Debt among Debt
Debt upon Debt
The developed capitalism is based on debt.
Not only does the state need debt to function, but every corporation operates with profits it has never actually earned – there is no other way, because reality alone is insufficient to ensure profit maximization.
It’s about the hypocrisy of the debt brake (and why it is impossible), the contradictions of financial capitalism, and the incredible absurdity of the debt-based economy.
Reminder: The words highlighted in red are links to corresponding critique articles.
Below, we recommend the following articles, each dealing with mechanisms of capitalism:
“The New Planned Economy”: How AI and technological progress in information technology eliminate arguments against a planned economy.
“Dimitroff’s Wet Nightmare”: Why the American capital class openly turns towards fascism.
“The Doctrine of the Neutral State”: Why social injustice can never be solved by “better” politics in this state.
“The God of Bourgeoisie”: Why the crisis in capitalism is ongoing and insoluble.
Just a few months ago, the ultra-liberals in the Bundestag wanted to tell the workers of Germany: We have no money left, the era of debt is over.
“I want to explain why I am so clear about the debt brake: It protects the money and tax payments of the younger generation. And now some of the younger generation are here. Should we already spend their money today because we cannot get by with what we have? We collect 1000 billion euros in taxes per year, and we shouldn’t be able to manage that?” (Merz on Maischberger, 2024)
But once an election is won and the bourgeois opponents of debt are confronted with reality, they quickly say, “Given the threats to our freedom and peace on our continent, it must also apply to our defense: Whatever it takes.” (Merz), and the next billions are allocated for rearmament.
Although debt is nothing new; without debt, capitalism would collapse under its own contradictions faster than one might think.
Debt Republic
Before the Federal Republic of Germany even existed, immediately after the war, the still-existing “ERP Special Fund” (European Recovery Program, 14.4 billion euros) was established as part of the Marshall Plan.
To promote the economy, the Kreditanstalt für Wiederaufbau (KfW) was founded, which by 2018 had grown into Germany’s third-largest bank with a balance sheet of 486 billion euros – 25.6 billion of which is its equity capital.
In the 1990s, the special funds “German Unity” (82.2 billion euros) and the “Repatriation Debt Relief Fund” (177.7 billion euros) followed, in 2008 the “Special Fund for Financial Market Stabilization” (400 billion euros), and in 2009 the “Investment and Repayment Fund” (14 billion euros), which financed, among other things, the scrappage premium.
While debt brakes were simultaneously enacted, federal and state governments used special funds or “shadow budgets” to record hundreds of billions in debt– thus violating the EU’s idealistic Maastricht criteria, which require national debt to stay below 60% of GDP (more on this below).
In addition to national banks, the European Central Bank has been issuing massive loans since the 2008 financial crisis to protect the major European banks from their own contradictions.
During COVID, additional debt was added: 275 billion euros (2020), 162 billion euros (2021), 47.1 billion euros (2022), and around 260 billion euros (2023).
The Economic Stabilization Fund alone had a volume of 600 billion euros, which was not fully used but at least allowed the end of the traffic light coalition’s shadow budget in 2024 – you win some, you lose some.
The war in Ukraine has also proven more expensive than expected; already in 2022, the infamous 100 billion euros for “modernizing the Bundeswehr” were authorized on credit, a measure even bourgeois militarists dismiss as foolish, since the Bundeswehr, with its current funding, is already the richest army in Europe (75.25 billion euros defense budget, compared to the UK’s 60 billion, the second richest European military).
But at least: With the largest loans since reunification, Germany was finally able to contribute 2% of its gross domestic product to NATO.
Overall, the credit volume for rearmament over the next ten years amounts to around 400 billion euros.
The total NATO budget is about 1.2 trillion US dollars, with two-thirds paid by the United States.
For comparison: main adversaries Russia and China spend 132 billion and 246 billion dollars on defense respectively.
In China’s case, that’s less than 1.5% of its GDP.
In short: Germany has always borrowed money.
And yet, Germany compares quite well internationally: With a national debt (% of GDP) of 62.9%, it is well below the EU average (85%) and can hold its own against global partners like Japan (176%), the United States (123%), or France (111%).
In liberal understanding, however, the idea persists that this debt is not a structural part of capitalism but a result of some economic shortsightedness.
Both the CDU, AfD, and FDP campaigned on “returning to the debt brake” – and at least the first party scored well with it.
About half of the voters of each party say they voted for them for “economic reasons,” and among voters of other parties, 64% (CSU), 18% (Greens), 21% (SPD), and 24% (Left) support maintaining the debt brake (YouGov).
Therefore, 41% of the entire German population agrees that “no more debt” should be taken on.
But once the election for the debt opponents of the CDU was won, the picture changed:
Merz (CDU) and Klingbell (SPD) agreed in exploratory talks to codify a future 500-billion-euro special fund for infrastructure, and a general easing of the debt brake for defense spending in their coalition agreements.
Specifically, the rearmament of the Bundeswehr could “leave up to 130 billion euros unspent in the budget by 2028.”
At Lanz, Weidel (AfD) took advantage of the CDU’s opportunism by drawing attention to Merz’s voter deception.
But even the libertarian Weidel, of course, cannot do without more debt if she is to maintain her rule – she knows that too.
Debt in Capitalism
In developed capitalism, taking on credit is not an exception but the rule.
Companies invest not only their existing capital but also finance their production with borrowed money.
This lending is based on the expectation of future profits: banks grant loans not based on the actual assets of a company but on forecasts of how profitable the business will be in the future.
The bourgeois economy calls this “anticipatory capital formation,” Marx refers to it as fictitious capital: “With the development of interest-bearing capital and the credit system, all capital seems to double and sometimes triple itself through the various ways the same capital or even just the same debt claim appears in different hands under different forms.” (K3, p.)
This structure means that profit expectations are placed front and center, enabling credit issuance – a fundamental reversal of economic logic:
Instead of first producing capital and then investing it, investments are made with borrowed money, hoping to later generate profits.
This means companies invest large sums of money they do not own to generate profits that belong to them.
A contradiction that becomes a state-supported norm.
Because loans must be repaid and interest must be generated, companies are under constant pressure to increase profits.
It’s not enough to be merely economically active – every economic activity must turn a profit exceeding interest payments – a double profit principle.
If they fail, companies face difficulties and are driven out of the market, or, as in the case of many banks during the 2008 global financial crisis, bought up by others.
The Role of Financial Capital
Financial capital is not a neutral entity but an autonomous economic power.
Banks and financial institutions are not just service providers offering money to companies; through their credit policies, they determine the conditions of economic activity – deciding which sectors are promoted and which are not, which companies can expand and which will go under.
Each of these decisions is based on a rational assessment of which company might be most profitable for the financial institution.
Banks are not interested in producing goods but solely in maximizing their own returns:
A company or sector is only relevant to them if it promises sufficient profitability.
This renders the entire economic process governed by a unidirectional logic of profitability: everything that yields profit is financed; everything that does not is abandoned.
This profitability logic has, especially in recent years, through EU’s Troika policies (or the respective creditor institutions; ECB and IMF), led to the mass impoverishment of entire social strata.
For example, during Greece’s Euro crisis, the state was forced to cut social spending by 40%; the poverty rate rose from 27.6% to 35.7%, and 58.3% of young people faced unemployment due to forced privatizations – Greece had to prove its ability to repay debts, because if the state, like a company, is not profitable, it is discarded.
These mechanisms are especially evident during crises.
If banks doubt the profitability of certain economic sectors, they withdraw credit or demand higher collateral.
Conversely, small and medium-sized enterprises, generally more risk-prone, often cannot prove themselves for additional loans during crises – larger corporations and monopolies can.
Private equity firms, effectively the rulers of financial capital, then acquire indebted companies and make them profitable again – at the expense of workers.
There is empirically observable a mechanism whereby crises inevitably lead to further market monopolization.
Credit is not just a means to an end in capitalism but the central business instrument of the entire economy:
Companies need capital to finance means of production, raw materials, and labor, but instead of financing their investments from profits already earned, they take out loans.
This means that the advance of capital does not come from a company’s own resources but is enabled by debt.
And this not out of individual greed but from the structural necessity to maximize profit:
The real power of credit lies in its ability to surpass the limits of existing capital – because through credit, economic growth can be organized based on future profits.
In finance, “the capital relation takes on its outermost and most fetishized form” (MEW 25, p. 404); suddenly, money exists without being tied to any material production.
Speculation then involves fascinating phenomena, such as the value of wheat, where the actual trade between producers and processors amounts to about 5 billion dollars annually, but the volume of futures contracts is around 100 billion.
The Logic of Banks and the Nature of Financial Crises
Banks are not only lenders but also debtors.
They raise money from society – through deposits from private individuals, institutional investors, or other banks – and lend it out as loans.
This means the banking system itself is based on a double debt logic: On one hand, they owe interest and repayments to creditors; on the other, they must recover money from debtors.
This system only works as long as trust in the credit cycle remains intact – once doubts about loan repayments arise, a financial crisis ensues:
For example, the 2008 financial crisis, triggered by widespread risky mortgage lending in the USA, collapsed when it became clear many of these loans wouldn’t be repaid, destroying confidence in the financial markets, leading to a domino effect: banks lost their creditworthiness, companies faced liquidity shortages, and entire economies plunged into recession.
This mechanism is not an exception but an inherent feature of the capitalist financial system.
Credit is not merely a tool for economic activity but the foundation of the entire system.
In crises, central banks like the ECB intervene to maintain credit flow – providing liquidity to banks, buying securities, and cutting interest rates to stimulate investment. These measures aim to prevent the entire financial system from collapsing.
Banks and corporations depend on the continued flow of credit, but if confidence in the system’s profitability wanes, state institutions step in to artificially keep it running.
This mechanism exists precisely because of the contradiction between profit logic and the finite resources of consumers – a company can only sell as much as is bought; otherwise, more must be conceived.
At the same time, this logic creates a perpetual crisis, as the entire system relies on speculation about future profitability.
As real productive sectors reach their profit limits, capital accumulation increasingly shifts to speculative financial markets.
To “smooth out” the crises, the bourgeois state itself takes on massive debt to buy out and stabilize crucial organizations facing failure (if they are deemed important enough).
For example, from 2020, the ECB issued 1.85 trillion euros in government and corporate bonds through the “Pandemic Emergency Purchase Program” (PEPP) to save pandemic-hit companies.
This is ongoing: after the 2008 economic crisis, the German state committed 500 billion euros to bail out its banks confronting their contradictions.
The Economic Stabilization Fund is authorized for 200 billion euros to support weak parts of the financial capital.
We are not criticizing Keynesian capitalism here; the fact is, it simply wouldn’t work otherwise.
If the state tried to escape this staggering debt, it would only take a year for capitalism to collapse – both nationally and supranationally.
Primarily, because the state’s legitimacy depends on the support of major corporations; indirectly, because capitalism cannot reproduce its labor force without significant state subsidies.
The billions spent on short-time work during COVID weren’t out of charity but necessary for the reproduction of labor power, once the crisis ends.
The perpetual need for more debt is a logical consequence of capitalist accumulation, which is driven by an inherent growth imperative.
This imperative arises from the cycle of interest-bearing capital (stocks, mortgages, bonds, etc.), which constantly enables new investments by pre-empting future profits – all without respecting the limits of real value creation.
The existence of interest-bearing capital is thus a consequence of the limits of real, material capital (the capital tied to actual production), which is insufficient for continuous profit growth.
Ultimately, the state borrows fictitious money from companies that finance their own production with loans based on future profits, which in turn depend on demand artificially maintained by those very debts.
This process continues until the bubble becomes so large that even the most fictitious financial magic can’t sustain the illusion of stability – then either a new credit bubble is inflated or the central bank decides to create money directly from nothing to pay off existing debts, which were necessary to sustain demand and generate the profits that served as collateral for the loans companies used to finance their own production.
Simply put: debt is good, or bad, or just irrelevant.