Across the globe, share values were in freefall at the start of this week. The collapse was fuelled by fears of a recession in the US.
This is a casino economy where financial panics spread like wildfire. But for millions of working people, here and across the globe, market chaos heralds more misery.
We have been encouraged to pile debt up in order to fuel the economy. Even a cut in interest rates won’t be passed on, so we will face higher payments on these debts.
The immediate cause of the market collapse was the fall in share value of giant US insurance companies which insured bonds issued by municipal authorities to finance road building and other projects.
These projects are similar to the Private Finance Initiative (PFI) schemes pushed by Gordon Brown.
Private investors expect a huge payback but also insure their investment. If the current collapse means they cannot find such insurance the government will have to step in at a huge cost making PFI schemes vastly more expensive.
Britain’s budget deficit looks set to breach the limit set by Gordon Brown at 40 percent of public income. If it is breached, the European Central Bank can instruct the government to cut public spending.
In fact, the treasury has already pledged to cut spending. Past experience shows it is health, education and welfare which will be targeted.
That is one reason why Brown is so determined to cut wages for six million public sector workers, by holding down pay increases to 2 percent for the next three years.