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  • By The Financial District

Central Bank 'Capitalism' Forcing Global South Into Debt Crisis

Due to the shutdowns in response to the COVID pandemic, states around the world took on a considerable amount of debt to keep their economies up and running — just as many had already done following the 2007–2008 financial crisis, Robin Jaspert wrote for Jacobin Magazine.

Photo Insert: Argentina is now paying 21.5 percent more interest on government bonds than Germany.

In the 10 largest Latin American economies (excluding Venezuela), the ratio of national debt to economic output has increased on average by 22.7 percent since 2007.

In the last two years, the costs of national debts in Latin America have gone through the roof: Argentina is now paying 21.5 percent more interest on government bonds than Germany, whereas the rates faced by Ecuador and Venezuela, respectively, are as much as 46.8 and 89.4 percent higher.

On average, the 10 largest Latin American economies pay 25.5 percent greater interest than Germany — money that has to be obtained through new debts or spending cuts, or extracted from national economies through taxes.

At 8.3 percent in the United States and 10 percent in the eurozone, inflation is at similarly high levels to 1979. Moreover, just as was the case at the time of the Volcker Shock, economic growth in the United States and EU is low, and federal banks in both are again tightening monetary policy.

All the news: Business man in suit and tie smiling and reading a newspaper near the financial district.

Today, among other things, this means raising key interest rates. In the last two years, the Federal Reserve and the ECB have increased their respective key interest rates by 3 and 2 percent.

Today, scholars are warning that more than 50 states in the Global South are on the verge of defaulting on their debts. Meanwhile, inflation is rising not only in the Global North but also in Latin America.

Market & economy: Market economist in suit and tie reading reports and analysing charts in the office located in the financial district.

In response, central banks in the region are raising key interest rates, which is supposed to stabilize currency values by reducing borrowing and thus inflation.

Although interest rate hikes often don’t achieve this stated goal, they do entail a number of side effects — such as causing economies to shrink. In capitalism, this means increased unemployment, reduced state revenue and cuts to public spending.

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