Banking crisis: is it all over?

Bank stock prices have stabilized at the start of this week.  And all the key officials at the Federal Reserve, the US Treasury and the European Central Bank are reassuring investors that the crisis is over.  Last week, Fed Chair Jerome Powell called the U.S. banking system “strong and resilient” and there was no risk of a banking meltdown as in 2008-9.  US treasury secretary Janet Yellen said that the US banking sector was “stabilizing”.  The US banking system was strong.  Over the pond, ECB president Lagarde has repeatedly told investors and analysts that there was “no trade-off” between fighting inflation by raising interest rates and preserving financial stability. 

So all is well, or at least soon will be, given the massive liquidity support that the Fed and other US government lending bodies are offering.  Also the stronger banks have stepped in to buy up the collapsing banks (SVB or Credit Suisse) or plough cash into failing ones (First Republic).

So is it all over?  Well, it ain’t over til it’s over.  The latest Fed data from show that US banks lost $100bn in deposits in one week.  Since the crisis started three weeks ago, while the large US banks have added $67bn, the small banks have lost $120bn and foreign-owned banks $45bn.

To cover these outflows and to prepare for more, US banks have borrowed $475bn from the Fed; split evenly between large and small banks, although relative to their size, small banks borrowed twice as much as the large ones.

The weakest banks in the US have been losing deposits for over two years to the stronger banks, but $500 billion has been withdrawn since the collapse of SVB on 10 March and $600bn since the Fed started raising interest rates. That’s a record.

Where are all these deposits going?  Half of the $500bn in the last three weeks has gone into the bigger, stronger banks and half into money market funds.  What is happening is that depositors (mainly rich individuals and small companies) are panicking that their bank might go bust like SVB and so are switching to ‘safer’ big banks.  And also depositors see that, with rising interest rates across the board driven by central banks raising rates to ‘fight inflation’, there are better savings rates to be found in money market funds.

What are money market funds?  These are not banks but financial institutions that offer a better rate than banks.  How do they do this?  They offer no banking services at all; MMFs are just investment vehicles that pay higher rates on cash.  They can do this by in turn buying very short-term bonds like Treasury bills that offer just a slightly higher rate of return.  Thus, the MMFs make a small interest gain but with huge amounts.  More than $286bn has flooded into money market funds so far in March, making it the biggest month of inflows since the depths of the Covid-19 crisis. While that is not a massive shift relative to the size of the US banking system (it is less than 2% of the $17.5tn of bank deposits) it shows that nerves remain on edge.

And let’s remind ourselves how this all started.  It started out with Silicon Valley Bank (SVB) closing its doors.  Then the cryptocurrency Signature Bank.  Then another bank First Republic had to be bailed out by a batch of large banks.  Then over in Europe, Credit Suisse bank collapsed in less than 48 hours.

The immediate cause of these recent bank failures, as always, was a loss of liquidity.  What do we mean by that? Depositors at the SVB, First Republic and Signature started to withdraw their cash big time, and these banks did not have the liquid cash to meet depositor demands.

Why was that? Two key reasons. First, much of the cash that had been deposited at these banks had been reinvested in assets by the bank boards that have hugely lost value in the last year or so. Second, many of the depositors at these banks, mainly small companies, had found that they were no longer making profits or getting extra funding from investors, but they still needed to pay their bills and staff. So, they started withdrawing cash rather than building it up.

Why did the assets of the banks lose value? It comes down to the rise in interest rates across the board in the financial sector, driven up by the actions of the Federal Reserve to raise its basic policy rate sharply and quickly supposedly to control inflation. How does that work?

Well, to make money, say banks offer depositors 2% a year interest on their deposits. They must cover that interest, either by making loans at a higher rate to customers, or by investing the depositors’ cash in other assets that earn a higher rate of interest. Banks can get that higher rate if they purchase financial assets that pay more interest or that they could sell at a profit (but might be riskier), like corporate, mortgage bonds, or stocks.

Banks can buy bonds, which are safer because banks get their money back in full at the end of maturity of the bond – say five years. And each year the bank receives a higher fixed rate of interest than the 2% its depositors are getting. It gets a higher rate because it cannot have its money back instantly but must wait, even for years.

The safest bonds to buy are government bonds because Uncle Sam is (probably) not going to default on redeeming the bond after five years. So SVB managers thought they were being very prudent by purchasing government bonds. But here is the problem.

If you buy a government bond for $1000 that “matures” in five years (i.e., you get your investment back in full in five years), which pays interest at, say, 4% a year, then if your deposit customers get only 2% a year, you are making money.  But if the Federal Reserve hikes its policy rate by 1%, the banks must also raise their deposit rates accordingly or lose customers. The bank’s profit is reduced. But worse, the price of your existing £1000 bond in the secondary bond market (which is like a second-hand car market) falls. Why? Because, although your government bond still pays 4% every year, the differential between your bond interest and the going interest for cash or other short-term assets has narrowed.

Now if you need to sell your bond in the secondary market to get cash, any potential purchaser of your bond will not be willing to pay $1000 for it but say only $900. That’s because the purchaser, by paying only $900 and still getting the 4%, can now get an interest yield of 4/900 or 4.4%, making it more worthwhile to buy. SVB had a load of bonds that it bought “at par” ($1000) but worth less in the secondary market ($900). So it had “unrealized losses” on its books.

But why does that matter if it does not have to sell them? SVB could wait until the bonds mature, and then it gets all its investment money back plus interest over five years. But here is the second part of the problem for SVB. With the Fed hiking rates and the economy slowing down towards recession, particularly in the start-up tech sector in which SVB specialized, its customers were losing profits and so were forced to burn more cash and run down their deposits at SVB.

Eventually, SVB did not have enough liquid cash to meet withdrawals; instead, it had a lot of bonds that had not matured. When this became obvious to depositors, those that were not covered by state deposit insurance (anything over $250,000) panicked and there was a run on the bank. This became obvious when SVB announced that it would have to sell much of its bond holdings at a loss to cover withdrawals. The losses appeared to be so great that nobody would put new money into the bank and SVB declared bankruptcy.

So a lack of liquidity turned into insolvency – as it always does. How many small businesses find that if only they had got a little more from their bank or an investor, they could have ridden out a shortage of liquidity to stay in business? Instead, if they get no further help, they must fold. That is basically what happened at these banks.

But the argument goes that these are one-offs and the monetary authorities have acted quickly to stabilize the situation and stop depositor panic.  There are two things that the government, the Fed, and the large banks have done. First, they have offered funds in order to meet depositors demand for their cash. Although in the US, any cash deposits over $250,000 are not covered by the government, the government has waived that threshold and said that it will cover all deposits (for these banks only) as an emergency measure.

Second, the Fed has set up a special lending instrument called the Bank Term Funding Program where banks can obtain loans for one year, using the bonds as collateral at par to get cash to meet depositor withdrawals. So, they don’t have to sell their bonds below par. These measures are aimed at stopping the “panic” run on banks.

But here is the rub.  Some argue that SVB and the other banks are small fry and rather specialist.  So they do not reflect wider systemic problems. But that is to be doubted. First, SVB was not a small bank, even it specialized in the tech sector – it was the 16th largest in the US and its downfall was the second biggest in US financial history. Moreover, a recent Federal Deposit Insurance Corporation report shows that SVB is not alone in have huge “unrealized losses” on its books. The total for all banks is currently $620 billion, or 2.7% of US GDP. That’s the potential hit to the banks or the economy if these losses are realized.

Indeed, 10% of banks have larger unrecognized losses than those at SVB. Nor was SVB the worst capitalized bank, with 10% of banks having lower capitalization than SVB. A recent study found that the banking system’s market value of assets is $2 trillion lower than suggested by their book value of assets (accounting for loan portfolios held to maturity). Marked-to-market bank assets have declined by an average of 10% across all the banks, with the bottom 5th percentile experiencing a decline of 20%. Worse, if the Fed continues to raise interest rates, bond prices will fall further, and the unrealized losses will increase, and more banks will face a lack of liquidity.

So, the current emergency measures may well not be enough. The current claim is that extra liquidity can be financed by larger and stronger banks taking over the weak and restoring financial stability with no hit to working people. This is the market solution where the big vultures cannibalize the dead carrion – for example, the UK’s SVB arm has been bought by HSBC for £1. In the case of Credit Suisse, the Swiss authorities forced a takeover by the larger UBS bank for a price one-fifth of CS’s current market value.

And that is not the end of the coming problems.  US banks are heavily into commercial real estate (CRE) assets ie offices, plants, supermarket malls etc.  When interest rates were very low or even near zero before the pandemic, small banks loaded up on real estate development lending and CRE bonds issued by developers.  Borrowing as a share of bank reserves accelerated from 25% a year to 95% a year in early 2023 in small banks and 35% for big banks.

But commercial premises prices have been diving since the end of the pandemic, with many standing empty earning no rents. And now with commercial mortgage rates rising from the Fed and ECB hikes, many banks face the possibility of more defaults on their loans.  Already in the last two weeks $3bn of loans have defaulted as developers collapse.   In February, the largest office owner in Los Angeles, Brookfield, defaulted on $784m; in March Pacific Investment Co. defaulted on $1.7bn of mortgage notes and Blackstone defaulted on $562m bonds.  And there are $270bn more of these CRE loans due for repayment.  Moreover, these CRE loans are highly concentrated.  Small banks hold 80% of total CRE loans worth $2.3trn.

The CRE loan risk is yet to hit.  But it will hit the regional banks, already reeling, the hardest.  And it’s a vicious spiral.  CRE defaults hurt regional banks as falling office occupancy and rising interest rates depress property valuations, creating losses.  In turn, regional banks hurt the real estate developers as they impose stricter lending standards post-SVB.  This deprives commercial property borrowers of reasonably priced credit, crimping their profit margins and pushing up defaults.

And the other risk not yet resolved is international.  The liquidation of the 167-year old Swiss international bank, Credit Suisse, and its forced takeover by its rival UBS was only made possible by writing off the $18bn value of all the CS secondary bonds held by hedge funds, private investors and other banks globally.  Writing off bonds (debt) and saving the CS shareholders instead is unprecedented in financial law.  That has raised the risk of holding such bank bonds, despite the assurances of the ECB that this would not happen in the Eurozone.  As a result, investors have started to worry about other banks.  In particular, their eyes have focused on the travails of Germany’s largest bank, Deutsche Bank, which after the events of Credit Suisse, is no longer too big to fail.

What that shows is that ECB president Lagarde’s repeated claim is nonsense that there is no ‘trade-off’ between fighting inflation with interest rate hikes and financial stability, as banks struggle to keep depositors and avoid defaults on loans.  Indeed, a new paper by leading financial academics including the former governor of the Reserve Bank of India, finds that “the evidence suggests that the expansion and shrinkage of central bank balance sheets involves tradeoffs between monetary policy and financial stability.”

The dismissal of the dangers past and ahead by the monetary authorities should be no surprise to readers of this blog.  Mainstream economist, Jason Furman, has noted that after the global financial crash of 2008-9, the Fed started doing regular Financial Stability Reports.  But as Furman remarks: “The Fed completely missed what happened–not a hint of concern. One interpretation: incompetence. Another interpretation: this stuff is hard even if obvious in retrospect.”  For example, the last November 2022, the FSR “generally presented a comforting picture of the financial sector. And it was especially serene about banks–both their capital and proneness to runs”.

The Fed’s FSR never stress-tested high interest rates. And yet when interest rates started to rise it should have been clear that banks had mark-to-market losses they were not accounting for in their hold to maturity portfolios. This risk was dismissed in in a footnote because the Fed thought that higher interest rates would mean gains for banks in net interest income.  It was the same story with the Swiss National Bank and its confident assessment of Credit Suisse’s future just a few months ago.

As for regulation, I have beat the drum on the total failure of bank regulation to avoid crises on every occasion.  As one bank legal expert put it: “In the wake of the 2008 crisis, Congress erected an enormous legal edifice to govern financial institutions–the Dodd-Frank Act. And we saw in the course of a weekend that it was all an expensive and wasteful Potemkin village. What good does it do to have a massive set of regulations…if they aren’t enforced? To have deposit insurance limits…if they are disregarded? Dodd-Frank is still on the books, but its prudential provisions are as good as dead. Why should anyone follow its requirements now, given that they’ll be disregarded as soon as they’re inconvenient? And why should the public have any confidence that they are protected if the rules aren’t followed? Indeed, did anyone even look at SVB’s resolution plan or was it all a show?”

“I really don’t know how one can teach prudential banking regulation after SVB. How can you teach the students the formal rules—supervision, exposure and concentration limits, prompt corrective action, deposit insurance caps—when you know that the rules aren’t followed?”

“The rules always get tossed out the window in financial crises and then there’s a lot of finger wagging and new rules that are followed until the next crisis, when they aren’t.”

And the head of the world’s top financial regulator, Pablo Hernández de Cos, chair of the Basel Committee on Banking Supervision, said last week “The only way to entirely prevent a bank run would be to require them to keep all of their deposits in highly liquid assets, but then you wouldn’t have banks any more”. What he means is that you would not have any banks that aim to make profits and speculate; but you could still have non-profit banks providing a public service. But, of course, that’s not on the agenda.

It now seems that the bust Silicon Valley Bank paid out huge bonuses to its senior executives based on the profitability of the bank – as a result, the executives invested in riskier long-term assets to boost profitability and so gain larger bonuses. And that’s not all. Just before the bank went bust, it made huge loans at favourable rates to senior officers, management and shareholders to the tune of $219m. Nice if you can get it – as an ‘insider’.

What went wrong at SVB? Fed chair Jay Powell put it this way: “At a basic level, Silicon Valley Bank management failed badly. They grew the bank very quickly. They exposed the bank to significant liquidity risk and interest rate risk. Didn’t hedge that risk.”  But “we now know that supervisors saw these risks and intervened.” Really? If so, they were a bit late!  “We know that SVB experienced an unprecedentedly rapid and massive bank run. This is a very large group of connected depositors, concentrated group of connected depositors in a very, very fast run. Faster than historical record would suggest.”  So the Fed was caught out.

But don’t worry it won’t happen again.  “For our part, we’re doing a review of supervision and regulation. My only interest is that we identify what went wrong here. How did this happen is the question. What went wrong. Try to find that. We will find that. And then make an assessment of what are the right policies to put in place so it doesn’t happen again. Then implement those policies.”

But this is a superficial explanation.  Every time, there will be some fault-line in banking.  As Marx explained, capitalism is a money or monetary economy. Production is not for direct consumption at the point of use. Production of commodities is for sale on a market to be exchanged for money. And money is necessary to purchase commodities.

Money and commodities are not the same thing, so the circulation of money and commodities is inherently subject to breakdown. At any time, the holders of cash may not decide to purchase commodities at going prices and instead hoard it. Then those selling commodities must cut prices or even go bust. Many things can trigger this breakdown in the exchange of money and commodities, or in money for financial assets like bonds or stocks – fictitious capital, Marx called it. And it can happen suddenly.

But the main underlying cause will be the overaccumulation of capital in the productive sectors of the economy or, in other words, falling profitability of investment and production. The tech companies’ customers at SVB had begun to lose profits and were suffering a loss of funding from so-called venture capitalists (investors in start-ups) because the investors could see profits falling. So that’s why the techs had to run down their cash deposits. This destroyed SVB’s liquidity and forced it to announce a fire sale of its bond assets.  Alongside that interest rates rose increasing the cost of borrowing.  This ‘liquidity’ crisis is now brewing in the real estate sector and in banks with large bond debts.

So the banking crisis is not over yet.  Indeed, some argue that there could a rolling crisis that lasts for years — echoing what happened during the US [1980-90s savings and loan] crisis. 

What is certain is that credit terms are tightening, bank lending will drop and companies in the productive sectors will find it increasingly difficult to raise funds to invest and households to buy big ticket items.  That is going to accelerate economies into a slump this year.  The bold optimism expressed before March that recession will be avoided will prove to be unfounded.  Only last week, the Federal Reserve’s own forecasts for US economic growth this year were lowered to just 0.4%, which if met would mean at least two quarters of contraction in the middle of this year.

And if the current banking crisis becomes systemic, as it did in 2008, there will have to be ‘socialization’ of the losses suffered by the banking elite through government bailouts, driving up public sector debts (already at record highs); all to be serviced at the expense of the rest of us through increased taxation and yet more austerity in public welfare spending and services.

17 thoughts on “Banking crisis: is it all over?

  1. Private appropriation is coming into ever greater conflict with the increasing socialization of production. Commodity production necessitates that money must be a commodity, so profits must be realized in terms of the use value of the money commodity (gold). Since 1825, production of non-money commodities has a tendency to outpace the production of the money commodity. This is overproduction and ultimately leads to a crisis. Overproduction can be extended through the use of credit money, but this only delays the inevitable and makes the inevitable downturn worse. It is the tendency of credit money creation during overproduction that helps conceal the underlying overproduction. However, the crisis inevitably breaks out and the underlying overproduction reveals itself in the glut of unsold commodities. As long as capitalist production is to continue, the money commodity will keep coming into conflict with the productive forces, causing overproduction and subsequent recessions and deep panics. Detaching the dollar from the money commodity does not resolve this contradiction but only intensifies it, leading to sharper panics like the one in ’08 and the incoming one. You cannot escape this contradiction without ending capitalist production, with its commodity character, and replacing it with a planned economy and political power in the hands of the international proletariat. The commodity character will still be a barrier to capitalist production no matter how many times wages are cut/raised, (de)regulations are made, medicaid is stamped/expanded, or how many countries the US empire decides to invade.

    1. All the talk about taking the banks into public ownership and running a stable capitalist economy is moonshine. Either revolution or ruin. The end of money, wage labour, class division, the nation state. The power of the workers councils is the start point.

      1. As Engels wrote in 1877, “With the seizing of the means of production by society production of commodities is done away with, and, simultaneously, the mastery of the product over the producer.” full:

        But society must become class conscious enough to organise to seize the means of production in order to abolish the production of commodities. Marx was still alive in 1877. He presumably saw what Engels wrote and approved of it. So, why don’t we hear about how the left is educating the immense majority of society, the working class, about the need to seize the means of production and abolish the production of commodities?

        Could it be that the left, including those who call themselves ‘Marxists’ are ignorant about what socialism meant to Marx and Engels? Could that be the reason why the left never calls on workers to inscribe “Abolition of the wage system” on their banners as Marx did in 1865?

  2. Brilliant analyses; I always appreciate reading your work. Here in Canada, SVB subsidiary was dismantled and there were rumours that the Royal Bank of Canada might acquire the parent – but even they did not want to touch it. Major media issues the usual vague and contradictory narratives about this banking crisis; akin to shrugging their shoulders and suggesting that financial calamity is simply inevitable.

  3. A very explanatory post, probably influenced by one of your many appearances on Zoom. However, I would suggest adjusting this worthwhile post. When dealing with banking crises it is necessary to distinguish the DEPOSITORY side from the LENDING side.

    Up to now the crisis has been mainly on the depository side marked by a flight of deposits giving rise to liquidity issues and thus the prospect of the forced sale of banking assets at a loss to replenish funds. Here the role of central banks is powerful as they can infuse liquidity in a number of ways, inter alia the one you described, essentially a SWAP window whereby the FED provides cash at par against treasury bonds thus preventing their sale on the market at a loss. Both the banks and the FED know that in a year’s time when these bonds will need to be redeemed, interest rates will be much lower thus raising the market price of these bonds which can then be sold if needed at a much smaller loss if at all. The billion dollar question is whether the FED will extend this SWAP window to include investment grade bonds and mortgages held by banks. Thus by dealing with the liquidity crises in the banks the FED preserves the equity of the banks because banks do not need to cash in assets at a loss. We should not be surprised nor indignant about this, this is what Central Banks were set up to do, lenders of the last resort.

    It is also important for your readers to note the flight to safety by large depositors, that is by removing their money from smaller banks and putting them into money market funds, effectively creates an idle hoard. When those deposits were held by banks they could be lent out, but money market funds are mainly locked into treasuries which play no role in production and circulation.

    Turning to the other side of the equation, the lending side, we find the central banks to be less powerful. Here we are dealing with the issue of bad debts. Bad debts are bad debts, they represent losses which cannot be unwound. The size of the bad debt depends on where the bank sits in the list of creditors (seniority), whether the debt is secured and therefore what residual value the assets have left over. The central bank cannot nationalize bad debts without nationalizing the companies that generated these bad debts.

    What it can do is to compensate banks for the loss of their equity resulting from bad debts by driving up the price of their other assets. This is what QE was all about. QE was purposeful and calculated but often misunderstood. The resulting rise in bonds, shares and property prices more than compensated the banks for their losses after 2008 including their bad debts. In this role central banks also became ‘buyers of the last resort’. This was not so much a new addition to their role but an aberrant addition because it undermined the whole of purpose of banking which is to allow interest rates to price risk. Pricing risk and the profit rate are the two poles guiding investment decisions. Without them the world becomes zombified.

    Now comes the other billion dollar question, was QE a one card trick? In the current circumstances the answer is yes. Until inflation collapses and is seen to collapse for the indeterminant future, the option of QE is off the table.

    In the mean time the lending side has now become more crucial and we should not be distracted by the depository side. With banks less able and willing to lend, the issue of trade credit and its rupture now becomes decisive. Michael says as much in his concluding remarks above where he talks of ‘credit tightening’. But a few remarks are insufficient. In contrast my recent post focuses on the lending side as the second stage of the banking crisis. This is the decisive stage because it is the stage which further inhibits production and circulation thus catalyzing the process of slump which began in September last year.

    1. No, your argument is wrong.

      The mass transfer of deposits from small-medium banks to large banks do not result in a hoard — falling profitability does.

      You could argue that the death of small and medium banks and the bloating of big banks (centralization of capital) generates hoard, but that would also be incorrect: centralization of capital is also the result of falling profitability.

      When two “causes” have one cause, then they are phenomena, not the thing-in-itself, the one cause behind being the thing-in-itself. The problem with the USA and this crisis in particular is thus not with circulation, but with falling profitability.

      There is also no such thing as “pricing risk” — let alone such category that is on the same level as the profit rate.

      QE was merely a transfer o private debt to public. The US government bought the private sector’s rotten papers and put it on its balance sheet to stay there forever. Of course it can “only be done once”. Your assertion that “The central bank cannot nationalize bad debts without nationalizing the companies that generated these bad debts.” is simply false.

      1. “QE was merely a transfer o private debt to public. The US government bought the private sector’s rotten papers and put it on its balance sheet to stay there forever.”

        That was not the US Fed’s QE program. QE itself did not involve the purchase of private securities. QE was the purchase in open markets of US Tsy Securities and those MBS (mortgage backed securities) issued by govt. sponsored agencies (FMAC, FNMA, GNMA). More than 90% of the Fed’s assets on its balance sheet fall into those two categories. You can look it up. Sometimes it helps to get the recent history right

        Other programs of the Fed did accept corporate paper as collateral for loans. Most? All? those programs were wound down some time ago with a net gain accruing to the Fed.

    2. “The central bank cannot nationalize bad debts without nationalizing the companies that generated these bad debts.”

      Of course it can, as it proved with Chrysler bailout, the S&L crisis, and the special investment vehicles established in 2008-2009– Maiden Lane 1 & 2, TALF, etc.

      1. Let me rephrase that. In general, governments cannot nationalise bad debts in industry and commerce without nationalising the companies themselves which they did with reference to Chrysler and GM in 2008 when car sales collapsed. They cannot simply take over the bad debts on their own. You will also recall that this nationalisation was temporary and when the US government returned them back to the private sector the govt actually made a significant profit.

  4. I agree with everything. This is definitely a structural crisis, definitely will not go away.

    Notice the Chinese banks may have become a safe haven. If this process consolidates, China will ascend even faster than even the most optimist socialist/communist could have hoped even in 2008.

    The crisis is definitely international. The USA is the HQ of capitalism: it it sneezes, the rest of the capitalist world will get a cold. The Deutsche is of special importance here because, if it falls, Germany falls; if Germany falls, Europe falls. Europe — already a downgraded project, from a potential peer to the USA in 2000 to a mere Neocarolingian project after 2020 — would go back to being just a backwater region of the world, a position it held during the so-called Dark Ages. Marx’s prediction that Europe would be just “a little corner” is materializing.

    I have heard (don’t know if this is true) that the biggest loser of the CS’s $18 billion wipe out was Saudi Arabia. If that’s true, then this is a very bad political move by the West, as it would be another evidence that the First World treats the Third World like disposable things. It would essentially be the de facto declaration that there are two classes of nations, who are treated by two sets of rules and treatment. It would only accelerate the rise of the Multipolarists, which are led by China. It is rumored Switzerland will have to change their own law in order to make UBS’s forced acquisition – with everything included – legal; they will pass/modify their own law as if it is a Tuesday morning fast food drive thru order.

    Last but not least, there’s the enormous elephant in the room: the middle class. The middle class of the First World countries – specially the USA – (and here I’m also including the petty bourgeoisie) are now a clear obstacle to capital. An artifact of the Cold War – when capitalism, in order to survive, had to create a robust middle class in order to prove socialism was the inferior system – the middle class has by now outlived its usefulness. The First World capitalist classes will have to, in a way or the other, destroy their middle classes in order to restore profitability.

  5. You quote a commentator, “The only way to entirely prevent a bank run would be to require them to keep all of their deposits in highly liquid assets, but then you wouldn’t have banks any more”.
    You reply: “What he means is that you would not have any banks that aim to make profits and speculate; but you could still have non-profit banks providing a public service.”
    You omit the rest of the picture: if banks do not make loans to real estate developers and other capitalists who have large up-front outlays followed by years of reaping the returns, who will? No need to be coy.

  6. This is an excellent overview which I’ll read with my teenage son tonight as part of his studies.

    What are your thoughts on the effect of current lower Treasury yields on the US Social Security Trust Fund (as well as US debt held abroad)?

    “Social Security trusts, including the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, held $2.71 trillion in Treasurys as of December 2022.”

    It’s an interesting read to see also which countries abroad hold the largest amount of US debt: Japan is first, followed by China and then the UK. Tiny Luxembourg is 5th while the equally-small Cayman Islands are 6th (!?)

  7. Russia and China are definitely “on the capitalist road”, but it appears that the 2007–2008 Global Financial Crisis gave them pause about handing the economic policy keys to their finance sectors. The FTX and SVB debacles will likely reinforce that decision.

    1. Of course that never say never, but it is important to highlight that your “capitalist road” interpretation of History is a variation of the End of History model, which is not a scientific valid model of History.

  8. This article has been translated into Urdu and is being published in the fortnightly “The Struggle”.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: