Global debt hits $164 trillion

By BARRY WEISLEDER

The world’s debt load has ballooned to a record $164 trillion, a trend that could make it harder for countries to cope with the next capitalist recession and pay off debts if financing conditions tighten, the International Monetary Fund said in April. Global public and private debt swelled to 225 per cent of global gross domestic product in 2016, the latest year for IMF figures, according to its semi-annual Fiscal Monitor report.  The previous debt peak was in 2009.

The IMF is an international body based in Washington, D.C. of 189 countries. It claims to be “working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.”  But its behaviour tells a different story.

Formed in 1945 at the Bretton Woods Conference in line with the ideas of Harry Dexter White and John Maynard Keynes, it started with 29 member countries and the goal of reconstructing the international payment system. It now plays a central role in the management of balance of payments difficulties and international financial crises. Countries contribute funds to a pool through a quota system from which countries experiencing balance of payments problems can borrow money to buy essentials and meet payroll. As of 2016, the fund had about $668 billion.

But in order to borrow from that fund, “conditionalities” must be met. The latter often require severe cuts to social expenditures and public sector employment, plus major concessions to private capital, especially to foreign investors operating in poor and less developed economies.

The IMF forecast expansion of 3.9 per cent in 2018 and 2019, while saying that in subsequent years the global economy could be impacted by tighter monetary policy and the shrinking effects of U.S. spending.

Surging private-sector debt, particularly in China, is driving the buildup. China is responsible for almost three-quarters of the increase in private debt since the financial crisis, according to the IMF. Its report reveals the debt hangover from which the capitalist world is still recovering—a decade after the global banking system went to the brink, triggering a deep recession. Governments increased spending to boost growth, while central banks resorted to unconventional methods to ease financial conditions, such as buying bonds, in effect, printing huge sums of money.

Now the focus is on “recalibrating” fiscal policy to reduce debt-to-GDP levels. Welcome to the austerity agenda—social cutbacks, precarious work, no benefits, de-regulation of the natural environment and privatization of public assets. Why? Make the working class and the impoverished pay for the irrational, violent, and wasteful capitalist order.

Those at the top of the income pyramid will do better, while the “hollowing out” of the so-called middle class continues apace. Liberals pledge to help the squeezed “middle.” Right-wing populists talk about opposing the elites, but they follow their policies aggressively. The challenge to the left is to fight austerity and, at the same time, to target the system that fosters it.