A huge financial crisis is looming. If we don’t act quickly, it will probably occur in the summer of 2023. And if, due to the general postponement, it is delayed, it will only be more severe later. We still have what it takes to truly overcome it, as long as we understand that our entire development model is at stake.
The situation in the world today rests solely on the strength of the dollar, which in itself is legitimized by the economic, military and political power of the USA, which remains the leading haven for capital in the world. However, they are now threatened by a very serious budgetary, financial, climatic and political crisis.
The US national debt has reached 120% of GDP, without taking into account the guarantees that the federal administration gives to the various pension systems of federal employees or the necessary financing of future climate catastrophes. As of mid-January 2023, the US Treasury has reached its borrowing limit ($31.4 trillion); the salaries of civil servants and the army are only paid on an expedient basis (which, according to the finance minister, cannot be extended beyond the beginning of July 2023). Republicans, who control the House of Representatives, are preparing to propose what the White House has already condemned as “devastating cuts that will weaken national security while burdening working and middle-class families.” And the Democrats’ plan to reduce the deficit over 10 years by massively raising taxes on the wealthiest people is unlikely to pass Congress. Americans could once again get away with another increase in the debt ceiling that no one wants. And that won’t solve anything.
Private debt isn’t in any better shape: it’s $16.9 trillion, or $2.75 trillion more than it was before the Covid-19 crisis; or $58,000 per American adult; or 89% of the disposable income of American households. A large part of them finance consumer spending and home purchases; in particular, housing debt stands at 44% of US household disposable income, the highest level on record, higher than in 2007, when it triggered the previous crisis. And the poorest Americans continue to borrow from the Federal Housing Administration to buy homes with personal contributions limited to 5%, but with monthly payments that can reach 50% of their income! An unstable system. 13% of these loans are already defaulted and this ratio is increasing day by day; moreover, the rise in interest rates will increase the pressure on those poor borrowers who have been defrauded by the lenders. Along with this, the debt of construction contractors is also reaching unprecedented levels; 1.5 trillion in commercial real estate loans must be paid off or refinanced before the end of 2025 at rates far higher than current loans. And all this with the help of banks that have been greatly weakened by recent events and that will not be able to participate in these refinancings.
In addition, there is a revolutionary situation in which no one can rule out a constitutional crisis, which, according to some, could even lead to the secession of some states.
The rest of the world would suffer terribly from such a crisis; Europe, itself horribly indebted, would fall into recession, losing export markets without being able to absorb domestic demand. The same applies to China. Only Russia, which has nothing to lose, could gain anything; and will likely contribute to this through cyberattacks, as it probably did a month ago when the California banks were attacked.
The IMF’s report to its annual meeting last week was clear on this point, although it was extremely discreet about the systemic financial risks eating away at the economy of its main US shareholder.
Too few pundits are already whispering that a major financial crisis will be triggered in the second half of August, like many others before: as in 1857, 1971, 1982 and 1993. But in which year? Maybe in August 2023.
There are four solutions: radical economies, in the same mode of development, (which will only create misery and violence); fiscal and monetary stimulus (which will only delay the deadline); war (which will lead to the worst before perhaps opening up opportunities for the few survivors). Finally, a radical reorientation of the world economy towards a new way of developing, with a completely different attitude towards consumer goods and home ownership, which will reduce both debt and the climate footprint.
Of course, nothing is prepared for its implementation; and if it is ever done, it will probably not be at the scene of the yet entirely preventable catastrophe, but after it has occurred.
(From BGNES)
2023-05-01 13:16:22
#huge #financial #crisis #looming #August
