Fear gripped the ruling class as US stock markets haemorrhaged £1 trillion overnight on Monday. The slump quickly spread to Asian and European markets as soon as trading opened.
Politicians and pundits rushed to reassure people that the tumble was just a blip.
The CNBC news channel’s report began, “The first thing to know about the stock market’s eye-watering slide is that it wasn’t caused by anything fundamental.”
Such words are little reassurance to the millions of working class people who will fear being made to pay for another financial crisis.
The Tories and bosses would gladly slash more jobs and wages to protect their profits.
And decades of privatisation and deregulation mean that homes, pensions and savings are at the mercy of the stock market (see page 5).
The latest panic is linked to underlying problems in global capitalism.
The immediate trigger was a rise in US inflation and the threat of interest rate increases, which would spell bad news for capitalists at the moment.
FXTM chief market strategist Hussein Sayed warned, “The era of cheap money is ending and for markets who got addicted to it, it’s undoubtedly bad news.”
This stoked new financial bubbles—and inflation—but didn’t solve capitalism’s underlying problem of low profitability. As one banker put it this week, “This was volatility unleashed” because “the market is overvalued relative to fundamentals”.
Central banks are now looking at raising interest rates to stop the bubbles inflating too much.
But cheap credit has kept alive an army of unprofitable “zombie firms”. Some of these are deemed “too big to fail” because their collapse could trigger an almighty crisis.
The proportion of zombie firms in Germany, France and the other six major eurozone economies has risen from 5.5 percent to 10 percent since 2007. In Italy and Spain it has tripled—and the US is even worse at 12 percent.
All of this underlines the need for democratic planning and a socialist transformation of society.
Working class people’s livelihoods should not be at the mercy of what Donald Trump’s deputy Mike Pence called “simply the ebb and flow of our stock market”.
That means fighting for a socialist society that’s based on meeting working class people’s needs, not maximising profits.