Robbing Africa’s Riches to Save the Climate (and Power AI)

Joshua Frank

Image by omid roshan.

Considered Angola’s crown jewel by many, Lobito is a colorful port city on the country’s scenic Atlantic coast where a nearly five-kilometer strip of land creates a natural harbor. Its white sand beaches, vibrant blue waters, and mild tropical climate have made Lobito a tourist destination in recent years. Yet under its shiny new facade is a history fraught with colonial violence and exploitation.

The Portuguese were the first Europeans to lay claim to Angola in the late sixteenth century. For nearly four centuries, they didn’t relent until a bloody, 27-year civil war with anticolonial guerillas (aided by the Cuban Revolutionary Armed Forces) and bolstered by a leftist coup in distant Lisbon, Portugal’s capital, overthrew that colonial regime in 1974.

Lobito’s port was the economic heart of Portugal’s reign in Angola, along with the meandering 1,866-kilometer Benguela Railway, which first became operational in the early 1900s. For much of the twentieth century, Lobito was the hub for exporting to Europe agricultural goods and metals mined in Africa’s Copperbelt. Today, the Copperbelt remains a resource-rich region encompassing much of the Democratic Republic of Congo and northern Zambia.

Perhaps it won’t shock you to learn that, half a century after Portugal’s colonial control of Angola ended, neocolonialism is now sinking its hooks into Lobito. Its port and the Benguela Railway, which travels along what’s known as the Lobito Corridor, have become a key nucleus of China’s and the Western world’s efforts to transition from fossil fuels to renewable energy sources in our hot new world. If capitalist interests continue to drive this crucial transition, which is all too likely, while global energy consumption isn’t scaled back radically, the amount of critical minerals needed to power the global future remains unfathomable. The World Economic Forum estimates that three billion tons of metals will be required. The International Energy Forum estimates that to meet the global goals of radically reducing carbon emissions, we’ll also need between 35 and 194 massive copper mines by 2050.

Unsurprisingly, most of the minerals from copper to cobalt needed for that transition’s machinery (including electric batteries, wind turbines, and solar panels) are located in Latin America and Africa. Worse yet, more than half (54%) of the critical minerals needed are on or near Indigenous lands, which means the most vulnerable populations in the world are at the most significant risk of being impacted in a deeply negative fashion by future mining and related operations.

When you want to understand what the future holds for a country in the “developing” world, as economists still like to call such regions, look no further than the International Monetary Fund (IMF). “With growing demand, proceeds from critical minerals are poised to rise significantly over the next two decades,” reports the IMF. “Global revenues from the extraction of just four key minerals — copper, nickel, cobalt, and lithium — are estimated to total $16 trillion over the next 25 years. Sub-Saharan Africa stands to reap over 10 percent of these accumulated revenues, which could correspond to an increase in the region’s GDP by 12 percent or more by 2050.”

Sub-Saharan Africa alone is believed to contain 30% of the world’s total critical mineral reserves. It’s estimated that the Congo is responsible for 70% of global cobalt output and approximately 50% of the globe’s reserves. In fact, the demand for cobalt, a key ingredient in most lithium-ion batteries, is rapidly increasing because of its use in everything from cell phones to electric vehicles. As for copper, Africa has two of the world’s top producers, with Zambia accounting for 70% of the continent’s output. “This transition,” adds the IMF, “if managed properly, has the potential to transform the region.” And, of course, it won’t be pretty.

While such critical minerals might be mined in rural areas of the Congo and Zambia, they must reach the international marketplace to become profitable, which makes Angola and the Lobito Corridor key to Africa’s booming mining industry.

In 2024, China committed $4.5 billion to African lithium mines alone and another $7 billion to investments in copper and cobalt mining infrastructure. In the Congo, for example, China controls 70% of the mining sector.

Having lagged behind that country’s investments in Africa for years, the U.S. is now looking to make up ground.

Zambia’s Copper Colonialism

In September 2023, on the sidelines of the G20 meeting in India, Secretary of State Antony Blinken quietly signed an agreement with Angola, Zambia, the Democratic Republic of Congo, and the European Union to launch the Lobito Corridor project. There wasn’t much fanfare or news coverage, but the United States had made a significant move. Almost 50 years after Portugal was forced out of Angola, the West was back, offering a $4 billion commitment and assessing the need to update the infrastructure first built by European colonizers. With a growing need for critical minerals, Western countries are now setting their sights on Africa and its green energy treasures.

“We meet at a historic moment,” President Joe Biden said as he welcomed Angolan President João Lourenço to Washington last year. Biden then called the Lobito project the “biggest U.S. rail investment in Africa ever” and affirmed the West’s interest in what the region might have to offer in the future. “America,” he added, “is all in on Africa… We’re all in with you and Angola.”

Both Africa and the U.S., Biden was careful to imply, would reap the benefits of such a coalition. Of course, that’s precisely the kind of rhetoric we can expect when Western (or Chinese) interests are intent on acquiring the resources of the Global South. If this were about oil or coal, questions and concerns would undoubtedly be raised regarding America’s regional intentions. Yet, with the fight against climate change providing cover, few are considering the geopolitical ramifications of such a position — and even fewer acknowledging the impacts of massively increased mining on the continent.

In his book Cobalt Red, Siddharth Kara exposes the bloody conditions cobalt miners in the Congo endure, many of them children laboring against their will for days on end, with little sleep and under excruciatingly abusive conditions. The dreadful story is much the same in Zambia, where copper exports account for more than 70% of the country’s total export revenue. A devastating 126-page report by Human Rights Watch (HRW) from 2011 exposed the wretchedness inside Zambia’s Chinese-owned mines: 18-hour work days, unsafe working environments, rampant anti-union activities, and fatal workplace accidents. There is little reason to believe it’s much different in the more recent Western-owned operations.

“Friends tell you that there’s a danger as they’re coming out of shift,” a miner who was injured while working for a Chinese company told HRW. “You’ll be fired if you refuse, they threaten this all the time… The main accidents are from rock falls, but you also have electrical shocks, people hit by mining trucks underground, people falling from platforms that aren’t stable… In my accident, I was in a loading box. The mine captain… didn’t put a platform. So when we were working, a rock fell down and hit my arm. It broke to the extent that the bone was coming out of the arm.”

An explosion at one mine killed 51 workers in 2005 and things have only devolved since then. Ten workers died in 2018 at an illegal copper extraction site. In 2019, three mineworkers were burned to death in an underground shaft fire and a landslide at an open-pit copper mine in Zambia killed more than 30 miners in 2023. Despite such horrors, there’s a rush to extract ever more copper in Zambia. As of 2022, five gigantic open-pit copper mines were operating in the country, and eight more underground mines were in production, many of which are to be further expanded in the years ahead. With new U.S.-backed mines in the works, Washington believes the Lobito Corridor may prove to be the missing link needed to ensure Zambian copper will end up in green energy goods consumed in the West.

AI Mining for AI Energy

The office of KoBold Metals in quaint downtown Berkeley, California, is about as far away from Zambia’s dirty mines as you can get. Yet, at KoBold’s nondescript headquarters, which sits above a row of trendy bars and restaurants, a team of tech entrepreneurs diligently work to locate the next big mine operation in Zambia using proprietary Artificial Intelligence (AI). Backed by billionaires Bill Gates and Jeff Bezos, KoBold bills itself as a green Silicon Valley machine, committed to the world’s green energy transition (while turning a nice profit).

It is in KoBold’s interest, of course, to secure the energy deposits of the future because it will take an immense amount of energy to support their artificially intelligent world. A recent report by the International Energy Agency estimates that, in the near future, electricity usage by AI data centers will increase significantly. As of 2022, such data centers were already utilizing 460 terawatt hours (TWh) but are on pace to increase to 1,050 TWh by the middle of the decade. To put that in perspective, Europe’s total energy consumption in 2023 was around 2,700 TWh.

“Anyone who’s in the renewable space in the western world… is looking for copper and cobalt, which are fundamental to making electric vehicles,” Mfikeyi Makayi, chief executive of KoBold in Zambia, explained to the Financial Times in 2024. “That is going to come from this part of the world and the shortest route to take them out is Lobito.”

Makayi wasn’t beating around the bush. The critical minerals in KoBold mines won’t end up in the possession of Zambia or any other African country. They are bound for Western consumers alone. KoBold’s CEO Kurt House is also honest about his intentions: “I don’t need to be reminded again that I’m a capitalist,” he’s been known to quip.

In July 2024, House rang his company’s investors with great news: KoBold had just hit the jackpot in Zambia. Its novel AI tech had located the largest copper find in more than a decade. Once running, it could produce upwards of 300,000 tons of copper annually — or, in the language investors understand, the cash will soon flow. As of late summer 2024, one ton of copper on the international market cost more than $9,600. Of course, KoBold has gone all in, spending $2.3 billion to get the Zambian mine operable by 2030. Surely, KoBold’s investors were excited by the prospect, but not everyone was as thrilled as them.

“The value of copper that has left Zambia is in the hundreds of billions of dollars. Hold that figure in your mind, and then look around yourself in Zambia,” says Zambian economist Grieve Chelwa. “The link between resource and benefit is severed.”

Not only has Zambia relinquished the benefits of such mineral exploitation, but — consider it a guarantee — its people will be left to suffer the local mess that will result.

The Poisoned River

Konkola Copper Mines (KCM) is today the largest ore producer in Zambia, ripping out a combined two million tons of copper a year. It’s one of the nation’s largest employers, with a brutally long record of worker and environmental abuses. KCM runs Zambia’s largest open-pit mine, which stretches for seven miles. In 2019, the British-based Vedanta Resources acquired an 80% stake in KCM by covering $250 million of that company’s debt. Vedanta has deep pockets and is run by Indian billionaire Anil Agarwal, affectionately known in the mining world as “the Metal King.”

One thing should be taken for granted: You don’t become the Metal King without leaving entrails of toxic waste on your coattails. In India, Agarwal’s alumina mines have polluted the lands of the Indigenous Kondh tribes in Orissa Province. In Zambia, his copper mines have wrecked farmlands and waterways that once supplied fish and drinking water to thousands of villagers.

The Kafue River runs for more than 1,500 kilometers, making it Zambia’s longest river and now probably its most polluted as well. Going north to south, its waters flow through the Copperbelt, carrying with them cadmium, lead, and mercury from KCM’s mine. In 2019, thousands of Zambian villagers sued Vedanta, claiming its subsidiary KCM had poisoned the Kafue River and caused insurmountable damage to their lands.

The British Supreme Court then found Vedanta liable, and the company was forced to pay an undisclosed settlement, likely in the millions of dollars. Such a landmark victory for those Zambian villagers couldn’t have happened without the work of Chilekwa Mumba, who organized communities and convinced an international law firm to take up the case. Mumba grew up in the Chingola region of Zambia, where his father worked in the mines.

“[T]here was some environmental degradation going on as a result of the mining activities. As we found, there were times when the acid levels of water was so high,” explained Mumba, the 2023 African recipient of the prestigious Goldman Environmental Prize. “So there were very specific complaints about stomach issues from children. Children just really wander around the villages and if they are thirsty, they don’t think about what’s happening, they’ll just get a cup and take their drink of water from the river. That’s how they live. So they’ll usually get diseases. It’s hard to quantify, but clearly the impact was there.”

Sadly enough, though, despite that important legal victory, little has changed in Zambia, where environmental regulations remain weak and nearly impossible to enforce, which leaves mining companies like KCM to regulate themselves. A 2024 Zambian legislative bill seeks to create a regulatory body to oversee mining operations, but the industry has pushed back, making it unclear if it will ever be signed into law. Even if the law does pass, it may have little real-world impact on mining practices there.

The warming climate, at least to the billionaire mine owners and their Western accomplices, will remain an afterthought, as well as a justification to exploit more of Africa’s critical minerals. Consider it a new type of colonialism, this time with a green capitalist veneer. There are just too many AI programs to run, too many tech gadgets to manufacture, and too much money to be made.

Starmer’s filthy Chagos Islands deal preserves Diego Garcia as key US-UK military base

Jean Shaoul

Last week, after six decades of acrimonious legal battles, Sir Keir Starmer’s Labour government agreed to hand over the Chagos Islands to Mauritius. Far from remedying a longstanding injustice, it is a filthy deal that rides roughshod over the rights of the Chagossian islanders in the geopolitical interests of British imperialism.

The deal is aimed at securing the future of Diego Garcia, the largest of the 58 islands that hosts US-UK bomber bases in the Indian Ocean, which Washington views as crucial for policing the Indo-Pacific region against China and the sea routes from the Persian Gulf—the source of vital energy supplies.

A US Air Force B-1B Lancer taking off from Diego Garcia as part of Operation Enduring Freedom during October 2001 [Photo: enior Airman Rebeca M. Luquin, U.S. Air Force]

Strategically located between East Africa and Southeast Asia, Diego Garcia serves as a surveillance centre for the Middle East. It was critical to air operations during the US-UK’s criminal wars in Iraq and Afghanistan. Britain allowed the CIA to use Diego Garcia as a “dark site,” where it detained and tortured people and refueled extraordinary rendition flights. It recently extended the lease on the islands to 2036.

Under the terms of the deal, to be set out in a treaty, the UK will hand over the Chagos Islands to Mauritius but retain Diego Garcia under an “initial” 99-year lease in return for annual indexed-linked payments. Starmer and Mauritius Prime Minister Pravind Jugnauth issued a joint statement saying they were committed “to ensure the long-term, secure and effective operation of the existing base on Diego Garcia which plays a vital role in regional and global security”.

The treaty would also “address wrongs of the past and demonstrate the commitment of both parties to support the welfare of Chagossians” who were forcibly relocated decades ago. The UK will provide financial support to enable Mauritius to resettle Chagossians, but the deal specifically excludes resettlement on Diego Garcia where most of the Islanders came from.

In 1965, Britain’s Labour government separated Diego Garcia and the 58 Chagos Islands from Mauritius before it became independent in 1968 and subsequently incorporated the Islands into the specially created British Indian Ocean Territories (BIOT), administered from London. This violated the 1960 United Nations Resolution 1514 banning the breakup of colonies before independence.

Britain forcibly expelled Diego Garcia’s 2,000 indigenous people—the Chagossians—to build the military base in exchange for a $14 million discount on the UK purchase of US Polaris nuclear missiles, equivalent to around £127 million today. Mauritius was paid some $8.4 million ($90 million today) in compensation. The Chagossians were exiled to slums in Mauritius and the Seychelles in the Indian Ocean and eventually the UK, where, denied support and compensation, they have lived in impoverished conditions ever since, with many since dying. The British government has repeatedly rejected their demands to return to their homeland.

For years, Britain dismissed the various court rulings on the islanders’ right to return home. In 2019, the International Court of Justice (ICJ) issued an advisory opinion noting that “the process of decolonization of Mauritius was not lawfully completed” and that the UK had violated United Nations resolutions that prohibited the breaking up of colonies before granting independence. In his book The Last Colony, Philippe Sands, who consulted on the Chagossians’ 40-year legal case, wrote that neither the ICJ nor the UN General Assembly had the power to force the UK and US to comply with international laws.

In November 2022, the Conservative government started negotiations with Mauritius over the future of the Chagos Islands, including “resettlement of the former inhabitants of the Chagos archipelago,” while retaining control of Diego Garcia. But earlier this year, amid the rapidly spiraling US-inspired and led Israeli war in the Middle East, then Foreign Secretary David Cameron told the Foreign Affairs Select Committee that the resettlement of Chagossians would not be possible.

The incoming Labour government has now stitched up a rotten, face-saving deal with Mauritius. Speaking in the House of Commons on Monday, Foreign Secretary David Lammy said, “The status quo was clearly not sustainable,” and “A binding judgment against the UK seemed inevitable.” The agreement he stressed had secured a “vital military base” and guaranteed Britain’s “long-term relationship with Mauritius, a close Commonwealth partner.”

Thursday’s deal was welcomed by the White House, the African Union and India. New Delhi has the strongest trade ties and family links with Mauritius and is part of the Quad alliance, along with Australia, Japan and the US, to counter China in the Pacific region. It has built an airstrip and a jetty on the Mauritian island of Agaléga for what is expected to be an Indian naval military facility to challenge China in the Indian Ocean, amid deteriorating relations with the Maldives.

While Chagossians will be allowed to return to the impoverished islands of Peros Banhos and Salomon Atoll, few wish to do so. Most originate from Diego Garcia, the only island that has any reasonable chance of being habitable—and only after considerable investment—and are intent on securing financial reparations and their rights in the UK and elsewhere, something the deal does nothing to address. The British government has disbursed little of the £40 million “support package” announced in 2016.

Chagossian Voices, an activist group representing the Chagossians in Britain and elsewhere, denounced the deal they had learned about only from the media as a “betrayal.” It said, “The views of Chagossians, the Indigenous inhabitants of the islands, have been consistently and deliberately ignored and we demand full inclusion in the drafting of the treaty.” They accused the British and Mauritian governments of excluding them from the negotiations and protested outside Parliament Monday demanding the right to self-determination.

As the New York-based NGO Human Rights Watch (HRW) explained, far from resolving the status of Islanders who were evicted from their homes, the exclusion of Diego Garcia from the deal continued “the crimes long into the future.” Clive Baldwin, HRW’s senior legal advisor, said, “It does not guarantee that the Chagossians will return to their homeland, appears to explicitly ban them from the largest island, Diego Garcia, for another century, and does not mention the reparations they are all owed to rebuild their future. The forthcoming treaty needs to address their rights, and there should be meaningful consultations with the Chagossians, otherwise the UK, US and now Mauritius will be responsible for a still-ongoing colonial crime.”

Former Labour Party leader Jeremy Corbyn, now expelled and an independent MP, had earlier welcomed the deal, ludicrously declaring, “This long overdue settlement at last includes the right to return. A milestone for decolonisation.” Days later, Corbyn issued a letter to Lammy urging him to reconsider his “manifestly unfair” decision to exclude returns to Diego Garcia. He made the on-his-knees protestation that despite Lammy insisting on the importance of the US-UK military base, “it is unclear why this should deprive Chagossians of their right of return, since the base does not take up the whole island.”

Lammy also stressed that the new arrangements mean that the Chagos Islands can no longer be used as a “backdoor migration route” into Britain. This was a reference to the 56 Tamils as well as eight in Rwanda who, having fled persecution in Sri Lanka, were rescued when their boat ran into trouble by Royal Navy ships and brought to Diego Garcia. Since then, stuck in legal limbo, they have been incarcerated in abominable conditions while seeking asylum in Britain. A judgement on the case is expected soon.

Lammy has offered some of the Tamils a move to Romania, claiming that after six months they could be moved to the UK, with others being offered financial incentives to return to Sri Lanka where they face persecution. In future, Mauritius will take responsibility for any future migrants who arrive on the islands.

The deal with Mauritius has aroused furious and certainly exaggerated opposition from the opposition Conservative Party, citing fears it would “embolden nations like Argentina to press for control of the Falklands.” The Chagos Islands and the Malvinas/Falkland Islands are among the UK’s 15 contested colonial possessions that include Gibraltar and the Cayman Islands.

Report shows Australian welfare recipients are struggling to survive

Vicki Mylonas

Australians relying on welfare payments such as JobSeeker and Youth Allowance face a life of deprivation and isolation, well below the poverty line, according to a recent report by the Australian Council of Social Service (ACOSS).

The dire situation for recipients of JobSeeker, Youth Allowance and other income support schemes is part of a deepening social crisis confronting the working class as a whole, amid soaring inflation and rising unemployment.

ACOSS’s Raise the Rate Survey 2024, released last month, paints a disturbing picture of vulnerable Australians struggling financially, physically and mentally as a result of the Labor government’s miserly welfare system.

Unemployed workers registering for social welfare outside Centrelink office in Sydney, Australia

Australia’s unemployment payment, JobSeeker, amounts to just $55 per day, less than half the minimum wage, while Youth Allowance is lower still, at $45 per day. Late last year, the Organisation for Economic Cooperation and Development (OECD) recommended that Australia’s unemployment payments be increased, noting they were among the lowest of OECD countries and “remain below the relative poverty line.”

A growing number of Australians are having to rely on these paltry payments as unemployment rises. The official unemployment rate in August was 4.2 percent, meaning 625,000 workers were out of a job, according to the Australian Bureau of Statistics (ABS), while youth unemployment is far higher at 9.8 percent. A further 6.5 percent of the workforce is underemployed.

These figures have been increasing steadily since mid-2022 and are expected to continue rising. Moody’s economist Harry Murphy Cruise anticipates the official unemployment rate will increase to 4.5 percent by the middle of 2025.

ACOSS surveyed 760 people who receive JobSeeker, Youth allowance and other related payments, which are relied upon by more than 1.4 million workers and young people. One respondent spoke of having to choose between food and fuel. Others spoke of the dread they feel for their future, of being prisoners in their own homes, or of severe health deterioration due to being unable to afford medication, dental care or surgery.

The report’s “key findings” relate to housing costs, food as a discretionary item, physical and mental health issues, the high cost of energy bills, and trying to run a car on a low income, which traps people even more into poverty and unemployment.

The ACOSS report states: “Australia currently has the worst rental affordability on record and one of the highest rates of homelessness among wealthy countries. Australia’s supply of social housing is at a four-decade low.”

Ninety-four percent of those surveyed who rent privately are experiencing housing stress, having to pay more than 30 percent of their income in rent. Fifty-two percent pay more than half of their income in rent, defined as severe housing stress. With budgets already stretched, any increase in rent or an unexpected emergency expense can have severe implications, increasing people’s risk of homelessness.

The report shows that government rent assistance (an average of $211.20 per fortnight for a single person), is totally inadequate to cover the exorbitant cost of private rental. In its 2024‒2025 Federal Budget, the Albanese Labor government proclaimed that a million vulnerable Australian renters would reap the benefit of a $1.9 billion rental assistance package for those on welfare payments. This amounts to a dismal saving of around $22 per fortnight.

The 2024 Anglicare Australia Rental Affordability Snapshot confirms that rental affordability is in a state of crisis for those on low incomes and welfare payments. Out of the 45,115 rental listings surveyed in the Snapshot, only 289 (0.6 percent) were affordable for a person earning a full-time minimum wage, while just 160 (0.4 percent) were affordable for a couple with two children relying on JobSeeker.

A recent report by Suburbtrends shows that almost three-quarters of Australian suburbs are in “extreme rental pain,” and that this crisis is most acute in working-class areas. Rents across Australia surged 8.5 percent in the 12 months to May 2024.

Labor governments at the federal and state level, despite claiming to be addressing the cost-of-living crisis, are in fact spearheading both the decline in real wages and the soaring price of housing, together with the chronic underfunding of social and affordable housing. This is putting more Australians at risk of homelessness, including those who are employed.

The ACOSS report revealed that decent meals have become a luxury for many relying on income support. More than two-thirds of respondents have had to reduce their intake of fresh fruit, vegetables and meat, or even skip meals entirely.

“I usually eat twice a day, but sometimes once,” one respondent said, while parents reported skipping meals so that their children could eat. Those with special dietary requirements are forced to sacrifice their health, while many are having to rely on food banks or churches for food.

In its 2022‒2023 Hunger Report, charity organisation Foodbank revealed that 3.7 million Australian households were experiencing moderate to severe food insecurity. In total, the report concluded, “48 percent of the general population now feels anxious or struggles to consistently access adequate food,” up from 45 percent in 2022. More than three-quarters of food-insecure households had experienced this for the first time within the past 12 months.

This is a shocking indictment of the capitalist system, which prioritises the profits of corporate and finance capital over the health, wellbeing and rights of the working class. While more Australians across all demographics are finding it increasingly difficult to afford basic essentials such as food, massive profits have been recently recorded by the two major supermarket chains in Australia, Coles ($1.1 billion) and Woolworths ($1.7 billion).

Respondents to the ACOSS survey said that the inadequacy of the JobSeeker payment made it even more difficult to find work. This was sharply felt in regional areas and on the outskirts of major cities, where job opportunities are few and far between and public transport is essentially non-existent. Even getting to a job interview is a significant challenge without owning a car, a major expense for those reliant on welfare payments.

One worker surveyed said: “I’m unlikely to be able to get a car again, with no savings or other way to get a loan to buy a car—having no car rules out many jobs that are not on public transport routes, or start at 6:00 a.m. or are shift work, or require transport of tools or such.”

More than 80 percent of respondents said that relying on sub-poverty welfare payments harmed both their physical and mental health, with numerous respondents revealing they had contemplated taking their own lives.

One respondent said: “The rate of income support is obviously designed to drive us off the planet. It hurts when your leaders treat you as if you don’t deserve to live.”

Another said: “I can’t begin treatment for osteoporosis until I have my teeth fixed and, because of the length of the waiting list, that could be two years. My bones are deteriorating because I can’t afford dental treatment.”

As well as the inadequate level of welfare payments, this reflects a public health system in a profound state of crisis, due to decades of deliberate underfunding by both Labor and Liberal-National governments. This has been exacerbated by bipartisan “let it rip” COVID policies, responsible for tens of thousands of deaths and a large increase in hospitalisations.

US “debt bomb” ticking louder

Nick Beams

The increase in the US budget deficit for the fiscal year of 2024, announced by the Congressional Budget Office (CBO) earlier this week, has raised decisive economic and political issues. While generally covered over in the official US election campaign, these are of decisive importance for the working class both in America and internationally.

Federal Reserve Chairman Jerome Powell addresses House Financial Services Committee hearing in Washington, Wednesday, June 21, 2023. [AP Photo/Andrew Harnik]

The immediate economic question is: when will the rise in US government debt give rise to a crisis for the US dollar, a major meltdown in the market for debt, the Treasury bond market, or some other area of the financial system? Government debt is now heading towards $36 trillion and increasing at a pace which is regarded as “unsustainable” by Federal Reserve chair Jerome Powell, along with many others.

And flowing from this, how will the political establishment, whether the reins of government are in Democratic or Republican hands, respond to such a shock as they organise attacks on the working class to pay for a deep-seated crisis in the financial system?

According to the CBO, the US budget deficit for the fiscal year of 2024 rose to $1.8 trillion and hit its highest level for three years. That was only outstripped by the major expenditures as a result of the COVID pandemic, much of which went to the largest US corporations which also received massive support from the near-zero interest rates set by the Fed.

Deficits have been climbing sharply in recent years, but they have been considered manageable because of ultra-low interest rates. That situation has changed as a result of the interest rate hikes by the Fed, and it is indicated in the budget data.

Last year, the US government had to pay $950 billion in interest, a 34 percent increase of $240 billion from the year before. This is almost certain to go up in coming years.

Interest payments were higher than both the entire military budget of $826 billion or Medicare, $869 billion, and now comprise 14 percent of the entire budget. That is, one dollar out of every seven of government spending is made to the holders of government debt, meaning that borrowing is increasingly being used just to pay the interest bill on past debt.

The CBO has estimated that the debt will continue to rise dramatically in the immediate future and will be greater than $50 trillion by the end of this decade. By 2027 it calculated the size of the debt compared to the overall economy will exceed its all-time high of 106 percent of GDP, reached as a result of World War II.

That debt did not produce a crisis then because of the expansion of the US economy in the post-war boom. That experience is not going to be repeated because economic growth over the longer term is only around 2 percent. Moreover, the US is not the industrial powerhouse it was in the immediate post-war years, but is marked above all by the growth of financial parasitism.

Commenting on the latest numbers Doug Holtz-Eakin, the president of the conservative Committee for a Responsible Federal Budget, put a spoke in the wheel of the Trump economic campaign with its claims that major tax cuts, combined with tariff hikes, will boost the US economy and bring down the deficit.

“You cannot grow your way out of this problem,” he said.

The US has only been able to lift its debt to extraordinary heights because of the role of the dollar as the international currency. But the dollar is no longer backed by gold, as a store of real value, but is a fiat currency. That is, it only functions as world money because it is considered to be backed by the power of the American state. If that confidence is undermined or wanes significantly then it can lead to a dollar crisis.

Such a crisis may not appear to be on the immediate agenda but as the late German-American economist Rudiger Dornbusch once noted: “The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.”

And there are clear indications that a crisis is developing. The price of gold, the ultimate store of value in the capitalist monetary system, is regularly reaching new record highs with numbers of central banks increasing their gold holdings. There is increasing nervousness in the US Treasury market as to whether it can absorb the increase in government debt and there has been lacklustre demand for new US debt at recent auctions.

There are also moves by a number of countries, including China, Brazil, Turkey and others, such as the US ally Saudi Arabia, to arrange trade transactions in currencies other than the American dollar.

This movement has attracted the attention of Donald Trump who recently warned that the loss of the dollar’s global status would be the equivalent of losing a war as he threatened to impose a 100 percent impost on goods from countries that sought to move out of the dollar system.

The underlying and mounting problems in the US economy and what they portend are receiving virtually no coverage in the so-called mainstream media. Just as they wave away the real danger of nuclear war with the claim that Russian President Vladimir Putin is bluffing, so they believe that if they just ignore the signs of a developing financial crisis, it will just go away.

According to Jason Furman, a former top aide in the Obama administration, and now at Harvard, there is no need for concern. “We’ve learned we borrow more than we could. And we’ve actually borrowed more than we expected,” he told the Wall Street Journal last month.

There is, however, some recognition in the upper echelons of financial circles that major problems are developing, including the growing deficit and the fact that inflation, leading to elevated interest rates, is a significant risk.

In two separate public appearances this week, reported by the Australian Financial Review, JP Morgan chief Jamie Dimon and hedge fund mogul Ray Dalio both sought to direct attention away from the issue of when and how big the next Fed interest rate cut might be.

Dalio said those who were looking for further large rate cuts were “getting ahead of themselves” and the risks were more to the upside than the downside as he pointed to what he called the “ticking time bomb of the debt situation” in the US.

Dimon said there should be concern about the US deficit, noting that in the early 1980s when inflation was 14 percent the deficit was 3.5 percent of GDP compared to 7 percent today. Total debt was 35 percent of GDP compared to about 100 percent at present.

Under conditions where military expenditure will increase whichever party wins the presidential election, the knives are being sharpened for a major attack on social services spending.

Both Kamala Harris and Trump have said they will not touch two of the biggest items in the budget, Social Security and Medicare. But election commitments are one thing, economics and finance are another.

Reflecting widely held views in the economic establishment, Romina Boccia, director of budget and entitlement policy at the right-wing Cato Institute, a long time advocated of so-called smaller government, told the Journal Medicare had to be made more efficient and Social Security benefits cut.

“Any fiscal plan that doesn’t address these programs is basically not addressing the root cause of higher spending,” she said.

The key issue is how this frontal assault on the working class is to be carried out. That question is also the subject of discussion behind closed doors in ruling circles as the debt crisis deepens.

A recent opinion piece by Mitch Daniels in the Washington Post entitled “The Day the Dollar Died is coming. What’s the plan?” provided some insight into those deliberations.

Daniels, a former Republican governor of Indiana, who served in both the Reagan and George W Bush administrations, framed his comment around a conference he said should be called “devoted to preparing a plan for the collapse of the US public debt market and the dollar’s world reserve status—and the economic and social consequences of such an event.”

He noted that with deficit close to $2 trillion and debts about to surpass the nation’s GDP, “only a dwindling number of denialists doubt that a cataclysmic reckoning, including double-digit damage to Americans’ income growth lies ahead.” It was “past time to prepare.”

The focus had to be planning for the day when, not if, “tens of millions of Americans are told that the trust funds are not trustworthy, and that the safety-net benefits they have been receiving are about to be reduced, perhaps drastically.”

Daniels warned that messages to an enraged public that they had to deal with the necessities of the situation would not suffice.

Economic collapse, he stated, would unleash violent reactions raising the question of which of the president’s “more than 100 unilateral powers might be needed.” This could include martial law and there had to be a plan to determine “what is and is not permitted by the language of the Insurrection Act [which Trump wanted to invoke in 2020], authorising the use of the military not just to ‘suppress the rebellion’ but also to suppress an ‘unlawful combination or conspiracy’ that ‘hinders the execution of the laws.’”

It would be a grave mistake to dismiss such analysis as “musings” with no real basis. In fact, these conclusions flow from the objective logic of economic and financial processes.

Social Inequality in Germany: Number of billionaires rises to 249

Marianne Arens

Rarely has social polarisation been so tangible. While poverty is growing, at the top end of the scale the number of super-rich is on the rise. The annual ranking by Manager Magazin shows that the number of billionaires in Germany has recently risen by 23 to 249.

Manager Magazin has published a list of the 500 richest Germans and calculated that their private assets and wealth in 2023 amounted to a record €1.1 trillion, an increase of €53 billion compared to the previous year.

This sum, €1.1 trillion, is almost two-and-a-half times the federal budget for the same year. This sum could be used to build thousands of schools and hospitals, renovate the country’s ailing rail network and balance the nursing care insurance deficit. It could also raise the wages of railway workers, nursing staff and other public employees who are continually forced to work for low wages.

In addition to the 249 billionaires in the country, there are over half a million millionaires, almost 3,000 of whom have now increased their financial wealth to over $100 million, as the Global Wealth Report 2022 has shown. This layer, a tiny minority of about 0.6 percent of the population, own 45 percent of the country’s total wealth.

For workers, on the other hand, the situation in Germany, is becoming increasingly precarious, as is the case worldwide. More and more people are slipping into low-wage work and poverty, while inflation is rising once again. One in five children and more than one in four young people live in poverty. While the government is intent on escalating its policy of imperialist war, it is allowing civil infrastructure to fall into disrepair and is arrogantly attacking the most socially vulnerable. In its 2024 war budget, the basic income allowances for the poor was cut by €5.5 billion.

Manager Magazin’s list of the super-rich is revealing. Among the top 10 are heirs and major shareholders of the same corporations that are currently enforcing mass layoffs, wage cuts and plant closures.

The Porsche family, for example, is ranked eighth richest with €19.3 billion, while mass layoffs and the closure of entire plants have been announced at Volkswagen and many contract workers have already been laid off. The continuity of the rich since the fascist era is also telling. Several of the richest families—Porsche, Klatten/Quandt, Schaeffler, Reimann, etc.—owe their wealth to the involvement of their ancestors in the Nazi regime.

The richest German is Dieter Schwarz, founder of the supermarket chains Lidl and Kaufland, with €43.7 billion. In second place are Susanne Klatten and Stefan Quandt, the BMW heirs, with €34.4 billion, followed by the Merck family, who possess €33.8 billion. The Reimann family (€31.3 billion) is followed by Klaus Michael Kühne, logistics entrepreneur and hotelier, with €29 billion. The Albrecht/Heister families of Aldi Süd (€27 billion), Henkel (€24.6 billion), Porsche, and Albrecht of Aldi Nord (€18.9 billion) come in 6th to 10th place. The 10 richest have a combined fortune of €262 billion.

The Würth family, with €13 billion, is also among the super-rich. Würth Elektronik, which is one of the most important auto suppliers, is in the process of closing its site in Schopfheim, with 300 employees.

Other auto suppliers that have been enforcing layoffs, short-time work and plant closures for many years include Schaeffler and Continental, which are largely owned by the Schaeffler family. With €7.7 billion, it ranks 25th. It is closely followed by the Thiele family from Knorr Bremse (€7.5 billion), the major shareholder in Lufthansa. During the coronavirus lockdown, the Lufthansa Group summarily cut thousands of pilots, flight attendants and ground staff and cut wages.

Other super-rich persons are so-called tech billionaires, above all the founders and owners of SAP, Hasso Plattner (€16.9 billion), Dietmar Hopp (€15.1 billion) and the Klaus Tschira family’s inherited fortune (€5.5 billion). The SAP group is also in the process of cutting 10,000 jobs.

At the same time, low-wage work is spreading, and poverty is rampant. Shortly after the outbreak of the coronavirus pandemic, the government—then still under Angela Merkel (Christian Democratic Union, CDU) and Finance Minister Olaf Scholz (Social Democratic Party, SPD)—sent workers back to their workplaces despite the risk of infection. At the same time, it stuffed the pockets of the rich with its multi-billion coronavirus emergency package. Scholz is now chancellor, and the coronavirus crisis was followed by the war in Ukraine and, most recently, the war in the Middle East.

Immediately after the outbreak of the war in Ukraine, the coalition government in Berlin decided to put all its eggs in the war basket. Chancellor Scholz launched a €100 billion special fund for the German armed forces. Finance Minister Christian Lindner (Free Democratic Party, FDP) presented the government’s austerity and war budget, and Economics Minister Robert Habeck (Greens) appointed himself “armaments industry minister.”

The immediate consequence of the war policy was a severe energy crisis and a trade war which has put massive pressure on German industry. Extensive wage cuts are being negotiated with the help of the German Trade Union Federation (DGB), which is firmly in the camp of imperialism, based on its nationalist “Standort” policy. Layoffs are being enforced and factories closed. In the automotive and supplier industry alone, this affects hundreds of thousands of workers.