LAST year the Bank for International Settlements (BIS) was alone amongst banks in warning that the situation had similarities to that at the time of the onset of the Great Depression.
BIS warned that years of cheap credit had created a financial bubble and that the bursting of the bubble would bring costs ‘much higher’ than was generally appreciated.
Yesterday the BIS spelt it out again. It said that ‘The current market turmoil is without precedent in the postwar period. With a significant risk of recession in the US, compounded by sharply rising inflation in many countries, fears are building that the global economy might be at some kind of tipping point.’
It added: ‘These fears are not groundless. The magnitude of the problems yet to be faced could be much greater than many now perceive. . . It is not impossible that the unwinding of the credit bubble could, after a temporary period of higher inflation, culminate in a deflation that might be hard to manage, all the more so given the high debt levels.’
The BIS is warning of an onrushing depression of a kind not seen since the 1930s.
Credit is now in short supply. The number of mortgages given to home buyers has fallen to an all-time low, according to figures from the Bank of England.
42,000 loans were handed out in May – down from 58,000 in April and a massive slump of 64 per cent compared to this time a year ago, when 116,000 mortgages were given to home buyers.
This is the lowest level recorded in any month since the Bank started collecting data in 1993, the year when negative equity cost tens of thousands of people their homes.
Bourgeois economists called the figures ‘dire’ and ‘disturbing’ and said the slump in lending pointed to a far longer down turn in the housing market than previously forecast.
The housing market is now grinding to a halt leading to a fall in prices and the growth of the negative equity trap for many tens of thousands of people.
House price falls of 15 per cent to 20 per cent are expected this year. and this is with fixed mortgage rates still rising.
The expectation is that £50,000 will be lopped off of the average priced property of around £200,000, leaving many thousands of people who are both unable to pay their mortgage debts or sell their homes to alleviate their debt.
New figures released by the Building Societies Association (BSA) show that lending in that sector also fell sharply in May.
Net lending by building societies in May was £125m compared with £1.2bn in May 2007.
Currently food, petrol and gas and electricity prices are rising at a prodigious rate, as are mortgage interest rates, leaving large numbers of suddenly pauperised workers and middle class people demanding wage increases that match the rises in the cost of living.
While the government is guaranteeing the banks, it is also guaranteeing to workers that their wages are going to be cut by three years sub-inflation deals.
The government is only interested in defending the bankers and the bosses.
The working class is being pauperised to provide the funds for the banks, and also to show speculators that the government has the situation under control, to try to prevent a run on the banks and on sterling.
Trade unions must move into action to defend their members from the catastrophe that is developing.
They must take indefinite strike action against all of the three year wage cutting deals and smash them.
To put an end to the crisis it must not stop there, but must advance to bring the Brown government down.
The action must continue with the trade unions using their strength to bring in a workers government that will expropriate the bankers and the bosses and bring in a socialist planned economy.
Nothing short of the working class taking power and putting an end to the capitalist system can resolve the economic crisis in the interests of the working class and the middle class.
Workers’ power through a socialist revolution is the only way forward.