In June 2019, the Bank for International Settlements (BIS), the world’s central bank, published its Annual Economic Report. This began with the statement: ‘It was perhaps too good to be true’ — the ‘it’ being the recovery from the 2007-2009 Global Financial Crisis. Describing financial markets as ‘jittery’, the report warned investors about the social and political backlash against what it called the ‘open international economic order’, which the BIS predicted would continue to cast a ‘long if unpredictable shadow’ over the global economy:
From a historical perspective, it is not unusual to see such surges of sentiment in the wake of major economic shockwaves: the Great Depression marked the end of the previous globalisation era. It is too early to tell how this surge will evolve; but it will clearly be a force to contend with in the years to come.
What the BIS was describing here are not only the classic symptoms of a financial crisis produced by the internal contradictions of capitalist accumulation — according to which, as the wages of workers are deflated so too is the purchasing power of consumers, threatening the profits of capitalists and resulting in an inflated credit bubble — but also the threat of the social unrest they cause in the body politic. As the bank of highest appeal on monetary policy, the BIS is more than aware of the threat this presents to the global financial system. The following month, accordingly, in July 2019, the BIS called for ‘unconventional policy’ in order to ‘insulate the real economy’ from further deterioration in conditions, specifically advocating that, by offering direct credit to the economy, central banks could ‘replace commercial banks in providing loans’.
By August 2019, the global debt-to-Gross Domestic Product ratio had risen to an all-time high of 322 per cent, with total debt reaching close to $253 trillion. Germany, Italy and Japan were on the verge of a recession, and the economies of the UK and China were contracting. That same month, BlackRock, the largest investment fund in the world with $6.5 trillion in assets under management at the time (and since then risen to $10 trillion), published a white paper titled ‘Dealing with the next downturn’. This instructed the Federal Reserve, the central banking system of the USA, to inject liquidity directly into the financial system, in order to prevent a dramatic downturn in the economy it predicted would be even worse than that of the Global Financial Crisis of 2007-2009.
BlackRock argued that, since monetary policy (interest rates on loans and the amount of money in circulation) was exhausted, and fiscal policy (government taxation and spending) would not be sufficient to reverse such a crisis, what was needed was an ‘unprecedented response’. It therefore recommended ‘going direct’. This meant ‘finding ways to get central bank money directly into the hands of public and private-sector spenders’ while avoiding hyperinflation. Significantly, as an example of the dangers of the latter, BlackRock cited the Weimar Republic in the early 1920s, at precisely the time when fascism took root in both Germany and Italy. Later that month, in August 2019, central bankers from the G7 nations (the USA, the UK, Germany, France, Italy, Japan and Canada) met to discuss and approve BlackRock’s ‘unconventional’ proposals....<<<Read More>>>....