A sudden tumble on US stockmarkets has sent panic around the world. US stocks had their worst week for two years in February, down at one point by 10 per cent.
This sparked falls around the world, with Australian stocks down almost 5 per cent the same week.
Politicians and pundits rushed to reassure people that it was all 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.”
The New York Federal Reserve’s William Dudley dismissed the falls as “small potatoes”, saying, “the global economy is growing quite quickly”.But 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.”
After the global crisis of 2007 central banks slashed interest rates and injected billions in cheap credit through the British Quantitative Easing and other schemes.
This stoked new financial bubbles—and inflation—but didn’t solve capitalism’s underlying problem of low profitability. As one banker put it, “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 per cent to 10 per cent since 2007. In Italy and Spain it has tripled—and the US is even worse at 12 per cent.
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.
By Tomáš Tengely-Evans
Socialist Worker UK