ISSN: 2690-0688 Research Article
Journal of Humanities & Social Sciences
The Financial Collapse of Capitalism Richard M Blaber* *
Corresponding Author
Richard M Blaber
Submitted: 2023, Dec 21; Accepted:2024, Jan 22: Published: 2024, Feb 23
Citation: Blaber, R. M. (2024). The Financial Collapse of Capitalism. J Huma Soci Scie, 7(2), 01-09. Abstract This paper will argue that the current level of international debt is a huge ‘bubble’ waiting to burst, and that, if and when it does so, the entire financial structure of global capitalism will collapse, taking capitalism, as such, with it. The mechanism of this collapse, if it occurs, will be a collapse of the international banking system, and complete loss of confidence on the exchange markets in any form of reserve currency – either the US dollar or any putative replacement for it.
Keywords: Global Capitalism, Global GDP, Global Debt, Global Debt/GDP Ratio, International Banking System, Exchange Markets, Reserve Currency, US Dollar, Inflation, Financial Collapse.
1. Introduction In 2022, global GDP amounted to ~$100.22 trillion at current prices, and is expected to be ~$105.59 trillion in 2023, same basis (O’Neill, 2023 [1]). At the same time, global debt, comprising personal, corporate (including financial sector) and government/ public debt rose by $10 trillion to $307 trillion, according to the Institute of International Finance (IIF, 2023 [2]). The $10 trillion increase was in the first half of 2023, and global debt rose by $100 trillion over the past decade (Campos, 2023 [3]). The global debt to GDP ratio, assuming no increase in debt for the rest of this year (an unlikely assumption, in fact), is thus 290.747%. Given the mid-year world population of ~8 billion recorded by the US Census Bureau (2023 [4]), every human on the planet is in debt to the tune of $38,375 – even those 719 million of us who were living in extreme poverty in 2020, according to the World Bank (2022, p.3 [p.31, pdf.] [5]). The national debt of the United States, in September 2023, amounted to over $33.167 trillion (Statista Research Department, 2023 [6]). Household debt in the US in the third quarter of 2023 was $17.29 trillion (Federal Reserve Bank of New York, 2023 [7]); and non- financial business debt (second quarter 2023) was $20.3 trillion (US Federal Reserve, 2023 [8]). Combined, these totals, theoretically at least, $70.757 trillion, or 23.048% of the total global debt. The US national debt alone constitutes about 10.8% of it2. The question is, ‘Can this level of indebtedness be sustained for J Huma Soci Scie, 2024
very long without severe risk of global economic collapse?’ This paper shall answer ‘No,’ and will argue that immediate action must be taken at international level to reduce the level of global debt by the wealthy nations, acting in concert to do so, or they will jeopardise the basis of their own wealth and power. 2. Debt and Inflation at National Level If any national Government finds itself severely in debt, and that debt is denominated, for the most part at any rate, in the country’s national currency, given that that currency is a fiat currency, and is not directly convertible into some fixed quantity of a precious metal such as gold, and that national Government is able to control its monetary as well as its fiscal policy3, then all that Government has to do is increase the money supply4, thus lowering interest rates, because the price of any commodity falls if the supply of it exceeds the demand for it, devaluing the currency on the exchange markets, for the same reason, and hence raising the prices of imported raw materials, capital and consumer goods. Businesses are as appreciative of low interest rates as governments are, because they reduce their borrowing costs, just as they do those of governments, but are reluctant to pass those reduced costs onto their customers, preferring instead to increase their profits. The prices of domestically produced capital and consumer goods will follow suit, but these price-inflationary effects will be a sideeffect of the reduction in interest rates and of the exchange rates of the currency, intended to diminish the monetary cost of the national Volume 7 | Issue 2 | 1