Let me turn then to a remarkable story
about modern capitalism that sort of illustrates the idea that the problems
it has force solutions which then create more problems. Let me give you the
example that is urgent now. You all know that we had a crash of global capitalism
in 2008 and 9, and that were still, kind of, digging our way out. One of the ways
that governments around the world (the United States and other countries) tried
to cope with that crash was by dropping interest rates to historic lows. In a
number of countries, to this day, interest rates are actually below zero. They’re
negative. In other words, the bank pays you to loan you money or deposit
money in the bank, not the other way around etc. etc. So what happened with
these very low interest rates, designed to boost the economy in the face of that
crash, was that every corporation that had any kind of economic problem or need
suddenly had big help. It could borrow money for next to nothing, or literally
for nothing. Cheap money was a temptation very few corporations could resist. And
the end result has been, over the last 10 years, the growth of corporate borrowing
unprecedented in the history of capitalism. And it means we now have
basically what we call a “debt overhang:” corporations doing a lot of business but
owing more money than ever before. This has led one of the international
agencies charged with watching this situation, called the International
Monetary Fund (the IMF), to take a close look at the level of debt to come to
some assessment of what it means. And in the last few weeks they’ve issued a
number of reports that I want to highlight for you. First, 40% of the
corporate debt in eight leading country’s (led by the United States) (and
now I’m gonna almost read so you understand what’s at stake here),
those levels of debt in those eight countries would be impossible to service
if there were a downturn half as serious as the one we had in 2008. In other words,
they are so leveraged, they’re so indebted, that if we had a downturn only
half as bad as the last one we had they couldn’t pay their debts, those
corporations. And dot-dot-dot no one knows what the consequences could be. But
here’s a clear message: not good. Second implication: many corporations borrowed
for reasons, among others, of being able to repurchase their own stock in the
stock market. These things are called stock buybacks. The company is buying
back from the public that shares it issued at some earlier moment. Okay,
what this does, and why it’s done, is to boost the price of these stocks in the
stock market, because the companies are buying them and so the imbalance between
supply of these shares and a new buyer (the corporation itself) drives up the
price. This may be done because the bonuses that top executives get come
from the price of the shares which they are therefore raising for their own
reasons. But it suggests that had the cost of borrowing been less there would
have been less of this, which led the IMF to conclude that in the event of a
problem share prices could come down very fast, very far. Notice capitalism is
developing new problems (debt overhang, overvalued shares) because of the way it
solved its last crash, leading to the problem that the IMF warns about of an
impending other crash. Capitalism is a system that is fundamentally unstable,
always has been, and all that the IMF is telling
us is that it continues to be so and threatens everyone as a result.

Tagged : # # # # # # # # # #

16 thoughts on “Richard Wolff on Corporate Debt and Warnings From the IMF”

  1. otherwise known as 'extend and pretend'. Remember that the other side of 'debt' is assets. If debt had been rewritten downwards in '09, some mighty slimy rich folks' assets would have had to disappear as well.

  2. @ 2:37 in other words they are so indebted, that if we had a down turn only half as bad as the last one we had, they (corp) couldn't pay their debts and ……No one knows what the consequences could be…..
    Duhhhhhh……Global Fascism……? The new world order…..?
    Its already has been positioning itself for years just waiting for the proper moment

    And yet, in the US an ANTI-CAPITALIST ARMS REVOLUTIONARY COUP D'ETAT is not on the table…Why????
    Its now or later.
    Why are the US citizens Pussy fucks????

  3. it's just revolutionary what you are saing. basically capitalism repairs a hole just to create a biger hole. It's a system that creates its own instabilities. Its not because there are some greedy ceo's creating this mayhem. Its the internal contradiction of the system itself.

  4. "Too big to fail" so government bailed them out…
    How about all of citizens' borrowings are also "too big to fail". Can we get our bail out too?

  5. Interestingly, there was a time in modern history when depositors were charged fees by one particular bank – the Bank of Amsterdam –for holding their money, while the exchange of goods and services was facilitated by paper “receipt” money. For too brief a period a good portion of the then global economy operated under what could be called full reserve banking. The fees charged by the bank represented the bank’s capital, which the bank used to cover operating expenses. The Bank of Amsterdam was essentially a public bank.

    Almost from the moment the Bank of Amsterdam’s directors began to engage in lending and in speculation in the tulip bulb bubble, the era of honest banking ended forever. The Bank of England emerged to displace the Bank of Amsterdam in the wake of Britain’s imperial successes, but the Bank of England functioned quite differently, its circulating currency backed not by full reserves but by the taxing power of the British government. It took over a few centuries before even fractional reserves of specie was corrupted into fractional reserves based on government bonds, on debt.

    Today there are calls from many corners for banking reform, in particular for the chartering of public banks and for the substitution of central bank notes with government-issued (i.e., debt free) currency. These are reasonable calls for change.

    Perhaps if the above two reforms had been put into place several decades ago, the depth and duration of the systemic boom-to-bust cycles would have been less intense than what occurred. These reforms are not silver bullets; many other changes in our socio-political arrangements and institutions are needed to achieve anything close to sustainability or full employment. Real tax reform is essential, for example; and, the reduction in marginal tax rates on high incomes and so-called “capital gains” are 180 degrees in the wrong direction.

    The corporate debt problems referred to by Professor Wolff have grown, in large party, because the equities market functions not on any fundamentals of sound investment but as a giant gambling casino. What change might help tame the beast? In theory, asset values should result by capitalization of an income stream. For stocks this means dividend payments. Thus, if corporate entities were mandated to distribute all profits above that necessary for future operations (i.e., retained earnings), the price of a share of stock would be determined by this calculation of “market capitalization.” Corporate executives would obtain the same dividend-generated income as all other shareholders based on the number of shares owned. The casino could be further tamed by including all income derived from the sale of shares of stock as ordinary income.

    These ideas are just a short list of the changes in law, regulation and taxation needed to tame the beast.

  6. Boy I'm sure his still recovering from that molly wop of an ass whipping Gene Epstein gave him in their debate a few days ago, hahahaha!! Commies sucks liberty's dick!!!

  7. Bitcoin prices rose sharply today, climbing upwards of 4% in a very short period of time. As an asset that is entirely unconnected to the current financial system and any national government, Bitcoin cannot be subject to changes to its monetary policy unlike any other stock or asset whose price can be manipulated, the price of bitcoin strictly follows the fundamentals. This provides an unlimited opportunities for investors and enthusiasts to make massive profits from bitcoin. The truth is you don't have to be a pro to start making huge profit from bitcoin the secret is trading with a strategy that's reliable and profitable. I trade daily with Derrick Thompson strategy which has been confirmed to be one of the best in the crypto space. I remember It wasn't too long ago I started trading bitcoin as a beginner with zero knowledge about it. All I had was Derrick Thompson guidance and his trading strategy. and I was able able to grow my portfolio from $4,000 to $26,000 within a time-space of 2 weeks. My advice is to get in touch with Mr Thompson easily through (Telegram @Derrickthompson ) it was the best financial decision I ever made in life and I will keep trading with his strategy.

  8. A while ago the Australian Dollar was generally about 0.75 to the US Dollar. It was once dollar for dollar, but only for a short time. Over the last year the AU dollar is gradually rising, compared to the US dollar. The REPO rate causes other currencies to assess the value of the US dollar. Bit by bit the pseudo dollar value becomes more profound. But it has no recognizable value compared to other currencies. REPO is Quantitative Easing by another name.

  9. People who warn of these problems that are looming are dismissed as doom and gloom or conspiracy theorists. Then when it happens everyone says “no one could see this coming”.

  10. "Capitalism" is not what we have. Zionist Banking Cartel sets interest rates, prints unlimited $, creates catastrophic debt based bubbles. Not sure what Capitalism IS but The International Banking Cartel is the antithetical to Free Markets and Human Freedom. Doesn't matter if we have a Capitalist Government lead System or a Socialist Government lead System Bank Cartel buys Government and this is what you get…and what you will ALWAYS GET! Banker who can great $ out of thin air buy Governments and use them as there enforcers! Your solution is MORE Government! More Government has never and will never work! True Freedom is the only way!

Leave a Reply

Your email address will not be published. Required fields are marked *