Last week, the Bank of England issued another of its increasingly strident warnings that a ‘sudden correction’ in the value of major technological companies will inevitably lead to a financial crash.
In its twice-yearly Financial Stability Report the Bank said share prices in the UK are close to the ‘most stretched’ they have been since the 2008 global financial crisis.
In 2008 the entire capitalist world banking system was on the verge of collapse with banks having to be bailed out of bankruptcy and the working class across the globe forced to pick up the bill through savage austerity measures.
Today the fear stalking the Bank, a fear shared by the International Monetary Fund amongst others, is that this time the danger to the capitalist economy is coming from the meteoric growth of the AI sector.
The key pledge of these AI companies – to justify their huge share prices and encourage investors and hedge funds to provide the huge amounts required for the massive infrastructure these companies require – was that AI would improve technology while cutting jobs at the same time.
The Massachusetts Institute of Technology published research in August showing that 95% of companies already investing in AI were, in fact, getting zero returns on their investment.
According to the Bank, the growth of the AI sector in the next five years would be fuelled by these companies raising trillions of dollars of debt.
Its report cited forecasts that spending on AI infrastructure could be in excess of $5 trillion (3.8 trillion) and that around half this colossal amount would come through debt.
The report said: ‘Deeper links between AI firms and credit markets, and increasing interconnections between these firms mean that, should asset price correction occur, losses on lending could increase financial stability risks.’
Andrew Bailey, Governor of the Bank of England, said: ‘The AI sector is a particular hotspot. The role of debt financing is increasing quickly as firms seek large scale infrastructure investment.’
When these AI companies fail to produce the huge profits for their customers that they have long promised, then the Bank cautions that the sector’s reliance on debt would bring the entire world banking system crashing down.
The scenario causing the most worry for the Bank is that a crash in the debt-fuelled AI market would immediately spill over into the world banking market in the same way that the collapse of one US investment bank, Lehman Brothers in 2008, sparked an international meltdown of the capitalist banking system – only this time on an even greater scale.
The working class in the UK, US and Europe paid for the bail-out of the banks through vicious austerity cuts following the 2008 crash.
Today, what is in the immediate future will not be some ‘correction’ of the world’s banking system but the full scale collapse of a capitalist system that is surviving solely on debt and fast sinking into recession – a crash of epic proportions on a scale last seen in the Great Depression of the 1930s.
The powerful working class will not allow itself to be driven back to the starvation days of the 1930s.
The crisis facing the working class today is a crisis of leadership.
All the warnings from the Bank of an imminent crash have been completely ignored by the leadership of the trade unions who act as if it is nothing to do with them.
This crisis of leadership must be resolved by the working class forcing its trade union leadership to demand an immediate recall of the TUC conference to organise a general strike to bring down the Starmer government and bring in a workers government – a workers government that will expropriate the bankers and bosses, building a socialist planned economy.
Join the WRP and Young Socialists to build up the leadership required for the victory of the British Socialist Revolution – there is no time to lose.