https://www.tagesschau.de/wirtschaft/konjunktur/konjunktur-deutschland-diw-oecd-100.html

[27] See also: Claus Peter Ortlieb (2008): A Contradiction between Matter and Form, https://mediationsjournal.org/articles/matter-and-form and Robert Kurz (2012): The Climax of Capitalism, https://exitinenglish.com/2022/02/17/the-climax-of-capitalism/

[28] https://oxiblog.de/die-mythen-der-krise/

[29] https://www.konicz.info/2023/11/28/transatlantische-entkopplung/

[30] https://www.konicz.info/2023/11/20/neue-kapitalistische-naehe-2-0/

[31] https://znetwork.org/znetarticle/back-to-stagflation/

[32] https://exitinenglish.com/2023/03/08/radicalism-vs-extremism/

Originally published on konicz.info on 12/26/2023

Will stagnation be a permanent condition? An outlook for the world economy after the end of the globalized financial bubble economy.

Tomasz Konicz

The speculative air is slowly leaking out of the global valorization machine – but hardly anyone seems to have noticed. At the beginning of 2024, the World Bank warned of a “lost decade,” as the first half of this decade was about to see the worst economic performance in more than 30 years.[1] Without a “major course correction,” the 2020s will go down in history as a “decade of missed opportunities,” concluded the World Bank’s chief economist, Indermit Gill, as he presented the bank’s forecasts for the current year.

And according to the financial institution, the economic outlook is not exactly rosy. Global economic output is expected to grow by 2.4% this year, compared to 2.6% in 2023. If this economic forecast proves to be correct, 2024 would be the third year in a row that economic growth was weaker than in the previous year. There is therefore a clear global trend toward economic stagnation: Average GDP growth in industrialized countries is expected to fall from 1.5% last year to 1.2% in 2024. By contrast, the eurozone can hope for a slight economic recovery at a very low level, as they are expected to go from 0.4% growth in 2023 to 0.7% in the current year.

Global trade growth is also expected to be only half of what it was before the outbreak of the pandemic, which, together with high key interest rates, has contributed to annual economic growth in developing countries averaging just 3.9% this decade. This is a full percentage point lower than in the first decade of the 21st century. Developing countries need to achieve a much higher rate of growth in order to improve – or even maintain – the social situation of their wage earners. The medium-term economic outlook is no better. As early as mid-2023, the International Monetary Fund (IMF) warned that global growth would be below average for the next five years.[2]

The End of the Bubble Economy

The crisis-induced stagnation of the late capitalist world system only becomes fully apparent from a historical perspective. As mentioned at the beginning, only the half-decade from 1990 to 1994 was characterized by worse economic development (averaging just over two percent per year) than the first half of the current decade, and it was only slightly worse then. But the early 1990s were marked by the collapse of the Soviet Union and Soviet state capitalism in Eastern Europe, which was accompanied by massive economic slumps that led to miserable global averages. In other words, the episodes of crisis that began in 2020 (such as the pandemic, war, and supply shortages) left similarly strong traces of economic slowdown as the implosion of the Eastern Bloc.

Almost all other five-year periods between the late 1990s and 2019 – the eve of the pandemic and the war in Ukraine – saw much higher average global economic growth of just over three percent. The only exception is the period between 2005 and 2009, when the bursting of the real estate bubbles in the U.S. and Europe (2007/08) led to a brief but severe global economic crisis (2009), which was overcome from 2010 onwards thanks to extensive economic stimulus measures and the central banks’ expansionary monetary policy.

The slump in 2009, triggered by the bursting of the real estate bubbles, points to the veritable bubble economy that the globalized world system had developed in the neoliberal era: From the dot-com bubble in the second half of the 1990s, when the internet boom led to a bull market in high-tech stocks, to the real estate bubbles that burst in Europe and the U.S. in 2008,[3] to the major liquidity bubble that has been deflating since 2020, all of which were sustained by the expansive monetary policy and money printing of the central banks.[4]

And it was precisely these growing speculative bubbles that acted as the main economic drivers in the era of financial market driven globalization. The tendency toward stagnation in the 2020s, which the World Bank laments, is due precisely to the collapse of this global bubble economy based on an ever-growing mountain of debt. Inflation, which central banks are trying to combat with restrictive monetary policy, made it impossible for another bubble to form after the crisis surge of 2020.

The Chinese Economic Brake

The connection between the economy and speculative dynamics, which characterizes a late capitalism that is choking on its own productivity,[5] can currently be seen very clearly in Chinese state capitalism, where one of the country’s largest construction investors, the bankrupt Evergrande Group, is facing liquidation – 300 billion dollars and millions of condominiums are on fire.[6] The gigantic real estate bubble that China created in the wake of the massive government stimulus packages after 2008 brought the “workshop of the world” double-digit growth rates for years.[7]

But now, despite Beijing’s best efforts to postpone it, the inevitable deflation of this real estate bubble is on the horizon[8] – and it is already leaving its mark on the economy. According to the World Bank, China’s economy is only expected to grow by 4.4% this year.[9] This forecast is based on a best-case scenario in which an uncontrollable crash of the real estate market can be prevented.

But even a controlled devaluation and liquidation of the overheated Chinese real estate sector will have serious economic consequences. This applies not only to export-dependent Germany, but also to many developing and emerging countries that are heavily dependent on the People’s Republic.[10] China’s debt-financed speculative boom was an important factor in the economic recovery after the major transatlantic real estate crash of 2008, but a similar constellation is no longer possible in the current phase of crisis. On the contrary, China will contribute to the general tendency towards stagnation in the future.

Is the Next Crisis Surge Already “Priced In”?

The spread of stagnation is the result of the partially successful fight against inflation undertaken by the central banks, which have turned off the money tap that was wide open during the era of the giant liquidity bubble, but are maneuvering themselves into a monetary policy impasse in which the goals of fighting inflation, stabilizing the financial markets, and stimulating the economy are increasingly coming into conflict.[11] This is particularly evident in the U.S., which was able to defy the general stagnation in the core of the world system with economic growth of 2.5% in 2023. However, the World Bank is forecasting growth of just 1.6% for the United States this year, which is due to “the restrictive monetary policy” of the U.S. Federal Reserve, according to Reuters.[12]

Fighting inflation usually comes at the cost of an economic slowdown (with the exception of the U.S. in 2023), as the World Bank’s Global Economic Prospects shows. Then there are the destabilizing effects of high interest rate policies on the financial sector. The key interest rate hikes and the end of the central banks’ purchasing programs are making the financial sector more susceptible to crises, as bonds, stock markets and the real estate sector can no longer be supplied with sufficient liquidity and/or credit to continue the boom – there is a risk of crashes, slumps and financial market quakes, as was last seen in March 2023, when the slump in the bond markets led to a banking crisis in the U.S.[13]

The policy of high interest rates is therefore like a balancing act on a knife-edge, with the bloated financial sector and the global debt mountain as the biggest risk factors.[14] Continuing to fight stubborn inflation inevitably increases the risk of further crises in the unstable financial sector. To minimize the risk of crisis surges, the Fed last signaled to the unstable markets in December 2023 that the first interest rate cuts would come in 2024 if inflation rates continued to fall.[15] In doing so, the central bankers triggered a short-term price explosion on the stock markets that simply anticipated the potential end of the high interest rate policy in this bull market. The end of the restrictive monetary policy has therefore already been “priced in,” as the jargon goes, to the stock markets, where the future is always traded.

But what happens if inflation does not move as quickly as expected towards the two percent mark that the Fed has set as the target for its restrictive monetary policy? Then monetary policymakers, whose comments were intended to reassure the markets, suddenly find themselves in a quandary. At the end of January, U.S. central bankers indicated that there would probably be no interest rate cut in March,[16] after the U.S. inflation rate of 3.4% in December was slightly higher than in the previous month (3.1%).[17] This retreat in monetary policy brought the fleeting boom on the markets to an abrupt end with heavy price losses.

In addition, cracks appeared once again in the U.S. banking sector after the share price of the regional bank New York Community Bancorp plunged by around 50 percent in two trading days.[18] Like other regional banks, New York Community Bancorp is suffering from high interest rates and the related crisis in the commercial real estate sector in the U.S. The financial institution, which was actually considered a winner of the crisis in March 2023, has now had to book around $552 million in loan loss provisions and record a loss of $185 million.[19] A repeat of the March 2023 banking crisis triggered by high interest rates seems possible. The slump in Bancorp’s share price is also due to the fact that regional banks in particular were expected to benefit from the Fed’s “priced-in” interest rate cuts.

The U.S. central bankers have thus become hostage to their own policies: December’s chill pill is turning into a monetary policy bomb. The next bout of crisis is effectively “priced in” if the Fed does not soon return to an expansionary – and thus inflationary – monetary policy. This is most likely a fundamental contradiction that will characterize capitalist crisis policy after the end of the neoliberal bubble economy: it is a balancing act that is ultimately doomed to failure, an attempt to square the circle in the systemic crisis in order to combine the fight against inflation with economic and financial stability.

I finance my journalistic work mainly through donations. If you like my texts, you are welcome to contribute – either via Patreon, via Substack, or by direct bank transfer after consultation by e-mail:

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[1] https://www.ft.com/content/b00ec9ec-5497-4543-aa57-f10873c8952b

[2] https://www.investopedia.com/imf-predicts-five-years-of-sluggish-global-economic-growth-ahead-7376580

[3] https://www.konicz.info/2007/03/05/vor-dem-tsunami/

[4] https://www.konicz.info/2021/04/13/oekonomie-im-zuckerrausch-weltfinanzsystem-in-einer-gigantischen-liquiditaetsblase/

[5] https://oxiblog.de/die-mythen-der-krise/

[6] https://www.tagesschau.de/wirtschaft/unternehmen/evergrande-liquidierung-100.html

[7] https://www.konicz.info/2015/05/17/droht-china-ein-kollaps/

[8] https://www.konicz.info/2021/11/27/einstuerzende-neubauten/

[9] https://www.sueddeutsche.de/wirtschaft/weltbank-konjunktur-wachstum-welthandel-folgen-schwellenlaender-1.6330300

[10] https://www.konicz.info/2022/10/18/china-mehrfachkrise-statt-hegemonie-2/

[11] https://www.konicz.info/2023/11/12/inflation-finanzkrach-oder-rezession/

[12] https://www.reuters.com/markets/world-bank-forecasts-2024-global-growth-slow-third-consecutive-year-2024-01-09/

[13] https://www.konicz.info/2023/03/19/die-silicon-valley-bank-als-das-schwaechste-glied/

[14] https://www.konicz.info/2023/11/12/inflation-finanzkrach-oder-rezession/

[15] https://www.cnbc.com/2023/12/13/fed-interest-rate-decision-december-2023.html

[16] https://edition.cnn.com/business/live-news/federal-reserve-meeting-interest-rates-01-31-24/index.html

[17] https://tradingeconomics.com/united-states/inflation-cpi

[18] https://www.nytimes.com/2024/01/31/business/new-york-community-bancorp-loss-dividend.html

[19] https://finanzmarktwelt.de/new-york-community-bancorp-aktie-verliert-32-massive-rueckstellungen-299547/

Originally published on konicz.info on 02/05/2024

Ukraine will lose the war against Russia in the medium term – the only question is how high the price will be

Tomasz Konicz

How bad is the situation in Ukraine? Well, at the end of November, the White House felt compelled to deny reports that the United States and Germany were trying to persuade Kiev to enter into peace talks with Russia. Negotiations would amount to a “monologue of surrender” and there were no signs of a “substantial” willingness to negotiate on the part of the Kremlin, a spokesperson for the U.S. State Department explained. Earlier, Western media reported that European and U.S. diplomats had visited Kiev to explore the conditions for peace talks. “Rough sketches” of “what Ukraine would have to give up in order to reach such a deal” were also drawn up, NBC reported in early November.

In reality, the optimal time for negotiations with the Putin regime has long since passed. In November 2022, after the recapture of the southern Ukrainian city of Kherson and the humiliating withdrawal of Russian troops from the region west of the Dnieper, there were at least potentially optimal conditions for a “deal” with the demoralized invaders. Since that last great victory for Ukraine, the situation in the war has fundamentally changed in Russia’s favor. Since the end of 2022, Ukraine has not achieved any significant successes on the battlefield, while Russia scored its first symbolic victory with the fall of the eastern Ukrainian city of Bakhmut in March 2023. This year’s Ukrainian summer offensive was a disaster, consuming much of Ukraine’s scarce military resources while allowing Russia to increase its material superiority.

Trenches, Bunkers, Drones

The Russian approach aimed at wearing down personnel and using lots of material, successfully established during the capture of Bakhmut, is now playing out in fast motion in the small town of Avdiivka, a suburb of the pro-Russian metropolis of Donetsk, which has been turned into a veritable fortress by Ukrainian troops since 2014 – and will soon fall. The city of Kupyansk, in the northeastern Kharkiv region, is also under threat. It is a mindless war of attrition in which the Kremlin is using its material advantage to bleed Ukraine dry. Every time either Russian or Ukrainian troops try to advance with concentrations of troops and tanks, they are pummeled by precise, drone-guided artillery attacks. Jubilant Western reports of high Russian casualties in the offensive mostly ignore the fact that Ukraine is suffering similarly high losses – and that Kiev can afford them far less than the Kremlin.

The strategic situation is reminiscent of the First World War, when the inability of all belligerents to the conflict to break through to the front led to months of “material battles.” Despite the monstrous six-figure number of casualties already claimed by the Russian war of aggression, the fighting in Ukraine may not be as heavy as at Verdun and the Somme, but for those affected, burning to death in the bunkers and trenches of the war zone, it is pure hell. There is nowhere to retreat to, as the omnipresent drone fleet has specialized in attacking the entrenched conscripts in their positions. “Hate drops” is the nickname that Russian military bloggers have given to this tactic of attrition.

In this war, the largest European slaughter since the end of the Second World War, it is quantity, not quality, that counts. The idea of using superior Western weapons technology to push the Russian army out of eastern Ukraine has been put to rest after the fiasco of the Ukrainian summer offensive. Russia has more artillery, more drones, more tanks, more aircraft and more manpower. At the beginning of December, Putin announced a further increase in the Russian armed forces by several hundred thousand troops. The Kremlin was also able to conclude several arms deals with North Korea and Iran, which ensured the mass supply of drones and artillery shells. According to intelligence sources, North Korea has supplied the Kremlin with one million artillery shells, while the West has so far been able to deliver only a third of the one million promised. Russia’s arms industry has been ramped up and is now producing at full speed, there is a shortage of labor, and Russian energy and raw material exports are financing this war economy.

The Russian military is also being innovative, trying to use the old Soviet weaponry as effectively as possible. Masses of existing Soviet aerial bombs are being cheaply converted into satellite-guided glide bombs, which Russian bombers drop outside of the range of Western-supplied Ukrainian air defenses, with explosive charges weighing anywhere from 500 kilos to 1.5 tons. Thermobaric missile systems, the use of cluster munitions on both sides, mine launcher systems that cut off retreating units after they have been shot up – the apparent stalemate at the front is paid for with human lives that are thrown at a military machine that is calibrated for wear and tear. That is until, at some point, a section of the front falls into disarray and a tipping point is reached, after which things can happen very quickly.

Crumbling Home Front?

On the home front of both warring parties, there is a growing unwillingness to be burned out in this increasingly efficient war of attrition. In the aggressor’s hinterland, in Russia, a movement, tolerated by the Kremlin, has emerged among soldiers’ relatives, who demonstrate for the return of their sons and the men who were mobilized last year. According to polls, the high number of casualties and the largely static front line are causing war-weariness in Russia, but at the same there is still a clear majority in favor of a victorious peace. The Russian people want peace – but only on Russian terms.

Despite the partial mobilization in the fall of 2022, the Kremlin has succeeded in isolating the majority of the population from the direct consequences of the war. The Ukrainian drone attacks and incursions into Russian territory have done nothing to change this. Moreover, after the “plane crash” of Wagner boss Yevgeny Prigozhin, there was no organizational pole around which dissatisfaction with the course of the war could gather. In any case, the only realistic chance for Ukraine not to lose this war was through internal political discord caused by the war and/or a collapse of the Kremlin’s power vertical. Both became unlikely after Prigozhin’s death and the changing fortunes of the war.

In the beleaguered Ukraine, where elections scheduled for next year have been suspended because of the war, war-weariness can sometimes be quantified in concrete terms. According to the EU’s statistics office, some 650,000 men of military age have fled Ukraine for Europe since the war broke out. Ukrainian cemeteries have to be expanded in order to bury the hundreds of daily victims of the Russian war of aggression. In early December, relatives of soldiers who have been fighting since the beginning of the war demonstrated in Kiev for the possibility of demobilization. After more than a year and a half, they demanded that others finally go to the front.

In an obvious change of narrative, leading Western media are now also reporting on the growing doubts among the Ukrainian people surrounding the continuation of the war, as they face massive Russian attacks on the economically devastated country’s infrastructure this winter. As Russia prepares for a long-term war, new waves of mobilization in Ukraine are provoking increasing resistance, as the rampant corruption means that it is mainly poor, unconnected Ukrainians who find themselves on the front lines. In addition, if the war situation continues to deteriorate, there is a danger that the fascist Ukrainian right wing, which has gained influence in the military and state apparatus during the war, will at some point seize power.

Growing War Weariness in The West

The fact that the functional elites of the West no longer believe that Ukraine will win became clear at the last meeting of NATO foreign ministers at the end of November. The FAZ reported that NATO was scaling back its goals and that even “holding the front” was considered a success. But as long as Ukraine does not give up, “we should stand by it,” the newspaper commented. To what extent, however, remains to be seen. In the United States, Kiev’s main backer, right-wing Republican opposition to further military aid is growing rapidly in Congress, meaning that the long-term continuation of the war – and the Kremlin is planning a very long war – is uncertain. Europe, on the other hand, would not be able to keep Ukraine afloat militarily on its own.

It is specifically the war in Israel and Gaza that has fueled the debate about continued support for Ukraine because of the resulting material shortages, but there are also structural factors behind this growing war-weariness. The West would effectively have to switch to a war economy in order to provide enough material for the Ukrainian front. But this would be a momentous step that the West is not prepared to take. And even that would probably not be enough, since Ukraine simply does not have enough people to send into battle. Ultimately, only direct military intervention could save Ukraine from defeat in the medium term, which will not happen given the risk of a nuclear exchange of blows.

It is questionable whether negotiations offer a viable way out of this war. As we all know, the imperialist appetite comes with eating, and Putin’s war aims change as the war progresses. Russia’s military situation is much better now than it was a year ago. As a result, the price of peace will be higher, partly because Russia has suffered heavy losses and Putin, for domestic political reasons, absolutely must win a victory in Ukraine. This is not just about the territory annexed by Russia (the Lugansk, Donetsk, Kherson and Zaporizhzhya oblasts) or other territorial claims (Odessa, Kharkiv), but also about the existence and sovereignty of the Ukrainian state. Moscow will not agree to Ukraine being tied to the West and will even work towards a “regime change” in Kiev to form a satellite state in the event of further military successes. It is well known that Putin considers the Ukrainian state to be a fiction.

Ukraine thus finds itself wedged between a West that is now primarily concerned with damage control and a militarily strengthened Russian imperialism that will demand a very high price for peace.

Originally published on akweb.de on 12/12/2023

How is the United States managing to overtake the eurozone economically? And will this trend continue?

Tomasz Konicz

The United States seems to be leaving the eurozone behind economically. In recent weeks, the leading U.S. and UK business newspapers, the Wall Street Journal (WSJ)[1] and the Financial Times (FT),[2]  have focused on the widening economic gap between the western economic areas, which, according to the latest forecasts from the International Monetary Fund (IMF), is set to get even bigger in the coming year. According to the IMF, U.S. gross domestic product (GDP) will grow by 1.5% in 2024, while the eurozone is expected to grow by only 1.2%.

And of course, these articles are accompanied by the usual hollow advice (“too much welfare state,” “too high taxes,” “too little work”) and malicious undertones that the weekly newspaper Die Zeit, for example, has complained about in its online edition.[3] Yet it was precisely this kind of spiteful discourse that was used by the German media against Southern Europe just a few years ago, at the height of the euro crisis – not least in Die Zeit itself. [4]

But why is the economic gap growing? The simple fact that the eurozone is not the currency area of a single state is certainly one thing that should be taken into account. Since the outbreak of the crisis in 2008, the eurozone has been characterized by fierce national disputes and growing socio-economic imbalances. The German core unilaterally passed on the consequences of the euro crisis to the southern periphery, the so-called “debt countries,” in the form of the Schäubler austerity dictate,[5] while Germany experienced a long, export-driven economic boom.[6] Washington was thus able to formulate a more or less consistent crisis policy, while in Brussels all crisis measures were always an expression of the intergovernmental power struggles in the eurozone.

The Gap Is Growing

However, if the economic projections for 2024 are correct, it would continue a long-term economic trend in which United States has vastly outperformed Europe in terms of economic growth over the past 15 years – although the difference between Germany and the U.S. is far smaller than the difference between Greece or Italy and the United States. According to the WSJ, citing IMF data, the European economy – measured in the world’s leading currency, the U.S. dollar – has grown by only six percent over the past 15 years, compared to about 82% growth in the U.S. GDP, which totaled about $14 trillion in the U.S. and the EU in 2008, is now more than $26 trillion in the United States – compared to just $15 trillion in Europe.

This economic divergence between the EU and the U.S. is also evident in terms of consumption and wages – another late consequence of the austerity paradigm celebrated in Germany[7] and imposed by Berlin on the highly indebted southern periphery of the eurozone during the euro crisis.[8] Fifteen years ago, on the eve of the transatlantic real estate bubble,[9] the U.S. and the EU each accounted for about a quarter of global consumer spending; today it is 28% in the United States and only 18% in the EU. Real, inflation-adjusted wages have risen by six percent west of the Atlantic since 2019, while they have shrunk in almost every EU country: from three percent in Germany, to 3.5% in Italy, to six percent in Greece.

However, this widening economic gap no longer leads to an increase in the standard of living for most wage earners – in the U.S., the decoupling of officially registered economic development from social reality has progressed much further than in the EU. The tense social situation of wage earners in the United States is reflected, for example, in the average life expectancy,[10] which has fallen to 73 years for men and 79 years for women.[11] In Europe, men can expect to live to 79 and women to 84 – and the gap has widened in recent years. The fact that almost two thirds of all U.S. citizens are now unable to build up any significant financial reserves and have to scrape by living paycheck to paycheck[12] – at a time when inflation-adjusted wages in the U.S. are said to have risen by six percent – gives us an idea of the distortions and whitewashing required to calculate the official inflation rate.

The American Advantage: Ukraine? Their Energy Source? Protectionism?

In short, we can say that the economic decoupling of the United States from the eurozone is well underway – even if wage earners west of the Atlantic are hardly benefiting from it. Beyond the pure neoliberal ideology that blames the welfare state, taxes or trade unions for Europe’s economic stagnation, the Wall Street Journal and the Financial Times also mention very real causes for the growing transatlantic divide in their articles. They cite, among other things, Washington’s increased economic spending after the outbreak of the pandemic and the U.S. high-tech sector, which has no equivalent in Europe, a region that is falling behind technologically.

The European economy is suffering much more from high energy prices than its American competitor, who can rely on cheap fossil fuels extracted through the environmentally disastrous fracking process[13] that has made the U.S. one of the world’s largest energy exporters.[14] This difference is particularly evident in inflation figures, which are consistently lower in the United States[15] than in the eurozone.[16] The Russian invasion of Ukraine also cemented the role of the U.S. as a “safe haven” for capital in times of crisis, especially since the EU does not have sufficient military capacity to conduct such imperialist conflicts on its own (a fact that has triggered the frenzied arms race in Europe).

Both newspapers also point out that the EU’s and Germany’s export orientation has become one of Europe’s main disadvantages. Until a few years ago, Europe and Germany were “massive winners from globalization,” according to the FT, but “that type of globalization” is now a thing of the past. The WSJ noted that with “cooling global trade,” Europe’s “formidable export industry” is also at an impasse. Europe’s “reliance on exports” is turning from a strength into a “weakness,” as exports account for about 50% of the EU’s GDP, compared to just 10% in the U.S. The rising protectionism caused by the crisis is thus creating a massive disadvantage for export-oriented economies and economic areas.

Background to The Crisis: The Impending Erosion of Global Deficit Cycles

With the erosion of globalization, the long-term economic strategy of strict export orientation pursued since the introduction of the euro by Germany, whose economic “business model” is based on achieving the highest possible trade surpluses, is also failing. This so-called beggar-thy-neighbor policy[17] exports debt, deindustrialization and unemployment to the target countries of the export surpluses. Initiated by Agenda 2010 and the repressive Hartz IV labor laws,[18] which massively reduced labor costs in the FRG, Germany was able to achieve extreme trade surpluses[19] with the eurozone until the outbreak of the euro crisis,[20] which contributed significantly to the creation of deficits and the outbreak of this European debt crisis. After Berlin had ruined the European crisis states through draconian austerity policies,[21] this export strategy was directed towards non-European countries.[22]

As a result, after the euro crisis, the eurozone ran high surpluses with non-European countries similar to those Germany had previously run with the European currency area. This can be clearly seen in the trade balance between the U.S. and the EU, which was put on an austerity diet by Schäuble.[23] The U.S. trade deficit rose from about $58 billion in 2000 to just under $100 billion in 2011, and then rose again to $218 billion in 2021 (Germany accounted for around a third of the U.S. trade deficit in 2021[24] ). But in 2022, European surpluses fell to around $202 billion due to the rise of protectionist measures in the United States. The same Financial Times, which recently painted a picture of Europe’s economic decline, described this change in Washington’s economic policy strategy in mid-2023,[25] initiated by the Trump administration and pushed further by Biden. At its core, it is a protectionist rejection of globalization. By means of a “foreign policy for the middle class,” the White House wanted to counteract the “hollowing out of the industrial base,” the emergence of “geopolitical rivals” and the growing “inequality” that threatens democracy.

A visible expression of the full onset of deglobalization is so-called nearshoring, with which the U.S. is attempting to replace its economic dependence on the Chinese export industry by building up industrial capacities in Mexico.[26] However, Washington’s protectionism aimed at reindustrialization is not only directed against its “geopolitical rival” China, but also against “German” Europe – for example, in the form of the Buy America clauses in Washington’s economic stimulus packages[27] and the continuing threat of transatlantic trade wars. In mid-October, the EU and the U.S. failed to reach a compromise in trade talks that would prevent the reintroduction of punitive tariffs on steel and aluminum from Europe at the beginning of 2024.[28] In addition, German automotive suppliers are still threatened with exclusion from U.S. production chains due to provisions of the U.S. Inflation Reduction Act subsidy program. A substantial concession from Washington is also unlikely, as protectionism seems to be working. German companies are increasingly investing in the U.S. to take advantage of Washington’s subsidies.[29] Indeed, annual private investment in the United States has exploded: from around $75 billion at the end of 2020 to $204 billion by the third quarter of 2023.

Berlin spent the 21st century steering the Federal Republic[30] – and from 2010, in the wake of the euro crisis, the entire eurozone – towards an export-oriented economic model aimed at achieving trade surpluses in the globalized world economy of the neoliberal age. With deglobalization in full swing, the former export surplus world champion has found itself in an economic policy impasse, which in the medium term calls into question not only the economic stability of the Federal Republic of Germany, but also the political survival of the eurozone. The systemic background to the crisis in this new phase,[31] which is characterized by protectionism, is the increasing erosion of the global deficit cycles that characterized neoliberal globalization and its ever-growing mountains of debt.[32] The global increase in debt,[33] which has outpaced the growth of global economic output, has not been uniform, leading to imbalances in global trade. Export-oriented economies such as China and Germany ran large trade surpluses with the deficit countries, which had to borrow. And the U.S. has by far the largest trade deficit,[34] which climbed from about $328 billion at the end of the 20th century to $816 billion at the start of the housing crisis in 2008, and then to $1.17 trillion in 2022.

The United States thus resembles a black hole in a global economy choking on its own productivity where export-oriented industrialized countries can sell their surplus production.[35] This is why consumption plays such a central role in the U.S. economy. This is only possible because the dollar is the world’s reserve currency and the same countries that run trade surpluses with the U.S. also finance its deficits by buying U.S. bonds. China, which runs huge trade surpluses, remains one of Washington’s most important foreign creditors. This is precisely the core of the deficit cycles that have been established under neoliberalism and are an expression of the crisis-induced debt compulsion[36] of the world system: Hyper-productive capitalism runs on credit, with the U.S. in particular running ever larger trade deficits, while “exporting” “securities” in the opposite direction. In the U.S., the financial sector, which was constantly creating new speculative bubbles, gained a lot of weight. Many factors put an end to this absurd neoliberal protraction of crises: the growing number of financial crises – above all the real estate crisis in 2008 – the social consequences of deindustrialization including the formation of rust belts, the rise of right-wing populists like Trump, and finally the full-blown inflation that set in with the pandemic and the war in Ukraine,[37] which made a turnaround in interest rates indispensable.[38]

A Changing Battleground

As a result, Washington is no longer willing to accept the United States’ extreme trade deficits because the costs – political, social and economic – are too high. The Biden administration is effectively just continuing Trump’s protectionist policies. With this U.S.-initiated global turn to a new phase of crisis, the competition between states is also changing – the advantages that export-oriented locations like Germany had are turning into disadvantages in the dawning era of deglobalization and protectionism. The long slide of the euro,[39] which has lost about 50 percent of its value against the greenback since its all-time high in 2008, boosted German exports because of its structural undervaluation as long as trade routes remained open. But now that trade barriers are rising, a weak currency is simply importing inflation.

The U.S. seems to have all the advantages on its side to push the EU into a peripheral position economically and politically, as the European think tank European Council on Foreign Relations recently warned in stark terms.[40] Countries with trade deficits have a strategic advantage in serious trade wars, since their deficits tend to be reduced, while economic areas with export surpluses, such as Germany or the EU, can only lose in such disputes. In addition, deglobalization is characterized not only by a rapid increase in trade barriers (the FT counted 801 new protectionist measures worldwide in 2022, compared to only 210 in 2017),[41] but also by increasing bottlenecks and import barriers for key raw materials and resources that many new industries need. The U.S. has a crucial strategic advantage over the EU, namely its military machine, which it can use to intervene if necessary to secure the supply of necessary raw materials. This is an important factor for capital in deciding where to locate. Finally, it is the U.S. dollar that allows Washington to borrow in the world’s reserve currency.

At the same time, however, a new economic battleground is opening up that is closely intertwined with the protectionist efforts to reindustrialize the U.S.: the wonderful world of the bond markets.[42] Interest rates on U.S. bonds, known as Treasuries, have skyrocketed with the central banks’ turnaround on interest rates, meaning that the U.S. budget is likely to be burdened with exploding interest costs of $660 to $800 billion in 2023. At a time when Washington is forcing the re-industrialization of the U.S. through credit-financed economic stimulus programs, the cost of borrowing for the U.S. budget is rising.[43] The usual method of keeping interest rates low despite enormous government borrowing is currently unavailable: the Fed cannot buy up Treasuries as in previous years because this would undermine the fight against inflation – when central banks buy up government debt, they are effectively printing money. What’s more, central banks have trillions of dollars of Treasuries on their balance sheets, which were bought up with freshly printed money during the period of “quantitative easing.”[44] And next year, Washington will have to service some $7.6 trillion in debt, which will put even more pressure on the bond market (bond prices fall as interest rates rise).

The fall in U.S. bond prices as interest rates rise not only destabilizes the financial sector, as was recently the case during the banking crisis in the spring of 2023,[45] but also calls into question the strategic role of Treasuries in the global financial system, as the Financial Times (FT) noted in October 2023.[46] U.S. Treasuries are supposed to be the stable backbone of the global financial system, they are held by strategic investors (pension funds, insurance companies, etc.) who need to achieve a reliable, albeit low, return. The constant volatility on the bond market, the large fluctuations in the value of Treasuries, call into question this anchor function of U.S. bonds; they can hardly function as a “safe haven” in the financial sphere. The FT warned in November 2023 that the “supply” of Treasuries has long exceeded the market’s demand, as the central banks have had to stop their buying programs to fight inflation.[47] Analysts warned the business paper that Washington’s “fiscal framework” could not be maintained in this form.

The Fed has effectively had to play a central role as a bond buyer in recent years, as the most important foreign buyer of U.S. bonds in the 21st century, the People’s Republic of China, has been rapidly reducing its holdings of Treasuries. In 2013, China held about $1.5 trillion in U.S. bonds; by January 2023, that figure had fallen to just $859 billion.[48] China’s withdrawal from U.S. bonds could not be offset by other foreign buyers, such as the UK, especially as the debt mountain of the U.S. grows rapidly. In 2016, a year before Donald Trump took office, nearly 45 percent of all U.S. bonds were held by foreign investors. By the second quarter of 2023, however, that figure was less than 30 percent.[49] This withdrawal of foreign investors from the U.S. bond market, which really took off in the Trump era, is in fact a consequence of Washington’s protectionist reindustrialization efforts. This can only be understood in the context of the aforementioned deficit cycles. The implicit deal underlying the deficit cycles was that China’s export surpluses to the U.S., for example, would be financed by buying up U.S. debt. As soon as Washington unilaterally breaks this deal through protectionism, the tangible, material incentive for Beijing to continue investing the capital generated by export earnings in U.S. bonds also disappears.

Washington’s unilateral abandonment of the deficit cycle, which was intended to reindustrialize the country, is thus leading to the destabilization of the United States’ ever-growing mountain of debt. The economic advantage the U.S. has over the eurozone, which American business journals like to talk about so much, is thus accompanied by increasing financial risks, which German business journals in turn like to point out – with the spitefulness characteristic of bourgeois business journalism on both sides of the Atlantic.[50] For now, Washington can only hope that inflation in the U.S. will subside more quickly than in the eurozone, so that it can return to the Fed’s practice of “quantitative easing” (until it fuels inflation again). Otherwise, active economic policy would have to be stopped – which only points to the fragility of the economic recovery in the U.S.[51]

Ultimately, these economic policy disputes are merely executing the objective crisis dynamics in a late capitalist world system suffering from a structural overproduction crisis. The decades-long crisis process, which has been gradually eating its way from the periphery to the core since the 1980s, has now fully engulfed the latter. As a result, the transatlantic alliance is in a state of pure crisis competition: who will go down when the next crisis hits? The U.S., China or Europe? The trade and economic policy battles are thus acting as the executors of the crisis.

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[1] https://www.wsj.com/articles/europeans-poorer-inflation-economy-255eb629

[2] https://www.ft.com/content/e0177eb7-8d17-48aa-a6ad-fccd0655f557

[3] https://www.zeit.de/wirtschaft/2023-07/usa-europa-wirtschaftswachstum-wohlstand-lebensstandard-lebenserwartung

[4]h ttps://www.zeit.de/2015/29/europaeische-union-krise-veraenderung-bruessel

[5] https://www.konicz.info/2018/08/20/griechenland-zu-tode-gespart/

[6] https://unrast-verlag.de/produkt/aufstieg-und-zerfall-des-deutschen-europa/

[7] https://www.konicz.info/2016/10/25/der-paneuropaeische-haushaltsdiktator/

[8] https://www.nd-aktuell.de/artikel/976285.suedeuropa-wird-lateinamerikanisiert.html

[9] https://www.konicz.info/2007/03/05/vor-dem-tsunami/

[10] https://www.zeit.de/wirtschaft/2023-07/usa-europa-wirtschaftswachstum-wohlstand-lebensstandard-lebenserwartung/seite-2

[11] The collapse of Soviet-style state capitalism in the so-called “Eastern Bloc” was accompanied by a similar, sometimes more drastic collapse in average life expectancy.

[12] https://www.cnbc.com/2023/10/31/62percent-of-americans-still-live-paycheck-to-paycheck-amid-inflation.html

[13] https://www.nytimes.com/interactive/2023/09/25/climate/fracking-oil-gas-wells-water.html

[14] https://www.tagesschau.de/ausland/amerika/fracking-colorado-101.html

[15] https://www.statista.com/statistics/273418/unadjusted-monthly-inflation-rate-in-the-us/

[16] https://www.statista.com/statistics/265843/monthly-inflation-rate-in-the-euro-area/

[17] https://en.wikipedia.org/wiki/Beggar_thy_neighbour

[18] https://www.konicz.info/2013/03/15/happy-birthday-schweinesystem/

[19] https://www.konicz.info/2012/12/21/der-exportuberschussweltmeister/

[20] https://www.konicz.info/2010/05/04/krisenmythos-griechenland/

[21] https://www.konicz.info/2018/08/20/griechenland-zu-tode-gespart/

[22] https://www.konicz.info/2015/04/18/die-deutsche-exportdampfwalze/

[23] https://www.census.gov/foreign-trade/balance/c0003.html

[24] https://www.census.gov/foreign-trade/balance/c4280.html

[25] https://www.ft.com/content/77faa249-0f88-4700-95d2-ecd7e9e745f9

[26] https://www.konicz.info/2023/11/20/neue-kapitalistische-naehe-2-0/

[27] https://www.konicz.info/2023/08/26/bidens-improvisierter-masterplan/

[28] https://www.manager-magazin.de/politik/weltwirtschaft/eu-usa-gipfel-europaeische-wirtschaft-enttaeuscht-a-280ff7dc-d173-425a-a8c9-f6a204cacccb

[29] https://www.tagesschau.de/wirtschaft/weltwirtschaft/us-subventionen-deutsche-konzerne-investitionen-101.html

[30] https://www.konicz.info/2015/04/18/die-deutsche-exportdampfwalze/

[31] A brief outline of the capitalist crisis process can be found at: https://oxiblog.de/die-mythen-der-krise/ or https://www.konicz.info/2011/12/23/die-krise-kurz-erklart/ See also: Robert Kurz, Schwarzbuch Kapitalismus, available at: https://www.exit-online.org/pdf/schwarzbuch.pdf ; or: Tomasz Konicz, Kapitalkollaps. Die Krise als historischer Prozess (still available as an ebook).

[32] https://exitinenglish.com/2022/08/12/a-new-quality-of-crisis/

[33] https://www.imf.org/en/Blogs/Articles/2023/09/13/global-debt-is-returning-to-its-rising-trend

[34] https://www.census.gov/foreign-trade/balance/c0004.html

[35] https://www.telepolis.de/features/Die-Krise-kurz-erklaert-3392493.html?seite=all

[36] https://oxiblog.de/die-mythen-der-krise/

[37] https://www.konicz.info/2021/08/08/dreierlei-inflation/

[38] https://exitinenglish.com/2024/03/06/inflation-financial-crash-or-recession/

[39] https://www.tagesschau.de/wirtschaft/boersenkurse/eu0009652759-25108390/

[40] https://www.brusselstimes.com/622334/europe-is-becoming-a-us-vassal-leading-think-tank-warns

[41] https://www.ft.com/content/3bd28362-c006-44c3-9f7f-a89a78452600

[42] https://exitinenglish.com/2022/08/12/mountains-of-debt-on-the-move/

[43] https://www.konicz.info/2023/11/12/inflation-finanzkrach-oder-rezession/

[44] https://www.ft.com/content/98cfe9c2-d7de-4825-8d8c-508b309c142f

[45] https://exitinenglish.com/2023/06/09/silicon-valley-bank-the-weakest-link/

[46] https://www.ft.com/content/40d9f352-82ed-4e4d-a53b-5f9404613d4a

[47] https://www.ft.com/content/7dada684-a6cd-413b-9adb-477b34a7a9f6

[48] https://usafacts.org/articles/which-countries-own-the-most-us-debt/

[49] See chart no. 4 https://www.yardeni.com/pub/fofforholddebt.pdf

[50] https://www.focus.de/finanzen/boerse/aktien/gastbeitrag-von-gabor-steingart-hier-zeigt-sich-die-verwundbarkeit-der-usa_id_247373167.html

[51] https://exitinenglish.com/2024/03/06/inflation-financial-crash-or-recession/

Originally published on konicz.info on 11/28/2023

What’ll it be? A brief overview of the contradictions of capitalist crisis policy using the United States as an example

Tomasz Konicz

It’s party time! The U.S. stock markets recently set off a veritable display of fireworks.[1] On November 3, U.S stock markets closed out their best trading week of the current year after dismal U.S. employment figures were released. The U.S. economy added only 150,000 jobs in October, down from 297,000 in September, and the unemployment rate rose from 3.8% to 3.9% over the same period. This complete slowdown amounts to a halving of job growth, which points to a serious economic slowdown, perhaps even a recession. If that isn’t cause for celebration on the trading floor!

This seemingly absurd reaction of the financial markets, which are actually celebrating rising unemployment, certainly has a crisis logic to it. The markets are simply speculating on an end to the central banks’ high interest rate policy, which has been used to combat inflation. Fewer jobs and rising unemployment suggest that wage growth is slowing down and consumer demand is weakening, which should further weaken stubborn inflation. The aim is to prevent an inflationary wage-price spiral in which rising prices and wages feed off each other. The wave of inflation can only be contained if more wage earners can afford less – that is the simple speculative calculation behind the price fireworks.

The Fed’s job will now be much easier, Reuters noted, as wage growth slowed to 4.1%, the lowest since June 2021.[2] This would make further rate hikes, which had been discussed (the Fed does not want to talk about any rate cuts for the time being), unlikely. And this is exactly what the financial markets have been speculating on in the bull market that began in November of 2023. Rising interest rates, the main tool in the fight against inflation, are also poison for the financial sector. Although the central banks’ restrictive monetary policy has at least succeeded in curbing inflation, it is also putting pressure on the financial sector of the over-indebted late-capitalist core countries, whose market players are speculating on an end to interest rate hikes.

The same crisis policy that is being used to fight inflation is also destabilizing the financial sphere. At some point, “something is going to break,” as Mohamed El-Erian, Chief Economist at Allianz, described the shattered state of the financial sector in early October, given the central banks’ continued policy of high interest rates.[3] The September jobs report, which showed the creation of nearly 300,000 jobs, was “good news for the economy,” but it was “bad news for the (financial) markets and the Fed.” But, one might ask, what exactly can “break” in the bloated financial superstructure of the over-indebted core countries?

An Unstable Bond Market

First and foremost, this refers to the bond markets – the bedrock of the global financial system[4] – which were at the center of the last “financial quake” in March 2023,[5] when a number of banks got into trouble or even had to be liquidated after the high interest rate policy led to a decline in the market value of government bonds. Bonds of core countries such as Germany or the U.S. are held as low-yielding collateral until they mature at par, but their market value falls when interest rates rise (because they have lower interest rates), which can put even large market players in distress once they suddenly have to sell bonds. This was the case with Silicon Valley Bank last March – it was forced to make emergency bond sales, leading to its insolvency and triggering a banking crisis.

Interest rates and bond prices are therefore inversely related: when interest rates fall, bond prices rise, and when interest rates rise, bond prices fall. The stress and pressure on the financial sector from the fight against inflation and high key interest rates can therefore be seen in the interest rate trend for U.S. government bonds. At the beginning of October, the ten-year U.S. bond yielded 5%, the highest level since the global financial crisis in 2007.[6] The market value of long-term bonds has fallen by an average of 46% since their peak in 2020.[7] And these high bond rates are having a ripple effect throughout the financial world, including public finances – it is no longer just a matter of fire sales by struggling banks that find themselves in trouble because of the falling market value of their bonds.

Bond Interest Rates and Budgetary Burden

However, the high interest rates and the falling market value of U.S. government bonds (“Treasuries”) are not only due to the central banks’ fight against inflation, but also to the government itself. According to Reuters, the U.S. government’s increased borrowing is leading to “increasing bond sales,” which also makes the government’s debt servicing more expensive (the increased “supply” of government debt can only be sold at higher interest rates, when it is more attractive).[8] As a result, Washington has to spend more and more to service its debt. The rise in interest rates cost U.S. taxpayers $625 billion in the first nine months of this year,[9] an increase of 25% over the same period last year. By the end of the year, interest payments are expected to cost more than $800 billion.[10] By comparison, Washington’s budget line item for defense in 2022 amounted to $877 billion.[11]

What’s more, the U.S. Federal Reserve is shrinking its bloated $8.9 trillion balance sheet as part of its fight against inflation by sharply reducing the bond and securities purchases that were customary in the era of the liquidity bubble,[12] so that the new purchases are less than the value of the maturing securities.[13] Previously, Washington could rely on the Fed simply buying government bonds with freshly printed money to finance the budget deficit. This money printing, which had inflated the Fed’s balance sheet from less than one trillion in 2008 to nearly nine trillion in 2022, is being thwarted by inflation. Washington can no longer simply print new money to keep the cost of the national debt down. The Financial Times speaks of an “oversupply” of Treasuries, which is accelerating their loss of value.[14]

The Financial Sphere and Key Interest Rates

The high interest rates used by central banks to fight inflation is having a knock-on effect across the financial world, including the hot U.S. housing market, where mortgage interest rates have at times risen to eight percent, the highest level in 20 years.[15] Two years ago, the average mortgage rate was still around three percent.[16] The exploding costs mean that fewer and fewer wage earners can afford to buy a home at all, further accelerating the social erosion in the United States (home ownership is the central social protection for the middle class in the U.S.). It now takes an average annual income of $115,000 to afford a home, about $40,000 more than the average wage.[17] Furthermore, the proportion of wages that homebuyers would have to put toward their loan has risen to 40%, up from around 25% 35 years ago. Not only is this effectively blocking the rise to the middle class, but the risk of another real estate crisis and economic downturn in the U.S., as is already happening in Germany, is rapidly increasing.[18]

Wherever large liabilities have accumulated in the financial superstructure, something is about to “break.” Take credit card debt, which will exceed $1 trillion for the first time in 2023, or corporate debt, some $3 trillion of which will come due in the next few years. The volume of the market for the highest rated U.S. corporate debt is $8.4 trillion – the interest rate here has risen to just over six percent, compared to just two percent in 2020.[19] Finally, high interest rates are also destabilizing the stock markets, which will continue to be volatile (a good jobs report caused the Dow Jones Industrial Average to drop 430 points in early October),[20] as long as bond interest rates remain high.[21] As a result, the market highs mentioned at the beginning of this article are unlikely to be sustained over the long term. The era of prolonged financial market bubbles is over for the time being.

Falling interest rates would quickly reduce this crisis pressure, which is weighing on the entire financial system. The risk of something “breaking” immediately would be reduced. This leads to the seemingly absurd constellation in which poor labor market data, which could indicate an end to the high interest rate policy, is greeted with goodwill by the stock markets. For the time being, the actual inflation rate cannot serve this purpose. In fact, it has risen slightly in recent months[22]  – and at 3.7%, is still far from the 2% target of monetary policy. After peaking at 8.6% in May 2022, the Fed was able to push inflation down to 3% in June 2023 due to high interest rates and the end of its money printing through bond purchases, but inflation has since accelerated again. Inflation is essentially accelerated by external factors resulting from the ecological barrier of capital,[23] which are simply beyond the Fed’s control.[24]

Impending Recession in The Crisis Trap

The only way to fight inflation is by reducing consumption through an increase in unemployment and a de facto fall in wages (real wages have risen slightly more than inflation in recent months). However, the markets’ jubilation over the poor jobs numbers was immediately mixed with skepticism. The New York Times (NYT), for example, headlined that the report had sparked a “mix of concern and calm,” as worries about an inflationary “overheating” of the economy could turn into fears of a recession.[25] According to a recent survey of economists cited by the NYT, a narrow relative majority of 49% of respondents expect a “recession in the next 12 months,” while 42% believe a “soft landing” of the economy is still possible.

The business media even warned that the markets would literally stage a “rally into recession” as fundamental indicators pointed to a contraction.[26] For one, the strong growth in the U.S. (1.2% in the third quarter of 2023 compared to the second quarter) is due to private consumption, which is being generated by the reduction in savings that were accumulated during the pandemic. In addition, the once broad U.S. middle class has melted away to such an extent that a long credit-financed consumption boom, as was common in the era of neoliberal financial bubble economics, is no longer possible. According to the latest data, some 62% of wage earners in the “booming” U.S. are unable to build up any significant financial reserves.[27] They live from paycheck to paycheck. The famous, broad “middle class” in the U.S. is thus virtually a relic of the past.[28] Added to this is the increase in government spending over the past two years (which, as mentioned, is now leading to a heavy interest burden on the U.S. budget).[29]

The United States, which – not least due to protectionist measures – had the best economic performance of all Western industrialized countries after the end of the pandemic, is actually facing a recession in the medium term. The fear of inflation and the threat of financial collapse is turning into a fear of recession, which, if deep enough, could also have a destabilizing effect. This is simply a manifestation of the fundamental crisis trap[30] in which late-capitalist economic policy finds itself.[31] With the onset of inflation, it is no longer possible to keep capitalism, which is choking on its productivity, in a kind of zombie existence by taking on debt within the framework of the financial market-driven bubble economy.[32] Consequently, politicians can only choose what path they want to take to crisis: Recession, financial crash or inflation? Even in the U.S., which has so far been able to decouple itself somewhat from the development of the crisis in the eurozone thanks to the protectionism of the Biden administration, this crisis dynamic can only be postponed.[33]

---

[1] https://www.ft.com/content/52e76c22-3e0a-420b-8fdb-b5594d74cba8

[2] https://finance.yahoo.com/news/traders-see-fading-chances-fed-124624382.html

[3] https://fortune.com/2023/10/06/strong-jobs-data-good-news-for-economy-bad-news-for-markets-el-erian/

[4] https://exitinenglish.com/2022/08/12/mountains-of-debt-on-the-move/

[5] https://exitinenglish.com/2023/06/09/silicon-valley-bank-the-weakest-link/

[6] https://finance.yahoo.com/news/u-10-treasury-yields-hits-220507474.html

[7] https://www.thestreet.com/investing/stocks/bond-market-meltdown-whats-happening-what-it-means-and-why-you-should-care

[8] https://finance.yahoo.com/news/u-10-treasury-yields-hits-220507474.html

[9] https://www.bloomberg.com/news/articles/2023-07-13/us-racks-up-652-billion-in-interest-costs-as-higher-rates-bite

[10] https://www.axios.com/2023/10/16/interest-rates-federal-debt

[11] https://www.statista.com/statistics/262742/countries-with-the-highest-military-spending/#:~:text=The%20United%20States%20led%20the,to%202.2%20trillion%20U.S.%20dollars.

[12] https://www.konicz.info/2021/04/13/oekonomie-im-zuckerrausch-weltfinanzsystem-in-einer-gigantischen-liquiditaetsblase/

[13] https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm

[14] https://www.ft.com/content/7dada684-a6cd-413b-9adb-477b34a7a9f6

[15] https://fortune.com/2023/09/29/mortgage-rates-two-decade-high-housing-market-home-sales-drag/

[16] https://edition.cnn.com/2023/11/07/investing/home-prices-affordability/index.html

[17] https://fortune.com/2023/10/18/how-bad-housing-market-affordability-redfin-115000-salary/

[18] https://finance.yahoo.com/news/wave-cancellations-german-housing-construction-073436367.html

[19] https://www.ft.com/content/eca88341-4d17-4147-94c5-19d9bc873937

[20] https://finance.yahoo.com/news/dow-plunges-430-points-yields-041424884.html

[21] https://finance.yahoo.com/news/stocks-wont-have-sustainable-rally-until-bond-yield-hits-pre-financial-crisis-level-183141192.html

[22] https://www.statista.com/statistics/273418/unadjusted-monthly-inflation-rate-in-the-us/

[23] https://www.konicz.info/2021/08/08/dreierlei-inflation/

[24] https://www.mandelbaum.at/buecher/tomasz-konicz/klimakiller-kapital/

[25] https://www.nytimes.com/2023/11/03/business/economy/jobs-report-october-2023.html

[26] https://realmoney.thestreet.com/stocks/we-re-rallying-right-into-a-recession-16137281

[27] https://www.cnbc.com/2023/10/31/62percent-of-americans-still-live-paycheck-to-paycheck-amid-inflation.html

[28] https://www.cnbc.com/2023/01/18/amid-inflation-more-middle-class-americans-struggle-to-make-ends-meet.html

[29] https://thenextrecession.wordpress.com/2023/10/27/us-economy-expanding/

[30] https://www.konicz.info/2011/08/15/politik-in-der-krisenfalle/

[31] https://www.konicz.info/2022/12/09/geldpolitik-vor-dem-bankrott/

[32] https://www.konicz.info/2017/08/07/wir-sind-zombie/

[33] https://www.konicz.info/2023/08/26/bidens-improvisierter-masterplan/

Originally published on konicz.info on 11/10/2023

How Leftist German Opportunism Domesticated the Radical Climate Movement

Tomasz Konicz

The German left has arrived late to the climate crisis – and is still dragging anachronistic ideological baggage with it. Almost every current of the same stock-conservative left that for decades ridiculed or trivialized the climate crisis has now switched to the inflationary use of the term “climate justice.” No flyer, no event, no call for a demonstration can do without the use of a word that seems to amalgamate the “social question” with the climate crisis. From Junge Welt to Jungle World, from the Left Party to the notorious trade union left, from post-autonomists to old Marxists – if there is a common denominator in the climate policy statements of this regressing spectrum, then it is the inflationary use of a word in which opportunism, laziness of thought and ideological delusion merge.

Climate justice means that climate issues should be dealt with fairly. In other words, it calls for a fair distribution of the burden of the ecological transformation of society (“decarbonization”), and/or of bearing the consequences of climate change. At the global level, climate justice means that rich metropolitan regions should bear the brunt of the climate crisis and decarbonization, thus relieving and supporting the beleaguered periphery. According to this view, the climate crisis is the great catalyst that will enable a redistribution of wealth from top to bottom – both within each society and globally between core and periphery. The Green Party’s critique, formulated in terms of climate justice, consequently criticizes the lack of a social component in Berlin’s climate policy measures.

But the big problem with all this talk of climate justice is simply that the climate crisis is not a distributional crisis, so it cannot be addressed by raising the social question. The climate crisis is a systemic crisis,[1] which inevitably raises the systemic question. Capital, as value valorizing itself by means of commodity production, must burn up the world’s resources, it must deprive humanity of the ecological foundations of life in order to maintain its boundless valorizing movement. The eternal production of surplus value is the essence of the fetishistic capital dynamic. And it must be transformed into history – or it will turn the process of civilization into barbarism. It is not a question of “burden sharing,” but of the struggle for a systemic alternative worth living for. Specifically, it’s about emancipating ourselves from the commodity form, in which needs are satisfied only to the extent that they generate demand on the market. It is not a question of distributing more fairly the ecologically ruinous process of commodity production, which is only an expression of the valorization process of capital, but of overcoming it before it turns into barbarism.

Instead of babbling about climate justice, a left that still wanted to act progressively according to its concept would have to speak of a capitalist climate crisis to point out the necessity of the emancipatory overcoming of the capital relation as a social totality for the survival of civilization. Not because it would be popular, but because it corresponds to the objective reality of the crisis, because it is simply the truth. The transformation of the system is a factual necessity resulting from the internal, ecological as well as economic contradictions of the capital dynamic, to which the world serves as mere material for real-abstract self-valorization.[2] Consequently, late capitalist societies will break down because of their contradictions. What remains open is what will come after that. This will be decided in the course of the coming transformation struggle.[3] The task of the left would thus be to spread a radical crisis consciousness among the population – as a precondition for the possibility of an emancipatory course of transformation.

In order to overcome the fetishism of capital that unconsciously dominates humanity and arrive at a conscious organization of the process of social reproduction, it would be necessary, as a first step, to recognize the nature of the crisis as described above. People would have to be able to reflect on what kind of deep capitalist shit they are in in order to find a way out of it. It’s just a matter of saying what’s wrong. And it is by no means difficult or remote to practice this. Arguments that endless growth is impossible in a finite world are, as a start, understandable and generally comprehensible, without oversimplifying and distorting the problem too much. Meanwhile, a vague, unreflective awareness of crisis – or rather a sense of systemic crisis – has long been widespread among the population. It is a matter of consciously reflecting on this inkling of a serious systemic crisis in order to form a radical crisis consciousness out of it – that is, a consciousness that makes the necessity of an emancipatory system transformation for the survival of humanity the basis of any practice.

Bones for The Conservative Old Left

It is obvious that capitalism is incapable of dealing with the climate crisis. One look at the relevant empirical material suffices.[4] And there is hardly a pseudo-leftist term that obstructs this insight into the necessary transformative struggle for a post-capitalist future more effectively than that of climate justice, which distorts an objectively given anti-capitalist system question into a social-democratic-reformist redistribution question. Climate justice is merely ideology and opportunism pressed into conceptual form. While many groups or individuals may parrot this word out of ideological delusion and sheer thoughtlessness, there are objective factors that explain its rise.

On the one hand, it is the process of disintegration of the so-called “Left Party” that promotes the popularization of such linguistic monstrosities. The traditionalist, national-socialist and simply reactionary currents on the left, which Wagenknecht has oxymoronically branded as “left-wing conservatism,” are in the process of completing their transition to the New Right, which began a good decade ago, by founding a new party.[5] Yet it is precisely the products of the populist decadence of the old, anachronistic class-struggle Marxism that are driving this rightward regression. This spectrum of talk-show millionaires and Porsche drivers, in which an insubstantial, nationally colored and ultimately fascism-compatible fetishization of class-struggle is cultivated, is to be thrown a bone in the form of the catchword “climate justice” in order to keep the exodus of the old leftists from the ranks of the Left Party to the New Right in check.

The whole thing is already taking on comic features, resembling an absurd reenactment of the Stalinist fetishization of the proletariat, when, for example, Left Party chairwoman Janine Wissler extols the proletarian virtues of the list of candidates for the European elections,[6] in order to immunize them against criticism from the national-socialist Wagenknecht millionaires, who deplore an affront to “traditional voters” from the working class. The top candidate Carola Rackete, who has become known for her involvement in maritime rescues, is not only a climate activist who links “the class question with the struggle for climate justice,” she has also become acquainted with the “hard working conditions” of seafarers and is “clearly closer” to the working class than many others.

In a party milieu dominated by middle-class snobs and talk-show millionaires like Wagenknecht, this anachronistic praise of calloused workers’ hands thus fulfills an inner-party function: it is supposed to help integrate the regressive old-left currents in order to keep their drift toward the Querfront in check. This is accompanied by corresponding narratives which, with adventurous contortions (using mostly Marx quotations), attribute to the working class an objectively given, leading role in climate protection. This truncated leftist fetishization of class struggle may still be comprehensible in countries like France, which are periodically shaken by large waves of protest, albeit without consequences due to their blindness to the crisis. But in the Federal Republic, it is simply absurd.

“Ecological Class Warfare”?

This fetishization of class struggle has little to do with the German reality, where wage workers express their class standpoint as variable capital by raging against the “Last Generation” climate protesters, whose blockades prevent the timely resumption of work (and thus capital valorization). And the Left Party implicitly takes into account the class standpoint of variable capital (sorry, the working class!). Die Zeit published excerpts from a letter addressed to the climate movement by Die Linke’s top candidate, Rackete, among others, criticizing the Last Generation’s blockades and direct actions in the name of an “ecological class struggle” in which “climate protection must improve social justice in the Global North.” In the name of climate justice, “social inequality and class differences” should be reduced (so everyone should drive a Porsche, not just Klaus Ernst?).[7]

This social demagoguery, the crazy idea of reviving the old capitalist welfare state in the midst of the escalating climate crisis, is coupled with appeals for moderation in climate protests.[8] Radical forms of protest aimed at “media images” are apparently not a “sufficient solution,” activists must put aside their “missionary zeal” and also take note of other social problems. While it is right to clearly name the climate criminals, it is also be necessary to “continue to talk and participate and look for common concerns.” Radical actions would apparently prevent the formation of a “social majority” for climate protection, etc. These people express concerns that an “escalation of tactics” would lead to the climate movement losing its “connection to society,” and this is accompanied by the usual references to the parliamentary route, through which even RWE and Wintershall are now to be expropriated (probably in the same way as the Left Party implemented the expropriation of the Berlin housing corporations). It is simply absurd to write this at a time when late capitalist societies are in danger of losing all reference to the escalating climate crisis thanks to the constant stream of reactionary sound bites.

The whole thing reads like one of the usual attempts to domesticate, to bring under control, a disruptive movement that has arisen spontaneously.[9] It’s a classic example of managing a movement in order to serve the late capitalist functional elites as crisis administrators – and, en passant, it finally denies the old leftist belief in the historical mission of the proletariat. The fetishized “revolutionary subject,” despite the escalating capitalist climate crisis, wants peace on the labor front above all – and the Left Party tries to implement this veritable satire of “class interests” through strategies of domestication.

So what is the ecological class struggle? It is a survival, in the post-Wagenknecht left, of the dull German Wagenknechtism, which has always been outraged that people who want to work get stuck in traffic jams caused by the climate protests. A post-proletarian phrase-mongering that is supposed to enforce the interest of variable capital in smoothly-functioning capital valorization. This phrase-mongering around the castle in the air of the ecological class struggle serves to nip in the bud the real struggles that are being fueled by the socio-ecological systemic crisis. This is the “class standpoint” of variable capital – it does not want to be late to the work that is the substance of capital.

Radical Criticism – Even of The “Last Generation”

It is not only opportunism that fabricates such absurdities as a class struggle that seeks to avoid struggle; it may also be a simple ignorance of the crisis that fails to grasp the fetishistic character of the fully unfolding systemic crisis. The capitalist climate crisis is a market-mediated dynamic in which the boundless accumulation of capital must burn up more and more raw materials in commodity production. No one has any social control over this process of capital valorization, which blindly strives to obtain the highest possible rate of profit. This real-abstract process will only stop burning the world if it is either consciously overcome or if it collapses due to its own ecological and social contradictions – dragging the process of civilization with it into the abyss of barbarism.

To put it on the infantile level on which conceptual aberrations like climate justice are fabricated: The capitalist climate crisis – the interplay of capital valorization and greenhouse gas emissions – is absolutely indifferent to what obtuse old leftists or even entire sectors of the population think about it. There are no interests that profit directly from the increase in extreme weather conditions that devastate entire regions, no class standpoint that materializes in the threatening uninhabitability of entire regions. Capital as a contradictory blind dynamic of self-valorization destroys the world, society – and its own economic bases.

Even if the vast majority of the population clings to capitalism with all its might (which is probably not far from the truth), it will break down because of its social and ecological contradictions. What the population thinks about capitalism or the climate crisis is irrelevant in this respect. No one needs to be “convinced” or “picked up” to act in a somehow “revolutionary” way. It is not a matter of winning majorities for any “revolutions” that should result quasi automatically from their position in the valorization process of capital (the proletariat). Since there is no “revolutionary subject,” the question of crisis consciousness is decisive. There is only a chance of avoiding the fall into fascism if a radical consciousness of the character of the systemic crisis spreads among the population, and they start reflecting on the necessity of transforming the system.

And it is precisely this formation of a radical, transformative crisis consciousness that large sections of the left are sabotaging. The destructive fetishism of capital slaps the old left, which thinks in terms of “interests” and “class positions,” in the face every day. And it is almost admirable how the ideology of the old left, in cooperation with sheer opportunism, manages to ignore this time and again, to reel off the old class-struggle spiel, and in the meantime to push the regression so far that in its reactionary criticism of the climate movement, it calls for a return to Rhenish capitalism or 20th-century state capitalism in the midst of the incipient climate catastrophe. The tipping points of the climate system have already been passed, yet the regressive left simply wants to go back to the GDR or the old, West German FRG.

Of course, the climate movement – especially the “Last Generation” – should also be criticized. But a radical, progressive critique would involve confronting the concrete actions and demands with the reality of the climate crisis and the systemic crisis of capitalism. The willingness of activists to risk life and limb in dangerous actions stands in stark contrast to their naïve faith in politics, which they call upon to simply protect the climate effectively. This is where leftists who want to act in accordance with the concept must start, in order to confront these late-bourgeois political illusions with the reality of the systemic crisis. Criticism should therefore not be directed at confrontational practice, but at the well-behaved demands of the “Last Generation,” which would also anchor the necessary radical crisis consciousness in the movement. The disruptive actions of the “Last Generation,” which practically disrupt the everyday constraints of late capitalist business as usual, would then point to the actual, inescapable constraint of transforming the system, instead of feeding illusions about a political management of the climate crisis.

Systemic Crisis, Opportunism and State Capitalism

It is obvious that the capitalist climate crisis cannot be solved by raising distributional questions, either nationally or, more importantly, globally.

After all these decades, people should realize that the Marxist view of class struggle is wrong. Everything would be simpler if the proletariat acted as a “revolutionary subject,” if class struggles were the “locomotives of progress” – but they are not. In class struggles, variable capital (according to Marx, who was contradictory on this point, this is constituted by the working class in the process of capital production) negotiates its share of surplus value. And that’s it, there is no potential beyond capital. In view of the climate crisis, it is simply ridiculous to still maintain this fetishization of class struggle. It is similar with the world system. The ecological costs of China’s rise prove that an equalization of living conditions between the periphery and the core of the capitalist world system is ecologically impossible[10] – and that it is necessary to look for a post-capitalist path of development so that people on the periphery don’t sink into misery and climate chaos.

The reasonable, moderate consequence of the capitalist climate crisis is thus the search for a post-capitalist alternative, for ways to transform the system, as well as the corresponding, radical, categorical critique of late capitalist societies in all their agony. The ecologically ruinous and selective satisfaction of needs within the commodity form, the function of money as the universal equivalent, the subordination of society to the monstrous and fetishistic constraints of the capital dynamic, which is breaking down due to its inner contradictions – these must be questioned offensively. Not because this would be particularly “radical,” but because these categories are in the process of crisis-induced dissolution. This is no abstract prophecy. This process of self-dissolution is already taking place in a very concrete way, for example in the case of money losing its value through stagflation.[11]

What the Left Party, together with its ideologically blinded environment of old communists and trade union leftists, is doing within the left is marginalizing categorical critique and radical crisis theory, in order to make room for regression – the crisis-related assault of old left terms and concepts such as proletariat, class, and class struggle outlined above. The capitalist system is in an irreversible ecological and economic crisis. A transformation of the system is inevitable. The only open question is: what comes next? That will depend on the concrete struggles that will be waged during the period of transformation. And it is precisely this inconvenient, simple truth that the old left is doing its best to obscure. What is the point of all this? It can already be assumed that it is clear to quite a few decision-makers in the “Left Party” that they are propagating nonsense here when they react to the consequences of the systemic crisis with grandiose, failing redistribution campaigns.[12]

It is the stubbornly opportunistic hope for participation in government. The Left Party sees itself as the “social conscience” of the already failed Green New Deal, an illusory ecological transformation of capitalism – hence the absurd talk of climate justice and an “ecological class struggle,” accompanied by appeals for moderation in concrete protests. The anachronistic proletarian talk is only an expression of the fear of proletarianization in a party dominated by middle-class snobs, which stands on the edge of the abyss and seeks refuge in an illusory opportunism to avoid descending into the “working class.”

This fetishization of class struggle, which has degenerated into a mere phrase, is consequently accompanied by a pervasive fetishization of the state, in which all hopes for reform are pinned on the late capitalist state, i.e., an institution formed in the course of the history of capitalist assertion and indispensable for the valorization process as the “ideal total capitalist.” A state which, of course, has also long since been caught up in the processes of erosion caused by the crisis. In times of crisis, the state gains weight as a “crisis manager” – for example, in the 1930s, when state-capitalist tendencies often went hand in hand with the fascization of crisis-ridden societies. The threatening drift, especially in the Federal Republic, into authoritarian crisis management by an overgrown state apparatus interspersed with brown cronies, is sold, for example by Taz journalists, as post-capitalism by means of a cheap relabeling,[13] which arouses lively interest across a broad spectrum of left-liberal currents, from the trade union left to the stone-age communists of the junge Welt.[14] A longing for a warm place in the state and party apparatus – that is the practical reaction of these post-left currents to the crisis.

But the horror of being administered and harassed by ideologically crazed alt-leftists and morally derelict left opportunists in the coming systemic crisis pales in the face of the reality that is actually looming: for it is the new German right that, because of its rapid rise in the wake of the crisis, has the best chance of heading up the coming domestic capitalist crisis administration.

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[1] https://www.konicz.info/2018/06/06/kapital-als-klimakiller/

[2] https://www.konicz.info/2014/04/04/automatisches-subjekt/

[3] https://exitinenglish.com/2023/02/22/emancipation-in-crisis/

[4] https://www.konicz.info/2022/01/14/die-klimakrise-und-die-aeusseren-grenzen-des-kapitals

[5] https://www.konicz.info/2021/06/29/schreiben-wie-ein-internettroll/

[6] https://www.nd-aktuell.de/artikel/1175630.linkspartei-janine-wissler-linke-sollte-sich-nicht-aneinander-abarbeiten.html (I thank Claas Gefroi for pointing out this interview)

[7] https://www.sueddeutsche.de/politik/klaus-ernst-porsche-1.5488774

[8] https://exitinenglish.com/2023/01/23/opportunism-in-the-crisis/

[9] https://www.zeit.de/politik/2022-12/klimaaktivismus-letzte-generation-klassenkampf-carola-rackete-momo

[10] https://oxiblog.de/klimakrise-und-china/

[11] https://znetwork.org/znetarticle/back-to-stagflation/

[12] https://www.konicz.info/2022/11/07/rockin-like-its-1917/

[13] https://exitinenglish.com/2023/04/02/rebranding-capitalism/

[14] https://www.jungewelt.de/loginFailed.php?ref=/artikel/447267.klimawandel-und-ressourcen-weniger-soll-mehr-sein.html

Originally published on www.konicz.info on 09/06/2023

How did the central banks manage to stabilize the financial system for the time being after the “bank quake” in March 2023? And what are the prospects for this form of crisis management?

Tomasz Konicz                                                    

The last banking crisis[1] that shook the financial system in March 2023 has long since disappeared from the headlines, but this does not mean that the financial system has been permanently stabilized. The market panic continued to reverberate for months. After all, it was finance capitalists in particular who warned against a return to business as usual in April.[2]  The U.S. billionaire Leon Cooperman spoke to the media of a long-term “textbook financial crisis,”[3] which had been caused by “irresponsible fiscal and monetary policies” over the past decade – just a few days before another ailing U.S. regional bank, “First Republic,” had to be “bailed out” and taken over in early May.[4]

What this seemingly cryptic accusation means was made clear by financial investor Jeremy Grantham in an interview at the end of April.[5] The Fed has “hardly done anything right since Paul Volcker,” Grantham lamented. It has repeatedly contributed to the inflation of asset bubbles through its expansionary monetary policy in recent years and decades. This has resulted in “a chain-linked series of super bubbles” that, when they inevitably burst, will have “outrageously consequential, painful effects” on the entire global economy. The potential for crisis this year is far greater than in 2000, for example, when the dot-com bubble burst, Grantham warned, because now it is not only the stock markets that have been speculatively inflated, but also “bonds, houses, fine art, and other assets.” As a result, the financial sphere is in an “everything bubble,” a bubble that encompasses many sectors and asset classes of the financial markets, Grantham said, paving the way for the inevitable “crash and a painful recession.”

The functional elites of capital are thus quite capable of reflecting on the basic features of the crisis process – even if they do so in an ideologically distorted way. The chain of financial bubbles,[6] the neoliberal financial bubble economy, the bursting of the liquidity bubble, the terrible crisis potential that has accumulated – all of these historical crisis processes are certainly perceived by finance capitalists, while the remnants of what used to be the German left[7] remain largely ignorant of the crisis.[8] What both of the above-mentioned finance capitalists – Cooperman as well as Grantham – fail to mention, however, is the simple fact that they themselves profited handsomely from the financial bubble economy, which was increasingly dependent on the money printing of central banks.

And it was precisely the speculatively heated boom of the financial markets in the neoliberal era that acted as a key, credit-financed economic engine. The system runs on credit, with ever-increasing speculative bubbles generating credit-financed demand for a faltering real economy choking on its own productivity. This is why the past few decades of neoliberal globalization – which was essentially a globalization of this systemically necessary debt dynamic through deficit cycles[9] – have created gigantic mountains of debt. It is so bad that even hardened speculators cannot help but notice the accumulated crisis potential and feel uneasy.

Let There Be Money!

And yet, it should be noted that the acute crisis outbreak of the spring of 2023, which frightened even the finance capitalists, was successfully contained by rapid countermeasures taken by the functional elites. The pessimism of the speculators quoted above thus seems misplaced.

It is therefore worth taking a closer look at this rather routine crisis management policy. The first measures taken by the U.S. government after the collapse of Silicon Valley Bank (SVB), which kicked off the financial turmoil in mid-March, were aimed at preventing panic and stabilizing financial institutions. President Biden declared that the government would immediately provide unlimited protection for all bank deposits to nip in the bud any looming “banking storms” at other financial institutions where panicked customers would withdraw their funds (in the U.S., law only protects deposits up to $250,000). The Federal Reserve generated $143 billion for this purpose, which flowed to rescue companies and served to secure customer deposits at SVB and Signature Bank, which also collapsed. Not a single customer of the affected banks lost their money.

At the same time, Washington set about flooding the financial system with money to prevent a “freeze” in the financial sphere, which was a common occurrence in the aftermath of the Lehman Brothers investment bank bankruptcy during the 2007-08 global financial crisis. At that time, banks were afraid to continue normal interbank trading because it was not clear whether their trading partners were in danger of going bankrupt. To prevent such a catastrophic shutdown of essential transactions in the financial sector, the U.S. Federal Reserve opened its money floodgates wide: in the week from March 9 to March 15, more than $152 billion flowed to ailing banks as part of a liquidity provision program known as the discount window.[10] To get an idea of the scale of this crisis intervention in March, just look at the previous week, when banks claimed only about $4.5 billion through the Fed’s discount window. This figure, from mid-March 2023, far exceeded the weekly peak in the crisis year of 2008, when the Fed spent some $111 billion to stabilize faltering banks within a week of the collapse of Lehman Brothers.[11]

In addition, in March alone, $53 billion was lent to banks under the new Bank Term Funding Program.[12] By early May, this figure had risen to $75 billion.[13] Under this program, financial institutions can deposit their government bonds, which are falling in value during the current period of high interest rates and which triggered the crisis in the U.S.,[14] at face value as collateral. The Fed thus had to suspend a market mechanism to stabilize the financial market (when interest rates rise, the market value of bonds falls). In March 2023 alone, the direct crisis measures taken by policymakers reached a volume of more than $300 billion, roughly half of all spending during the 2008 crisis surge.

The response to the crisis was also globally coordinated.[15] In the second half of March, the central banks of the U.S., the eurozone, the United Kingdom, Japan, Switzerland and Canada agreed to ensure the supply of U.S. dollars to the reeling global financial system. In the process, the settlement of foreign exchange swaps was intensified. These so-called swap transactions, in which banks are supplied with the U.S. reserve currency, are normally settled on a weekly basis. But starting on March 20, the monetary guardians involved switched to a daily settlement of swap transactions in order to prevent possible liquidity shortages in the financial sector. Again, this can be seen as a strategy based on the experience of the crisis surge of 2007 and 2008. At that time, European banks had great difficulty in obtaining sufficient U.S. dollars to maintain their operations. This was prevented during the most recent financial market quake: the daily swap transactions served as “liquidity hedges to alleviate tensions in global financial markets and thus help to mitigate the impact of such tensions on the supply of credit to households and companies,” the Tagesschau quoted the ECB as saying.

This tactic of an extreme, globally coordinated money glut was actually a lesson learned from the 2008 financial crisis,[16] when Washington initially failed to act to “set an example,” and the Lehman bankruptcy led to the freezing of the financial sphere. Indeed, the measures taken in 2023 seem to have been successful. On the one hand, monetary policy went into “whatever it takes” mode, as one analyst put it, alluding to former ECB President Mario Draghi, who declared at the height of the euro crisis that he would do anything to save the euro – before opening the ECB’s monetary floodgates. Central banks can flood the financial market with freshly printed money, launch targeted liquidity injections, or simply accept devalued government bonds at face value, giving one the impression that they could contain any financial crisis. Monetary policy thus responded to the March 2023 crisis surge by “opening the money spigot” ever wider, as business media summed it up.[17]

The Interest Rate Screw and The Liquidity Bubble

But at the same time, central banks seem to be pursuing the exact opposite policy. To continue with the image above: Central bankers want to turn off the “money spigot” to fight inflation, and at the same time they need to turn it on to stabilize the financial sector. So far, both the U.S. Federal Reserve[18] and the European Central Bank[19] are sticking to their restrictive monetary policies, which consist mainly of raising key interest rates and shrinking central bank balance sheets. In the midst of the latest “bank quake,” on March 16, 2023, the ECB decided to raise its key interest rate to 3.5 percent. A few days later, on March 22,[20] the Fed raised the U.S. federal funds rate by 25 basis points to 5 percent.[21] After another round of rate hikes by central banks in May,[22] the key interest rate in the EU stood at 3.75 percent and in the U.S. at 5.25 percent. Following further increases in June and August, the key interest rate in the euro zone now stands at 4.25 percent,[23] while the Fed raised its key interest rate to 5.5 percent in July.[24]

The short-term billions in aid to the faltering financial sector in the spring of 2023 thus contrasts with the uninterrupted policy of high interest rates to fight inflation. Viewed in isolation, this anti-inflation policy appears to have been partially successful. In the eurozone, inflation, which was in double digits at the end of 2022, was brought down to 5.3 percent in July 2023.[25] In the United States, the official inflation rate was 3.2 percent in July 2023, down from 8.5 percent a year earlier.[26] Even if these official inflation figures are embellished, because wage earners from poor sections of the population in particular have to spend a larger share of their income on food, which is becoming particularly expensive, it must at least be noted that monetary policy has been successful in containing inflationary dynamics.

What’s more, monetary policymakers on both sides of the Atlantic are reaffirming their intention to continue shrinking their bloated central bank balance sheets. For context: The expansionary monetary policy of central banks that financial investor Jeremy Grantham lamented at the beginning of this article, which led to a “chain of financial bubbles” and ultimately to an “everything bubble,” has been accompanied by the massive purchase of financial market securities by central banks at least since the crisis hit in 2008. After the bursting of the great real estate bubble in the U.S. and Europe, the ECB, the Fed and the central banks of Great Britain and Japan initially bought up non-tradable mortgage securitizations in order to stabilize the paralyzed financial markets. After that, central banks increasingly bought up government debt to finance the gigantic government deficits and stimulus packages.

Governments supported the economy with massive stimulus packages, while the central banks bought up more and more government debt to keep interest rates low. With these purchasing programs, the central banks effectively became dumping grounds for the junk that burdened the financial sector. At the same time, the mass purchase of financial securities and government debt injected massive amounts of liquidity into the financial system. The whole thing resembles a money printing operation conducted via the financial markets. The basic principle is simple: The central banks pumped fresh liquidity into the financial markets through purchasing programs, which led to “inflation,” an increase in the prices of financial market goods – and created the liquidity bubble, the lamented “everything bubble” of recent years.

The concrete figures impressively reflect this long-term trend toward outright central bank capitalism.[27] Before the bursting of the great transatlantic real estate bubble, in early 2007, the balance sheets of the central banks of the U.S., the EU and Japan totaled just over three trillion dollars – by the end of 2008, they had already reached almost seven trillion dollars. By 2017, various purchase programs by these central banks had gradually swelled their balance sheets to a total of about $15 trillion. The pandemic triggered the next major wave of purchases – and, in effect, money printing – which catapulted the central bank balance sheets of the three aforementioned central states to a staggering $25 trillion.[28]

Dr. Jekyll and Mr. Hyde – Monetary Schizophrenia in the Crisis Trap

The world system, choking on the hyper-productivity of its commodity production, is increasingly running on credit through demand generated in the financial sphere. The money printing of the central banks plays an increasingly important role in the formation of corresponding speculation and credit bases. This has come to an end with the onset of worldwide inflationary dynamics.[29] Not only must interest rates be raised, but the central banks must also reduce their purchases of government and financial securities in order to at least curb inflation, thereby depriving the financial sphere of its most important “fuel” for the formation of ever new bubbles. The financial market turmoil in the spring of 2023, the banking crisis in the U.S., is precisely the consequence of the withdrawal of liquidity by the central banks.

Bourgeois monetary and economic policy is thus caught in a crisis trap: it would have to lower interest rates and continue printing money to support the economy and the unstable financial markets. At the same time, however, the central banks would have to raise interest rates and switch to a restrictive monetary policy in order to contain inflation – to the extent that this is possible at all through monetary policy alone.[30] In order to square this circle, at least to some extent, central banks seem to be resorting to a kind of monetary policy schizophrenia, in which the general tendency to reduce banks’ balance sheets turns into short episodes of expansionary monetary policy in times of crisis. The reduced purchases of government and financial securities by central banks[31] turn into the expansionary crisis policy of “whatever it takes” described above in the event of a crisis, with trillions being spent to stabilize the financial system.

The hope of monetary policy seems to be that the balance sheet totals of the central banks can be reduced in the longer term, despite the short-term interventions in the financial markets, which are, as it were, in withdrawal. This shift in monetary policy from the “sensible” Dr. Jekyll mode of fighting inflation to the wild Mr. Hyde mode, in which money is just being thrown around, is very well illustrated by the crisis surge of spring 2023 mentioned at the beginning of this article.[32] The Fed reduced its balance sheet from about $8.9 trillion in April 2022 to about $8.38 trillion in February 2023. When this liquidity withdrawal triggered the March 2023 banking quake, the Fed’s total assets shot up to $8.73 trillion (the monetary policy Mr. Hyde followed the motto of “whatever it takes”). The stabilization was successful – at least temporarily – and since then the Fed’s total assets have gradually fallen to $8.12 trillion.

So, after a few weeks of gigantic monetary expansion, the Fed has gone back to restrictive monetary policy, to Dr. Jekyll mode, as it were. And this is not just an American anomaly. The reduction in the balance sheet total, interrupted by episodes of expansionary monetary policy, has also been taking place at the ECB and, to a somewhat lesser extent, at the Bank of Japan since 2022,[33] with the result that the combined balance sheet of all three central banks has shrunk from around $25 trillion at the end of 2021 to around $21 trillion in August 2023. This calculation thus seems to be working – as long as the financial sphere is not shaken by another crisis surge, which would in turn make a money glut necessary.

Outlook: End of the Liquidity Bubble and Permanent Stagflation

The March 2023 banking quake thus marks a decisive turning point in the historical unfolding of the crisis, as the financial sphere is no longer in the liquidity bubble that emerged after the collapse of Lehman Brothers in the course of crisis management starting in 2009. The financial sphere has been dependent on central bank asset purchase programs since 2009, and this can be empirically verified. Since 2009, there has been a clear correlation between the rise in the S&P 500 index and the size of central bank balance sheets.[34] The stock boom, as part of the liquidity bubble, was fueled by central bank money printing during a long upward phase until a decoupling occurred in the spring of 2023: Central bank balance sheets shrank, while stock markets went through a recovery phase after the 2022 slumps, when the end of this expansionary monetary policy shook the financial sphere.

What drives the stock markets? A look at past speculative cycles can provide clues. For one thing, the current bull market is reminiscent of the dot-com bubble at the beginning of the 21st century, when the spread of the Internet was accompanied by hopes of a new regime of accumulation and by a speculative mania for high-tech stocks that collapsed in the second half of 2000. This time, it is speculation about breakthroughs in the development of artificial intelligence that is fueling a similar stock boom.[35] Moreover, high interest rates have an ambivalent effect – especially in the U.S., which, despite all the erosion processes, is still considered a safe haven for capital in times of crisis. High interest rates destabilize the over-indebted financial system, but they also lead to capital inflows that can partially counteract this. This is especially true for the U.S., which is currently engaged in a hegemonic struggle with China over the dollar’s position as the world’s money. Capital that was safely parked in the last crisis surge is now trying to make another quick buck in the big AI boom – before this bubble bursts, too.

Consequently, this speculation-driven stock boom cannot be sustained unless it is supported by renewed expansionary monetary policy, as was the case in the 12 years prior to the onset of inflation. The current renaissance of the stock markets, many of which have already reached their pre-crisis levels of late 2021, cannot be sustained without permanent support from monetary policy. Again, it is helpful to look at the history of the great liquidity bubble, where there were also periods when booming stock markets were decoupled from the phased stagnation of central bank balance sheet growth. This usually happened on the eve of a crisis surge, such as in 2019, shortly before the pandemic once again sent the overheated global financial house of cards into crisis mode. The current, fleeting stock market boom is also isolated; it is – at least in Europe – no longer part of a general liquidity bubble, the aforementioned “everything bubble.” The real estate markets in Germany and the UK are in crisis, and even in the U.S. the stagnating housing market is no longer driving the economy.[36]

The end of this short-term stock market boom will trigger the usual monetary policy reaction to crisis outlined above, which in turn will open the monetary floodgates of the central banks wide in order to prevent a meltdown of the world financial system. This contradictory compulsion of the crisis policy[37] of late capitalism results in a persistent tendency toward stagflation, i.e., severe currency devaluation in a stagnating economy.[38] Stagflation will become the “new normal” for the further unfolding of the crisis. Depending on the current crisis, and indeed on whether money is being printed or interest rates are being tightened, different moments of stagflation are likely to prevail: stagnation in phases of restrictive monetary policy, acceleration of inflation in the wake of expansionary monetary policy crisis measures.

Protectionism and Increasing Economic Divergences

Moreover, the new phase of the crisis will lead to an accelerated socioeconomic divergence even within the Western centers of the world system, caused by increasing protectionism. The United States is in the process of reorganizing its industrial base at the expense of its competitors through protectionist measures, especially in the context of its stimulus packages.[39] It is no longer just about punitive tariffs. In response to the pandemic, Biden passed the American Rescue Plan, a $1.9 trillion economic flash in the pan. This was followed by $52.7 billion in subsidies for the microchip industry (the CHIPS bill), and finally the $500 billion Inflation Reduction Act, which provides for investments in infrastructure and “green industries” – and is peppered with “Buy American” clauses, as the FAZ lamented.[40] And it is probably precisely such provisions that favor U.S. manufacturers in stimulus packages that have led to the doubling of industrial investment in the U.S. since 2021.[41]

The turn to state capitalism and protectionism in response to crisis episodes is not new. The crisis phase now underway is reminiscent of the 1930s, when the great crash of 1929 triggered a turn to state dirigisme, protectionism and nationalism in almost all metropolitan countries – with the familiar economic and political consequences. These historical lessons, which were still present in the reaction to the crisis surge of 2007/2008, have now been forgotten due to the increasing social contradictions. The global tower of debt created by means of deficit cycles is collapsing, which will intensify the competition between “locations.” The stimulus measures and investment policies of the Biden administration have been partially successful precisely because they have the protectionist component lamented by the EU – and because this protectionism has not yet been generalized.

The growing economic divergence between the resurgent U.S. and the faltering eurozone is due precisely to U.S. protectionism, to the Biden administration’s reindustrialization efforts, which are hitting the export-dependent German economy particularly hard. And they will inevitably lead to a corresponding response from the EU. U.S. protectionism may temporarily succeed in passing on the consequences of the crisis to the competition – that is, until the latter follows suit in terms of protectionism.

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[1] https://exitinenglish.com/2023/06/09/silicon-valley-bank-the-weakest-link/

[2] https://www.deraktionaer.de/artikel/fintech-versicherung-banken/jpmorgan-ceo-jamie-dimon-warnt-bankenkrise-noch-nicht-vorbei-20329741.html

[3] https://finance.yahoo.com/news/billionaire-investor-leon-cooperman-says-174658759.html

[4] https://www.tagesschau.de/wirtschaft/unternehmen/first-republic-100.html

[5] https://finance.yahoo.com/news/jeremy-grantham-warns-everything-bubble-114500878.html

[6] https://www.konicz.info/2019/01/28/die-urspruenge-der-krise/

[7] https://www.untergrund-blättle.ch/politik/europa/telepolis-kritik-ukraine-politik-7014.html

[8] See also: Der Linke Blodheitskoeffizient. https://www.konicz.info/2020/12/09/der-linke-bloedheitskoeffizient/

[9] https://exitinenglish.com/2022/08/12/a-new-quality-of-crisis/

[10] https://www.manager-magazin.de/unternehmen/banken/bankenkrise-fed-gibt-ueber-notfallprogramme-derzeit-mehr-geld-aus-als-nach-lehman-pleite-a-ef292d06-47de-40eb-b8ee-e5ebb999d2db

[11] https://www.manager-magazin.de/politik/europaeische-zentralbank-und-federal-reserve-drehen-geldhahn-noch-weiter-auf-a-0934cfea-a533-4a15-94af-cae56f563bcb

[12] https://www.cnbc.com/2023/03/23/banks-ramp-up-use-of-new-fed-facility-created-in-crisis.html

[13] https://www.brookings.edu/2023/03/22/what-did-the-fed-do-after-silicon-valley-bank-and-signature-bank-failed/

[14]  https://exitinenglish.com/2023/06/09/silicon-valley-bank-the-weakest-link/

[15] https://www.tagesschau.de/wirtschaft/weltwirtschaft/ezb-notenbanken-fed-liqiuiditaet-swap-dollar-euro-konzertierte-aktion-bankenkrise-ubs-credit-suisse-101.html

[16] https://www.konicz.info/2007/03/05/vor-dem-tsunami/

[17] https://www.manager-magazin.de/politik/europaeische-zentralbank-und-federal-reserve-drehen-geldhahn-noch-weiter-auf-a-0934cfea-a533-4a15-94af-cae56f563bcb

[18] https://tradingeconomics.com/united-states/interest-rate

[19] https://de.statista.com/statistik/daten/studie/201216/umfrage/ezb-zinssatz-fuer-das-hauptrefinanzierungsgeschaeft-seit-1999/

[20] https://www.dw.com/en/ecb-raises-interest-rates-by-05-as-banks-stocks-wobble/a-65003987

[21] https://www.cnbc.com/2023/03/22/fed-announces-interest-rate-hike-of-25-basis-points.html

[22] https://www.tagesschau.de/wirtschaft/finanzen/ezb-leitzinserhoehung-102.html https://eu.usatoday.com/story/money/2023/05/03/fed-interest-rate-hike-live-updates/70170191007

[23] https://de.statista.com/statistik/daten/studie/201216/umfrage/ezb-zinssatz-fuer-das-hauptrefinanzierungsgeschaeft-seit-1999/

[24] https://de.statista.com/statistik/daten/studie/419455/umfrage/leitzins-der-zentralbank-der-usa/

[25] https://de.statista.com/statistik/daten/studie/72328/umfrage/entwicklung-der-jaehrlichen-inflationsrate-in-der-eurozone/

[26] https://de.statista.com/statistik/daten/studie/191086/umfrage/monatliche-inflationsrate-in-den-usa/

[27] https://www.yardeni.com/pub/balsheetwk.pdf

[28] Yardeni Research, Inc: Central Banks:Fed, ECB & BOJ Weekly Balance Sheets, (Chart 1), https://www.yardeni.com/pub/balsheetwk.pdf

[29] https://www.konicz.info/2021/08/08/dreierlei-inflation/

[30] https://www.konicz.info/2021/08/08/dreierlei-inflation/

[31] To a certain extent, balance sheet reduction is a “passive” process: Central banks simply buy less new paper after the bonds on their balance sheets mature. No sovereign debt or mortgage securities are actively moved into the markets by the banks.

[32] https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm

[33] Yardeni Research, Inc: Central Banks: Fed, ECB & BOJ Weekly Balance Sheets, (Graphs 2 and 3), https://www.yardeni.com/pub/balsheetwk.pdf

[34] Yardeni Research, Inc: Central Banks: Fed, ECB & BOJ Weekly Balance Sheets, (charts 13, 14), https://www.yardeni.com/pub/balsheetwk.pdf

[35] https://www.theguardian.com/technology/2023/jul/23/artificial-intelligence-boom-generates-optimism-in-tech-sector-as-stocks-soar

[36] https://think.ing.com/articles/us-housing-market-in-gridlock-with-risks-emerging

[37] https://www.konicz.info/2011/08/15/politik-in-der-krisenfalle/

[38] https://znetwork.org/znetarticle/back-to-stagflation/

[39] https://www.konicz.info/2023/08/26/bidens-improvisierter-masterplan/

[40] https://www.faz.net/aktuell/wirtschaft/mehr-wirtschaft/usa-wie-biden-und-trump-sich-beim-protektionismus-einig-sind-18813444.html

[41] https://fred.stlouisfed.org/series/C307RC1Q027SBEA

Originally published in Ökumenisches Netz on 09/07/2023

Tomasz Konicz

After years of rising prices, apartments and houses are becoming cheaper again in many major cities. The reason is higher borrowing costs for investors and homeowners. But this is not necessarily good news for renters.

For a long time, real estate prices in many major German cities seemed to know only one direction: up. But the boom of recent years is over for the time being. In the first quarter of this year, prices for residential real estate fell by 6.8 percent compared with the same quarter a year earlier, according to the Federal Statistical Office; in the last quarter of 2022, the figure was 3.4 percent. This is the sharpest price decline in 23 years. By the end of June, inflation-adjusted prices are expected to be as much as 20 percent lower than in mid-2022, according to the German Real Estate Price Index (Greix) database.

Nevertheless, for many wage earners, the dream of owning a home will remain just that, a dream. Housing prices may be falling, but the cost of borrowing has risen sharply. In 2021, a ten-year mortgage could be obtained at one percent interest; by February 2023, the rate was already 3.6 percent. For people buying or building houses, this can mean additional costs of several hundred euros per month. According to the Bundesbank, the demand for real estate loans from private individuals fell by about half in April compared to the same month last year. Additionally, fewer homes are being built because, in addition to loans, building materials have also become more expensive. According to the Ifo Institute at the University of Munich, only 275,000 new homes will be built this year, 234,000 next year and a mere 200,000 in 2025.

Higher borrowing costs are a consequence of the European Central Bank’s (ECB) monetary policy. To fight inflation, it has now raised the key interest rate in the eurozone, where de facto negative interest rates still prevailed until 2021, to four percent. Eurozone inflation fell to 5.5 percent in June, according to Eurostat, the EU’s statistics office, but core inflation, which excludes volatile energy and food prices, rose slightly to 5.4 percent. Given this stubborn inflation, a quick return to lower interest rates seems unlikely.

The development of real estate prices in Germany varies greatly from region to region. In many economically weak regions, especially in parts of eastern Germany where the population is shrinking, real estate prices have been falling for some time. What is new is that, for the first time in many years, prices are also falling in the booming metropolitan regions, where investors and homeowners have benefited for years from sharply rising prices and where rents have also become increasingly expensive. According to the economists who compile the so-called Greix Index for real estate, Berlin has seen the highest increases in value for apartment owners since 2000, with cumulative inflation-adjusted gains of 160 percent, followed by Munich and Frankfurt. In the mid-2000s, a square meter in downtown Berlin cost 1700 euros. Now, the same area – in the same part of town – costs an average of 7600 euros. In general, the price differences between popular and less popular districts have also increased dramatically. Some districts have seen particularly dramatic increases in value, such as Hamburg-Eppendorf (240 percent since 2000) and Berlin-Kreuzberg (more than 180 percent). That’s over for now: even in Hamburg, Berlin, and Frankfurt, the value of so-called concrete gold is falling. But rents are not following suit. In the second half of 2022, asking rents in the major cities of Berlin, Düsseldorf, Hamburg, Munich, Leipzig, Cologne, Frankfurt and Stuttgart rose by an average of 6.3 percent.

The Bundesbank warned as early as the beginning of 2022 that real estate in major German cities was overvalued by up to 40 percent. Two main factors contributed to this: The German economic model, based on export surpluses, ensured a good economy by international standards – at the expense of deficit countries – while the weakness of the euro meant that the Federal Republic was seen as a “safe haven,” attracting foreign capital that was invested in, among other things, real estate in major cities. And the years of expansionary monetary policy pursued by the central banks of the U.S. and the EU created a liquidity bubble that drove up the prices not only of real estate, but also of stocks and securities worldwide – right up to the absurd speculation in virtual currencies such as bitcoin.

Both factors are no longer present. The period of very high German export surpluses had already come to an end in 2020 due to the Covid-19 pandemic and rising protectionism. Since Russia’s attack on Ukraine, higher energy prices have also weighed on the German trade balance. And persistent inflation, fed by multiple sources, has forced central banks to raise key interest rates, causing financial difficulties for some banks, especially in the U.S., exacerbating the debt crisis in poor countries, and putting pressure on real estate markets.

The higher interest rates are not only a burden on the business of investors who want to generate returns by renting out apartments, but also on anyone who finances their own apartment or house with a long-term loan. If more and more borrowers default on their debts, prices will continue to fall and the lending banks will suffer losses, turning the bursting of a real estate bubble into an economic crisis, especially as declining construction activity also weakens the economy.

However, many market analysts continue to believe that the decline in housing prices is a temporary phenomenon and that it will not lead to a full-blown crisis and recession – at least if there are no further sharp increases in key interest rates. In Germany, it is common to take out long-term fixed-rate mortgages. Many people who took out their loans in recent years will therefore continue to pay the favorable interest rates of the past for years to come.

However, for the first time in three years, there was a significant increase in foreclosures in the first half of 2023. Between January and the end of June, properties across Germany with a total sales value of €1.96 billion went under the hammer, compared to just €1.66 billion in foreclosures in the same period last year.

In the UK, on the other hand, where lending rates are adjusted to the key interest rate more quickly than in Germany, an economic crisis emanating from the real estate sector is already brewing: With annual inflation at more than eight percent in May, the Bank of England raised the key interest rate to five percent, while a third of the 28 million British households have to pay off real estate loans. According to the renowned British economic research institute NIESR, 1.2 million households will have exhausted their financial reserves by the end of the year as a result of soaring borrowing costs. However, falling real estate prices in the UK are also accompanied by a continued rise in rents, as many landlords pass on higher borrowing costs to their tenants.

Originally published in jungle world on 07/06/23

The BRICS countries want to create their own currency to end the hegemony of the U.S. dollar. China holds a dominant position in the alliance.

Tomasz Konicz

In August, after several more or less concrete announcements since 2012, the time has finally come: At its upcoming summit in South Africa, the expanding group of BRICS countries wants to concretize plans to create its own currency in order to openly challenge the global hegemony of the U.S. dollar.

Founded in 2009, the alliance of the (then) emerging economies Brazil, Russia, India, China and South Africa, which takes its name from their initials, also plans to discuss admitting more countries to the loose alliance. There are now 19 applications for membership, including from regional powers such as Egypt, Saudi Arabia, Indonesia, Iran, Argentina, Thailand and Venezuela.

It seems within reach that this alliance will achieve its strategic goal of breaking the hegemony of the West and the U.S. and establishing a so-called multipolar world order. A first step in the direction of de-dollarization is to be taken by the agreements of individual BRICS countries to use their domestic currencies in trade with each other.

At first glance, a replacement of the U.S. dollar as the world’s reserve currency seems quite realistic, given that the over-indebted U.S. has been in geopolitical and economic decline for years, while the BRICS alliance is on the rise. On the surface, the numbers speak for themselves: The share of the G7 countries (the U.S., Germany, Japan, France, Great Britain, Italy and Canada) in global gross national product has fallen from 50 percent in the early 1980s to 30 percent today, while the BRICS countries have increased their economic output from around 10 percent to 31.5 percent of global economic output over the same period. Thus, even before the upcoming enlargement, the ambitious alliance already has a larger production base than the Western states.

However, this rise is largely due to China; thus, the disparities and imbalances in the potential new currency bloc would be enormous. Between 2008 and 2021, China’s per capita gross domestic product increased by 138 percent. In India, the figure was 85 percent, while Russia saw only a modest increase of 14 percent. Brazil effectively stagnated with a meager increase of four percent, and in South Africa, GDP fell by five percent.

China now accounts for 70 percent of the gross national income of the BRICS countries, while Russia’s per capita income is five times that of India. These huge disparities make even the notorious imbalances in the eurozone, as exposed during the euro crisis, pale in comparison. Moreover, the BRICS grouping has so far had a very loose structure, hardly comparable to the results of the long process of institution-building and standardization that preceded the introduction of the euro in the EU. The alliance has no executive or legislative branch; it has not even established a central secretariat.

The alliance is also marked by a strong ambivalence. It was founded with the intention of ending the hegemony of the West and the imperial practices of the hegemonic power, the U.S. Attacking the U.S. dollar as the world’s reserve currency is a central project within this strategy. But at the same time, the BRICS countries are not striving for a fundamental change in world trade, they are ultimately only seeking to inherit the West and the U.S. within the framework of the world capitalist system – and to fall into the same imperialist practices that the U.S. is accused of. This is evident not only in Russia’s imperialist war in Ukraine, but also in the conflicts within the alliance: China and India, for example, are often on the brink of war in the Himalayas over border disputes.

But the common economic interests are at least as strong as the centrifugal forces outlined above. It is not just a matter of intensifying trade relations and geopolitical cooperation in order to reduce dependence on the Western centers. The BRICS states are not only striving to create their own currency, but also their own development bank based in China. This is because the semi-peripheral states have to operate in a late capitalist world system whose structures and institutions are Western-dominated, from the leading role of the dollar to Western supremacy in the World Bank and International Monetary Fund.

What this Western supremacy leads to is illustrated by the central banks’ fight against inflation in the centers, which is leading to outright economic collapses in many poorer countries. As a result of the U.S. Federal Reserve’s interest rate hikes, a quarter of all emerging and developing countries “have effectively lost access to international bond markets,” the Financial Times warned in mid-June. The World Bank’s growth forecast for this group of countries with particularly poor access to credit was cut from 3.2 to 0.9 percent.

This credit crunch, triggered by the fight against inflation in Western countries, is an important factor in the huge rush to join the BRICS group. Many crisis-ridden countries, such as Argentina and Venezuela, which are currently seeking membership, are simply hoping to tap alternative sources of financing – especially from China. In the future, not only will trade between these countries be conducted in the future BRICS currency, but it will also become the foundation of a new financial system geared to the interests of the semi-periphery.

This all sounds great in theory. But in practice, the emerging economies will find themselves similarly financially dependent on China, which, by creating a BRICS currency and an alternative financial system, will also seek to create alternative investment opportunities to reduce its vulnerability to U.S. sanctions. The potential BRICS currency would thus only be conceivable as a monetary vehicle for a hypothetical national hegemony, like the U.S. dollar.

Still, 60 percent of the world’s foreign exchange reserves are in dollars, down only slightly from an all-time high of 70 percent at the beginning of the 21st century. Some 74 percent of international trade, 90 percent of currency transactions, and nearly 100 percent of oil trade is conducted in U.S. dollars. To take the lead, China would ultimately have to bear the hegemonic costs inevitably incurred in a crisis-ridden late capitalism choking on its productivity: Chinese trade surpluses would have to be reduced and turned into deficits, while the Chinese financial market would have to be opened up.

Since the 1980s, the dollar’s hegemony has been based in economic terms precisely on global deficit cycles, in which enormous U.S. trade deficits generate credit-financed demand, while the U.S. financial market absorbs the resulting profits in the form of securities. China still holds huge amounts of U.S. securities and was for a time the United States’ largest creditor.

China would have to become a “black hole” of the world economy, like the U.S., whose gravitational pull sucks up, by means of trade imbalance and budget deficits, the surplus production of a late capitalist world economy choking on its hyperproductivity – at the cost of deindustrialization and destabilizing speculative bubbles. And this is hardly conceivable, given that the Chinese financial sector has already been and is being shattered by severe financial and debt crises. A new world reserve currency does nothing to change the causes of the economic and ecological crisis process, in which capital is coming up against its internal and external limits.

This is also illustrated by the current trade relations between Russia and India, where the U.S. dollar has been eliminated as a payment currency. After the outbreak of the war in Ukraine, Russia became by far the largest supplier of oil to India, which is running a large trade deficit. In the first eleven months after the outbreak of the war, Russian exports to India amounted to $41.5 billion, while Indian exports to Russia reached only $2.8 billion.

In fact, this is a classic beggar thy neighbor policy, as practiced by the long-time “world export champion” Germany: By running a trade surplus, they also export debt, deindustrialization and unemployment. The difference is that Russian banks and oil companies currently have to park their trillions of rupees in Indian bank accounts because there is no way to transfer or reinvest the money.

Originally posted in jungle world on 06/22/2023

More and more countries in Latin America, Africa and Asia are over-indebted or even facing bankruptcy. As a lender, China is also affected by this crisis and has had to grant emergency loans to protect its own banks from payment defaults.

Tomasz Konicz

The interest rate hikes by Western central banks to combat stubborn inflation – the key rate is now 5 to 5.25 percent in the U.S., and 3.75 percent in the euro zone – have already led to the collapse of three regional banks in the U.S. and are dampening economic growth on both sides of the Atlantic. But this turbulence is nothing compared to the shocks facing many economically weaker countries. As it becomes more and more expensive to take out new loans, they are finding it increasingly difficult to service their foreign debts, most of which are denominated in U.S. dollars.

Particularly in Africa, Asia, Latin America and the Middle East, more and more countries are finding themselves in a classic debt trap, in which economic stagnation, recession and rising borrowing costs fatally interact. The situation has already been compared to the “Volcker shock” of 1979, when the then chairman of the U.S. Federal Reserve, Paul Volcker, raised key interest rates in the U.S. to over 20 percent at times to combat many years of stagflation, triggering a debt crisis particularly in countries in South America and Africa.

In mid-April, the Financial Times, citing a study by the NGO Debt Justice, reported that the foreign debt service of a group of 91 of the world’s poorest countries would consume an average of 16 percent of their government revenues this year, with that figure expected to rise to 17 percent next year. The last time a similar figure was reached was in 1998. The hardest hit, according to the report, is Sri Lanka, whose debt service this year is equivalent to about 75 percent of projected revenues, leading the Financial Times to expect the island nation to “default on payments” this year.

Zambia, which, like Sri Lanka, went through a sovereign default last year, is also in acute danger. The situation is similarly dire in Pakistan, where 47 percent of government revenues will have to be used to service foreign loans this year. The consequences for the people of these and many other countries are already dramatic: Governments are no longer able to pay salaries, for example, or finance imports of energy or food, and the fall in the value of their currencies is exacerbating inflation, poverty and hunger.

But it is not just the poorest countries that are threatened. In Argentina, for example, where the central bank is printing money to finance the budget deficit, inflation has reached 109 percent and threatens to turn into devastating hyperinflation. Like many other states in crisis, Argentina has signed an emergency program with the International Monetary Fund (IMF) that includes $44 billion in loans in exchange for austerity measures. In mid-May, Argentine President Alberto Fernández called for renegotiations with the IMF in light of a drought-induced crop failure for wheat, Argentina’s most important export. Vice President Cristina Fernández de Kirchner called the agreement “scandalous” and a “fraud.”

China, which has become one of the world’s largest lenders in recent years, plays a special role in the current debt crisis. Under the global development program of the Belt and Road Initiative alone, also known as the “New Silk Road,” at least $838 billion in loans and transactions had been made by the end of 2021, mostly to finance infrastructure and other major projects in Africa, Asia and Latin America. Most of the loans were made by Chinese banks. China wanted to lay the foundation for future economic hegemony.

But since then – after the Covid 19 pandemic and the Russian invasion of Ukraine, the global surge in inflation and a slowdown of growth in China itself – Chinese banks have become more reluctant to lend to poorer countries. According to a study by the Rhodium Group, as early as 2021, about 16 percent of loans made abroad from China, worth about $118 billion, were at risk of default and would have had to be renegotiated.

Just one year later, the Chinese foreign debt crisis had already expanded considerably, according to a study by the Kiel Institute for the World Economy (IfW). According to the study, 60 percent of loans were already at risk of default in 2022, prompting Beijing to grant 128 emergency loans totaling $240 billion to 22 debtor countries. In most cases, the debtor countries are only granted a deferral by issuing new loans to repay due payments, which allows for an “extension of maturities or payment terms”; a cancellation of debts occurs “only extremely rarely,” according to the IfW.

Most of these refinancing loans were granted by the Chinese central bank, which effectively rescues the Chinese banks that originally granted the loans. The authors of the IfW study therefore compared China’s current actions to the granting of so-called rescue loans to Greece and other southern European countries during the euro crisis, which also involved rescuing banks that were threatened with default.

Crisis and bridging loans flow mainly to “middle-income countries” because they account for 80 percent of China’s foreign credit volume and thus represent “major balance sheet risks for Chinese banks,” according to the IfW. Low-income countries, on the other hand, have received very little in the way of crisis loans, as their sovereign bankruptcies would be unlikely to jeopardize the Chinese banking sector. Moreover, the average interest rate on Chinese crisis loans is said to be five percent; the IMF standard is two percent. Debtor countries that have received crisis loans include countries such as Sri Lanka, Pakistan, Argentina, Egypt, Turkey and Venezuela.

The IfW also noted that for a large part of the rescue loans, the modalities and scope of the loan programs are not publicly available. As a result, “the international financial architecture is becoming more multipolar, less institutionalized and less transparent.” This lack of transparency also affects loans previously made by Chinese banks, they said. In a recent in-depth report on the debt crisis, the Associated Press (AP) news agency cited findings from a study by the research group Aid Data that found at least $385 billion in Chinese loans in 88 countries through 2021 alone that were “hidden or inadequately documented.”

Many of the poorest countries in Africa or Asia readily accessed Chinese money at the height of the global liquidity bubble between 2010 and 2020, using it to finance infrastructure and prestige projects that are increasingly turning into investment ruins during the current crisis surge. For these countries, secrecy is now a serious problem because, in the event of default, the affected country’s international creditors will have to agree on who will defer loans or waive repayments, and to what extent. However, Western lenders and institutions such as the IMF or the World Bank are currently refusing emergency programs in many cases because the modalities of China’s loan programs are unclear and they cannot reach an agreement with China. Some poor countries are therefore in a “state of limbo,” writes AP, because China is unwilling to accept losses, while the IMF refuses to grant low-interest loans if they are only used to pay off Chinese debts.

The lenders’ negotiations are further complicated by the intensifying global political competition between Western countries and China. The increasing fragmentation of the global economy makes it “more difficult to resolve sovereign debt crises, especially when there are geopolitical divisions among major sovereign lenders,” IMF Managing Director Kristalina Georgieva warned in January.

Western countries, meanwhile, are hoping to use China’s foreign debt crisis to roll back the influence China has built up through its lending in many regions of the world. EU Commission President Ursula von der Leyen said in May that there was now an “opportune moment” for the G7 countries and their partners after “many countries in the Global South have had bad experiences with China” and found themselves in “debt crises,” while Russia had only “mercenaries and weapons” to offer. If the West acted quickly, she said, it could form mutually beneficial partnerships with these countries. Companies and banks could be involved in developing “comprehensive packages” that would also shift parts of production chains to developing countries. She said the EU wants to promote “not only the extraction of raw materials, but also their local processing and refinement.” Von der Leyen is thus speculating with a bad memory of her potential “partners” in the Global South, who have already had painful experiences with Western credit programs since the 1970s.

Originally published in jungle world on 06/01/2023