Another breathless fortnight, another looming crisis averted.
It seems best to say averted, rather than solved. The massive Greek public debt is still there and will continue to grow. The new agreement promises to slow its growth by raising taxes, laying off government workers, reducing state salaries, and cutting pension benefits, among other actions. More loans from EU creditor countries and the IMF, a stand-in for the rest of Greeks international creditors, now guarantee the accumulated Greek government debt, much of which is held by European banks and the European Central Bank. The EU-IMF mission of mercy is thus an object lesson in collective self-interest, for the loans enable Greece to pay back the European banks, especially in Germany and France, that stood to lose billions without the new loans. European and world capital invested in Greece is saved, and its security enhanced. Rather than the debts endangering the finances of European and other world banks, the loans now return to the asset side of their ledgers, if not once more as silk purses, surely no longer as sow’s ears. And the assets actually multiply!
As yet another act in the world economic drama concludes, and another troop of actors prepares to take the stage, the basic point of the play is being lost. As speculative manias overtake other countries and/or other assets, and as instances of fecklessness and fraud feed the public demand for vengeance, we are overlooking the fact that we are living through the most massive redistribution of wealth rich societies such as ours have seen since the Gilded Age at the end of the 19th Century. The massive debts of private capital are being socialized. States are taking on society’s debts at a rate not seen since the Second World War. They are creating public debt to pay off or at least absorb the debts arising from asset crashes, bank and brokerage failures and near-failures, and massive unemployment triggered by recession. Banks and other financial institutions could not carry their own debt, so now the government is carrying it for them, either directly or by providing them with new credit at no cost with which they can become profitable again. The banks and other brokerage institutions have effectively cleaned up their balance sheets with newly created public debt, while the U.S. and European central banks have laundered their bad debts.
We are talking about a whopping lot of debt. According to the IMF’s April Global Financial Stability Report, the seven largest Western capitalist economies and Japan (the so-called G7) now hold a public debt equal to between 110 and 120% of their combined gross domestic product. The world’s public debt is about 50% of the world’s gross product. Given the size of the G7s’ economies, their public debt constitutes a huge financial commitment for which their taxpayers now are directly responsible.
This extraordinary shift of debt from corporate capitalism to nation-states has not attracted the attention it deserves. It is unlikely that the United States will find itself in a debt-driven crisis of the magnitude proportionately that afflicts Greece now, but the transformation of US finance capital’s private debts into US public debt has created a crushing burden for American citizens for generations to come. And the wealthy, once more, will likely come out of the crisis unscathed, unlike the rest of us.
As we have seen in Greece, the fiscal crises of the states swept into the economic downturn and the public debt upturn will trigger political struggle at levels we have not witnessed in over a quarter century. The political legitimacy of many states will be directly threatened. As we have seen thus far in the United States, the organized opposition fueled by anger and resentment, and often sense of betrayal that citizens express is already coming from the right. This trend will likely strengthen, as the fiscal crises of the states seem unlikely to abate and the lefts throughout Europe, Japan, and the United States are very weak.