Cracks opening in long-term bond market

Nick Beams

While stock markets continue to be at near-record highs, seemingly oblivious to the enormous geo-political and economic turmoil—war, tariffs, massive uncertainty and a slowing world economy—this upheaval is being registered in the very foundations of the global financial system.

Its clearest expression is in the bond markets, where governments raise money to finance their budget deficits and where debt is traded. It is most pronounced in the $29 trillion US Treasury market—one of the foundations of the global financial system—but is present in the bond markets of all the major economies.

Specialist Dilip Patel works at his post on the floor of the New York Stock Exchange, Tuesday, Oct. 3, 2023. [AP Photo/Richard Drew]

This week, the Financial Times (FT) published an article noting that investors were “fleeing long-term US bonds at the swiftest rate since the height of the Covid-19 pandemic five years ago as America’s soaring debt load tarnishes the appeal of one of the world’s most important markets.”

The article did not go into detail about what happened then, but it should be recalled that in March 2020 the Treasury market froze—for several days there were no buyers for US debt, supposedly the safest financial asset in the world. The US Federal Reserve had to intervene to the tune of several trillion dollars to halt a meltdown of the entire US and global financial system.

According to the FT’s research, net outflows from long-dated bonds, both government and corporate, have reached almost $11 billion in the past three months. The second quarter is on track to be the heaviest “since the severe market turbulence in early 2020” and marked a “powerful shift” from average monthly inflows of $20 billion over the previous 12 months.

The central issue of concern in the US bond market is the growth of government debt, now at $36 trillion and rising. It has been building rapidly since the global financial crisis of 2008. At that time the Treasury market was around $5 trillion. It is now $29 trillion.

The worsening long-term financial position of the US is being compounded by the Trump administration’s policies—the tariff wars which threaten to boost inflation, regarded as poison by bond investors, and the “big beautiful budget,” which according to all independent analysts will add around $2.4 trillion to US debt.

This is disputed by the White House, which claims that the maintenance of massive tax cuts for the wealthy and corporations will more than cover it. That is a regurgitation of the infamous Laffer curve used by the Reagan administration in the 1980s to justify its tax cuts but which set debt and deficits on an upward path.

The major operatives in the financial world are not buying it. In a comment on the FT’s findings on the long-bond outflow Lotfi Karoui, chief credit strategist at Goldman Sachs, said it “reflects concerns over the longer-term outlook for fiscal stability.”

JPMorgan Chase CEO Jamie Dimon recently warned of a “crash” in the bond market, prompting the response from US Treasury Secretary Scott Bessent that the US would “never, never” default on its debt. Of course, if no such concerns existed, then there would have been no need for the reassurance.

The long developing debt crisis in the US and globally has been brought to the surface by the escalation of interest rates over the past three years. Under the quantitative easing policies of the Fed, followed to one degree or another by central banks around the world, interest rates were kept to historic lows and debt did not appear to be an immediate problem.

The major shift in the interest rate environment was highlighted in a comment by former International Monetary Fund chief economist and now professor of Economics at Harvard University, Kenneth Rogoff, in the FT this week.

Since the last balanced budget at the end of the 1990s, he wrote, “both Republican and Democratic leaders have tripped over themselves to run ever larger deficits, seemingly without consequence. And if there is a recession, financial crisis or pandemic, voters count on the best recovery that money can buy. Who cares about another 20 to 30 percent of GDP in debt?”

But now the situation had changed and “long-term interest rates today are far higher than they were in the 2010s … Real interest rates are far more painful today than they were two decades ago when US debt to GDP was half what it is now.”

The arithmetic of the debt to GDP relationship brings into focus the developing crisis. If interest rates are less than 1 percent, or close to zero, then even a relatively slow growth of around 2 percent means the interest bill is manageable.

But if the interest rate on long-term debt rises to 4 percent, or even goes as high as 5 percent, then major payment problems rapidly emerge. The interest bill in the US is fast approaching $1 trillion, around the same level as annual military outlays.

Emerging out of the debt-ridden real estate market of New York, where his often-dubious operations were highly leveraged, this may be one of the reasons for the continuous war of words waged by US President Trump against Fed chair Jerome Powell, labelling him a “numskull” and a “moron” for his refusal to cut the Fed rate and threatening to sack him.

The relationship between debt, the overall US economy and the crisis it could produce were the subject of remarks by Larry Fink, the head of the giant BlackRock hedge fund, to a Forbes conference in New York earlier this month.

Pointing to the $36 trillion debt, he said: “We have a tax bill that’s going to add $2.3 trillion, $2.4 trillion on the back of that. If we don’t find a way to grow at 3 percent a year … we’re going to hit the wall. If we cannot unlock the growth and if we’re going to stumble along at a 2 percent economy, the deficits are going to overwhelm this country.”

The US growth rate may not even hit 2 percent as forecasts by the IMF put it at between 1 percent and 2 percent, with the possibility it could be lower if the Trump tariffs have a recessionary impact.

There is a kind of economic scissors process at work: Debt and interest payments are rising while the underlying economy is declining.

The worsening situation is not confined to the US. Bond markets the world over are coming under increasing strain.

In comments to the FT earlier this month, Amanda Stitt of the $1.6 trillion asset manager T Rowe Price, said: “It’s a classic supply-and-demand mismatch problem, but on a global scale. The era of cheap long-term funding is over.”

And many countries face a situation where they confront a rising bill for interest payments on the debts they have already incurred.

The UK government lives in fear of a repeat of the “Liz Truss moment” in 2022, when the attempt of her short-lived Tory government to finance major tax cuts for corporations and the ultra-wealthy through debt led to a financial crisis, only staved off by intervention from the Bank of England.

France, the third largest economy in Europe, is one of the more indebted. It is expected to spend around €62 billion on debt interest this year which is roughly equivalent to its combined spending on the military and education.

In Japan, where purchases by the central bank ensured that the rate on long term bonds remained below 1 percent, the interest rate on 30-year debt is now around 3 percent. Last month, Japan’s Prime Minister Shigeru Ishiba said the country’s fiscal situation was “extremely poor, worse that Greece’s”—a reference to the “debt crisis” of the 2010s.

The debt mountain, estimated to be $100 trillion worldwide, and the interest bill on it will rise still further because of the slowing of the global economy. On top of this is the increase in military spending by all the major economies amid the escalation of war.

The response of the ruling classes, in the US and in countries around the world, is to deepen the onslaught against the working class, to make it pay for the debt burden by cutting wages, jobs and social conditions imposed through ever-more authoritarian and fascistic regimes.

“World Wealth Report 2025”: Social divide deepens in Germany

Marianne Arens

The World Wealth Report 2025 by Capgemini, published on June 4, confirms that wealth in Germany is increasingly being concentrated ever faster among a tiny layer of the super-rich, while working people confront financial difficulties.

Champagne on ice [Photo by Harald Bischoff / Wikimedia Commons / CC BY 3.0]

Paris-based Capgemini is an international publicly listed financial services provider. According to the study by its research team, there has been a marked global increase of 6.2 percent in the number of super-rich individuals. In the United States in particular, the number of millionaires rose by 562,000 to 7.9 million—and this apparently even before Donald Trump took office.

In Germany, too, the gap between rich and poor is constantly widening. It is especially difficult here to obtain precise figures on social polarisation, as the wealth tax has been suspended since 1997, large fortunes are no longer accurately recorded in statistics. The richest of the rich keep a low profile, and mainstream journalists and statisticians mostly respect their demand for discretion. As a result, studies by different financial experts sometimes arrive at differing figures.

The Oxfam Report 2024 counted 130 billionaires in Germany—nine more than the previous year. The UBS Global Wealth Report 2024, which uses a somewhat narrower definition of wealth, identified 89 billionaires in the same period. According to UBS, there were 2.82 million millionaires in Germany in 2023, with their numbers steadily rising.

The Capgemini study defines millionaires as individuals who have at least 1 million US dollars in investable assets, excluding owner-occupied property. By this measure, it puts the number of German millionaires at around 1.6 million, a fall of 41,000 or 2.5 percent over the past year—attributed to economic stagnation. Globally, Germany still ranks third, behind the United States and Japan.

Another statistic from the Boston Consulting Group (BCG) lists 3,900 super-rich individuals in Germany. This group—which includes fewer than one in every 20,000 inhabitants—holds more than a quarter of all financial assets, amounting to over $3 trillion or nearly €2.5 trillion. In the BCG study, “super-rich” means having financial assets of at least $100 million; in 2024, their assets grew by 16 percent.

Capgemini estimates the combined wealth of all German millionaires at $6.32 trillion, or €5.4 trillion. Among the richest are the so-called UHNWI (Ultra High Net Worth Individuals), defined as those with a net investable wealth of at least €30 million. A super-rich individual of this kind has about a thousand times as much disposable wealth as their cook earns in a year—an average gross salary of €33,250 ($38,926)—while likely paying a higher proportion in taxes.

Manager Magazin estimated the number of Germany’s wealthiest individuals—those with at least $1 billion—at 249 last year, 23 more than the year before. At the top are Lidl founder Dieter Schwarz (€43.7 billion), the BMW heirs Klatten and Quandt (€34.4 billion), and the Merck family (€33.8 billion). Together, the richest 25 own €440 billion—an amount approaching this year’s entire federal budget of €503 billion.

Regarding the federal budget, it is devised to ensure that the gigantic military spending does not come at the expense of the affluent elite. It is a veritable war budget that the Merz government, a coalition of the Christian Democrats (CDU/CSU) and Social Democrats (SPD), presented this week. It foresees a tripling of armaments expenditure within just five years. At the same time, Finance Minister Lars Klingbeil (SPD) is increasing tax handouts to business owners and the super-rich.

The Merz government also plans to reduce corporation tax on company profits from 15 to 10 percent. This tax stood at 65 percent immediately after the Second World War, in 1947. Since then, it has been steadily lowered, and particularly after the dissolution of the Soviet Union, it was virtually halved between 1998 and 2016. Now it is to be cut by another third, down to just 10 percent.

The colossal new borrowings envisaged in the federal budget will sooner or later be shifted onto the shoulders of the working class, whether through austerity measures and cuts to social spending or further municipal insolvencies. Schools and swimming pools, hospitals and care provisions, postal services and public transport are all being systematically run down.

In anticipation of the foreseeable social explosion, everything possible is already being done to divide the working class. That is the real reason for the agitation against migrants and refugees, spearheaded by the far-right Alternative for Germany (AfD) and implemented by governments at federal and state levels. The poorest of the poor are being scapegoated for a financial crisis that is, in reality, the result of the orgy of enrichment of the super-rich.

Already decided and largely implemented is the use of a pre-payment card for refugees given leave to remain, which makes their lives even more difficult since it restricts how and where they are able to spend the pittance they are given. Under Interior Minister Alexander Dobrindt (CSU), brutal deportations are being carried out. And in the new budget presented by Finance Minister Klingbeil this week, not a single cent is allocated to sea rescue organisations such as Sea-Watch and SOS Humanity.

As for the super-rich, they are withdrawing ever further from the social misery created by these policies. The Capgemini report notes the “striking trend” of an unprecedented transfer of wealth to the next generation, with an estimated $83.5 trillion expected to be inherited by 2048. This wealth will pass “to Generation X (37 percent), Millennials (44 percent), and Generation Z (14 percent).”

According to the report, this group of younger HNWIs differs significantly from older generations. The young super-rich are even more willing to take risks in business and financial investments and show a stronger interest in offshore investments in such places as Singapore, Hong Kong, the United Arab Emirates and Saudi Arabia. They also expect “tailored services,” such as so-called “concierge services,” and more.

In other words, this “young elite” have their healthcare, their children’s education, sport and culture privately organised and completely sealed off from the society they are increasingly abandoning. It is high time that society itself drew the necessary conclusion and in turn parted ways with this parasitic layer—by expropriating them without compensation.

US Supreme Court backs dictatorship in ruling on birthright citizenship injunction

Joseph Kishore

The Supreme Court is seen on Capitol Hill in Washington, Dec. 17, 2024. [AP Photo/J. Scott Applewhite, ]

The US Supreme Court’s decision in Trump v. CASA marks a new milestone in the collapse of American democracy. In a 6-3 ruling issued Thursday, the far-right majority sided with the Trump administration and stripped federal courts of the power to issue universal injunctions—even in cases where government policies are clearly unconstitutional. 

The immediate effect of the decision is to permit the government to prepare to implement Trump’s executive order targeting birthright citizenship—one of the most fundamental democratic principles in American law. This principle is enshrined in the Fourteenth Amendment, adopted in the aftermath of the Civil War to guarantee citizenship to all those born in the United States, regardless of race, ancestry or parentage.

But the implications of the ruling go far beyond this specific case. It guts the power of the judiciary to stop unconstitutional actions by the executive. It means that even when a federal court rules that a presidential order violates fundamental rights, the judge would have no power to prohibit the order from being enforced in the future.

The illegality of Trump’s birthright citizenship executive order, issued on his first day in office, is clear. As Justice Sonia Sotomayor noted in her dissent, the order “is patently unconstitutional.” She notes that by effectively abrogating birthright citizenship, the majority’s decision revives the Supreme Court’s notorious Dred Scott decision, which held that anyone of African ancestry could not be a citizen. After the Civil War, this ruling was overturned by the Fourteenth Amendment.

Several federal district courts have ruled the executive order unconstitutional, prompting the appeal to the Supreme Court. The Trump administration, however, did not argue for the legality of its order. Instead, it argued that nationwide injunctions must be ended—that is, even though its actions are flagrantly illegal, judges should be stripped of the power to order the Trump administration to stop.

Sotomayor laid out the sweeping implications in her dissent, noting that the court has ruled that “no matter how illegal a law or policy, courts can never simply tell the Executive to stop enforcing it against anyone. Instead, the Government says, it should be able to apply the Citizenship Order (whose legality it does not defend) to everyone except the plaintiffs who filed this lawsuit.”

In other words, the Trump administration asserts the right to violate the Constitution at will, tying up any legal challenges in district-by-district, plaintiff-by-plaintiff cases, with confidence that the fascists on the Supreme Court will back it, as it did on Friday.

“No right is safe in the new legal regime the Court creates,” Sotomayor warned. The ruling “renders constitutional guarantees meaningful in name only for any individuals who are not parties to a lawsuit.”

With this decision, the administration could implement sweeping and unconstitutional executive orders beyond what it has already done—bans on protests and strikes and the arrest of workers, censorship of political opponents and the press, and the stripping of other basic democratic rights—without fear of court orders halting enforcement on a nationwide basis. Rights, in this conception, become privileges available only to the wealthy, and the Constitution becomes a flimsy piece of paper that can be violated with impunity.

The Supreme Court’s ruling will also impact other nationwide injunctions that have temporarily blocked some of the Trump administration’s most reactionary policies. These include voter ID requirements impacting 19 states; a freeze on $3 trillion in federal funds; threats to strip $75 billion from public schools; and the elimination of legal aid for over 25,000 migrant children. 

Justice Jackson, in a separate dissent, described the decision as “an existential threat to the rule of law.” She continued: “If judges must allow the Executive to act unlawfully in some circumstances, as the Court concludes today, executive lawlessness will flourish… Eventually, executive power will become completely uncontainable, and our beloved constitutional Republic will be no more.”

Jackson added that “what it means to have a system of government that is bounded by law is that everyone is constrained by the law, no exceptions.” The court’s decision, in contrast, creates “a zone of lawlessness within which the Executive has the prerogative to take or leave the law as it wishes…”

In plain language, the Supreme Court has sanctioned dictatorship and executive lawlessness—so says a sitting justice. It has provided the legal architecture for an American version of the Reichstag Fire Decree, used by Hitler to assert unlimited powers. Indeed, the same court that ruled on Friday to permit nationwide enforcement of unconstitutional orders declared last year that the president is immune from criminal prosecution for acts committed in the course of his “official duties.” 

The ruling also exposes the role of the Supreme Court as a central mechanism in the establishment of a presidential dictatorship.

As the Court decision itself demonstrates, the turn to dictatorship does not stem from Trump as an individual. Trump articulates, in the most brutal and naked form, the interests of a ruling class that is breaking with all constitutional and legal restraints. Behind Trump and the Supreme Court stands the American financial oligarchy, whose wealth and power are incompatible with democratic norms.

The decision takes place under conditions of ever more blatant presidential criminality. The Trump administration has launched an illegal bombardment of Iran, escalated the mass roundups of immigrants, and has sought to deport student activists opposing the genocide in Gaza. The fascist gang around Trump has responded to the primary election victory of Democratic Socialists of America member Zohran Mamdani for mayor of New York with threats of violence, deportation and the criminalization of political dissent.

There is no meaningful opposition from within the political establishment. Just days before the Supreme Court ruling, the Democratic Party voted with Republicans in Congress to block a resolution to impeach Trump over his bombing of Iran. The Democrats are not opponents of fascism, but collaborators in the drive to dictatorship. They have facilitated every step of the assault on democratic rights, and they share with Trump a fear and hatred of the working class.

The dismantling of the constitutional order has immense implications for the social and political stability of the United States. The Constitution is what has historically provided the political framework binding together a vast and socially divided country. In tearing it apart, the ruling class is undermining not only the legitimacy of the government but the very institutions through which it has traditionally exercised its rule, including the courts themselves. In doing so, it is making the case for revolution.

There is massive and growing popular opposition to this assault. Just two weeks ago, millions participated in the largest anti-government demonstrations in American history under the slogan “No Kings.” The legacy of the two American revolutions—the War of Independence and the Civil War—remains deeply embedded in the consciousness of the population. With its decision, the Supreme Court has effectively declared: “Yes to Kings.” 

Panama’s government suspends constitutional rights to suppress worker protests

Claude Delphian

Protest march in Panama [Photo: @SuntracsPanama]

Since March, nationwide protests in Panama have erupted including by indigenous groups and unions who oppose a new pension law. Protests against Law 462, which includes Social Security reforms, blocked roads in Bocas del Toro Province in Panama starting in late April. The blockades sprung up at various points in Changuinola and Chiriqui Grande, along the route between David and Almirante, and on the busy Pan-American Highway.

“Nobody enters and nobody leaves the province of Bocas del Toro” was the May 6 report from Pulso Informativo’s Pedro Bautista on TVN.

Buses between Panama City and David paused operations, though some services were still running with passengers having to vacate one vehicle to cross the picket line on foot with their belongings before boarding another on the other side of the blockade. Protests also broke out in Panama City, though roads there were not being blocked.

Government officials, including President José Raúl Mulino and Bocas del Toro Legislator Benicio Robinson, called for dialogue with the protesting groups, emphasizing the damage being done to the country’s education, healthcare, tourism, and the economy in general. The politicians’ call was for protesters to be “reasonable” and bow to big business interests without addressing workers’ concerns over their retirements being stolen under the new law.

Law 462’s purported objective is to “maintain [the] financial viability” of the pension system, particularly for the system’s disability, old age, and death (IVM) program. This translates into a reduction in benefits for Panamanian workers within a few years. Such modifications are usually enacted with a future date for negative consequences in order to prevent the kind of protests now taking place from breaking out in the first place.

The legislation was presented as the product of “discussions with civil society, private sector representatives, and actuarial specialists,” which means that corporate interests are driving this attack on workers with the aim of realizing higher profits. Although corporations will gradually begin having to pay more into the system, they will get the benefit of having workers work longer with their retirement savings tied to business interests, benefitting the ruling class in the long term.

Under Law 462’s provisions, workers who retire within the next seven years will be grandfathered into the old defined benefit sub-system (SEBD pension), while workers who are set to retire after that will have their retirements fall under the newly-created Fondo Unico Solidario system.

In the new Fondo Unico Solidario system, public banks will manage 90 percent of the funds while allowing international asset managers to manage the remaining 10 percent. The new pension assets will be invested in Panamanian government bonds, US Treasuries, Government deposits, preferred stocks, insurance loans, and other corporate loans listed on Panamanian and US markets with a minimum rating.

The Panamanian government expects the new system to generate more returns (5 percent versus 3.87 percent) by tying workers’ retirement savings to the stock markets.

The government promises that workers will not be affected by the reforms. The age of retirement is still nominally set at 62 for men and 57 for women, but the plan sets the expectation that retirement age will increase by three years within the next six years in order to keep the plan from running a deficit.

Workers, particularly those employed by banana-growing giant Chiquita, saw the writing on the wall and began protesting the plan they said would make them work longer for less. The protests centered in the banana-growing region, leaving one person dead and dozens injured, including 14 police officers, according to official sources. Over 300 workers were arrested.

Chiquita workers went on strike in late April which prompted the company to fire thousands and force these workers to end their strike to renegotiate employment. Other sectors, like the teachers, continued to barricade the roads in the region and clash with police. About 30 percent of schools remain closed due to the strikes.

Authorities have claimed that protesters were violent, looting businesses, vandalizing the local airport, and setting fire to a local baseball field with police inside. “Looting and violence” are common buzzwords used by the ruling class to attempt to turn the local population against struggling workers and often have very little basis in reality.

Last week President Mulino declared a five-day state of emergency and instituted Operation Omega, which suspended several articles of the Panamanian constitution relating to the right to assembly and movement, the prevention of unlawful searches and seizures, the right to not be held without charges indefinitely, and other basic human rights. The state of emergency was set to expire on June 25, but has was subsequently extended to June 29. Over 2,500 police officers have been deployed in order to beat workers into submission.

The government has allocated $40 million for Operation Omega, money they would rather use to suppress worker outrage than to meet workers’ demands and invest it in their retirements.

National Police Director General Jaime Fernandez told reporters Monday that “we managed to take control of the situation.” He said that the protests and looting have stopped but “the threat remains.”

In addition to curbing constitutional rights, the government cut local telecommunications last Thursday, isolating many already remote communities from accessing the internet, contacting relatives, or even making emergency calls. The communications blackout continued, with no definite end in sight.

Security Minister Frank Ábrego, a US School of the Americas-trained former special forces officer, has blamed the unrest on the instigation of local gangs, while vaguely alleging that they have political backing in the banana production region of Bocas del Toro.

Chiquita’s mass layoffs, which cost the company $75 million including lost product, further angered workers in the region who rightly saw the firings as an open attack on workers’ rights.

The crisis in Panama comes as Washington’s pressure on the country mounts. The Trump administration has threatened to seize the Panama Canal for the United States. During a visit to Panama last week, US Secretary of Homeland Security Kristi Noem restated the administration’s demand for the Panama Canal to ensure that “US warships and auxiliary vessels can freely transit” through the canal.

The 82 kilometer (51 mile) waterway is a massive source of income for Panama, as well as a source of thousands of jobs. After an aborted start by France in 1881 due to engineering problems and high mortality rates of the local workers, the canal project was taken over by the United States in 1904 and completed in 1914.

The United States continued to control the canal until the Torrijos-Carter Treaties in 1977 began joint US-Panama control which then ended in 1999 when the Panamanian government assumed total control under the organization of the Panama Canal Authority.

The original locks are 33.5 meters (110 feet) wide and allowed the passage of Panamax ships to massively reduce the time and risk in transit between the Pacific and the Atlantic Oceans. In May 2016 after nearly nine years of construction completed by Panamanians, the Panama Canal Authority opened its new locks that allowed for the passage of the much larger Neopanamax ships through the canal.

Traffic through the canal each year has increased dramatically from about 1,000 ships in 1914 to over 14,000 ships in 2012. That year, the largest user countries were the United States, China, Chile, Japan, and South Korea.

US imperialism is practically salivating at the prospect of seizing the canal, providing its own ships free passage while denying the same to its primary geopolitical rival, China. A strike of this magnitude against the financial interests of US rivals like China would inevitably accelerate the drive to world war. This madness is precisely what the American bourgeoisie desires, as they seek to redivide the world in their favor using the military might of the United States and its allies.

Panama has had over 100 years of constant pressure and varying degrees of direct control by the United States. The US dollar is even used along with the 1:1 equivalent local currency, the Balboa, as the official currency of Panama. The Panamanian bourgeoisie is simultaneously stifled by the imperialist colossus to the north, while also taking its marching orders.

The attack on Panamanian workers are in line with the strategy and interests of the American bourgeoisie in its dealings with workers in the US itself. The relationship between US imperialism and the Panamanian national bourgeoisie is fraught with nationalist complications stemming from competing profit interests and coerced cooperation.

But the working class of Panama and the workers of the United States have no such complex relationship. The interests of the working class everywhere is the same, the ability to live a good life without exploitation, war and repression.

American workers and workers internationally must support Panamanian workers in their struggle for adequate wages and dignity in retirement and against US imperialism’s drive to subject Panama to colonial oppression.

The suspension of habeas corpus in Panama in response to worker protests is a stark warning to workers everywhere, as the ruling class of every nation is waiting for the opportunity to do the same to workers in their countries.