The instability of the global financial system is such that various explanations have been put forward concerning its expected collapse. At one extreme it is argued that the sheer size of corporate, individual and government debt will produce a worldwide depression of its own accord, in the light of historical precedents. Evidence in support of such a view is based on tracking business boom-to-bust cycles, which can be interpreted as having the same sequence of phases: credit expansion, a peak in interest rates, a boom in property and shares, a bust in property, a bust in shares and then a contraction of credit. The expected crash would be catastrophic because of the unprecedented expansion in credit, encouraged by a false sense of security derived from the various protective mechanisms. At another extreme, the unregulated degree of government borrowing and the possibility of banks defaulting on commercial loans could trigger such a collapse.
85 countries experienced a serious monetary crisis in the last 5 years of the 20th century. These negatively affected over 1 billion people.
It is beyond question that the capitalist world system is in the grip of a global crisis: its symptoms and its consequences are clearly visible. Although the crisis has its familiar economic, political, social, and ecological aspects in the western industrialized countries, it is in fact a crisis of the world-capitalist system as a whole – and consequently of the countries of the Third World too. The socialist countries have also not been spared – depending on how much they have become integrated into the capitalist world-system. At the origin of the crisis is the gradual erosion of global hegemony of the USA, one of its outcomes is the development of internal contradictions or difficulties within the growth and partnership model in the industrialized countries.