ALARMED by the impending crash of over-valued world stock markets, the deputy governor of the Bank of England (BoE) warned investors yesterday to prepare for a sharp fall in asset prices from their present all-time high.
Sarah Breeden sounded the alarm about valuations being too high, adding she was kept awake at night by ‘a number of risks crystallising at the same time’.
She spoke as the S&P500 and Nasdaq on Wall Street both hit new records this week, despite the Iran war threatening to push up global inflation and damage growth.
‘There’s a lot of risk out there and yet asset prices are at all-time highs. We expect there will be an adjustment at some point,’ Breeden said.
She was concerned about a combined hit from a major macroeconomic shock, happening at the same time as other risks, such as a downturn in confidence in the private credit sector or a downturn in AI valuations.
One such shock was the announcement yesterday that Meta, the giant US tech company run by Mark Zuckerberg, was sacking 8,000 workers, 10 per cent of the workforce, and scrapping plans to employ another 6,000 to allow for heavy inversion of billions in AI technology.
On Thursday, Microsoft said it was offering voluntary redundancy to thousands of its US employees for the first time in its history. The software giant plans to make the offers in early May to about 8,750 people, or 7 per cent of its US workforce.
Tech companies have announced over 90,000 job cuts so far this year!
But, dire though the bank’s warnings are, the fast developing liquidity crisis of the oil-producing Gulf states now threatens the very existence of the global shadow banking and financial markets themselves.
Due to the illegal US war on Iran and its fierce resistance, the foundations of the global hegemony of the US dollar system faces collapse as the cash-poor petro states scramble to sell off their liquid US assets and investments to the US to raise ready cash.
The vast global flows of recycled petrodollars and investment capital from the Gulf to the world asset markets are drying up and going into reverse.
The Gulf states and Saudi Arabia have accumulated $6tn (£4.5tn) of assets in 11 different sovereign wealth funds, but now they need cash.
‘It is almost certain they will now be pouring less funds into the global system, and it’s entirely possible that some countries will need to draw down wealth if things get much worse,’ said Ken Rogoff, a Harvard professor and former chief economist at the International Monetary Fund.
They now need their cash, in a major and fundamental reversal of the petro-dollars siphoned off by the US and financial markets for decades.
A slowdown in outflows is one thing; a sudden reversal and panic-driven in outflows would be quite another, sending tremors through the global investment universe at a time when bond markets are already under stress and the US is pushing its luck with runaway fiscal deficits near 8 per cent of GDP as far as the 2030s.
Consequently, Qatar, Abu Dhabi and Kuwait are believed to have sold US dollar bonds quietly in private placements in recent days to raise cash.
Meanwhile, warnings of 9 per cent UK inflation were made as the Sainsbury’s UK supermarket chain warned shoppers about rising prices due to the illegal conflict in the Middle East, saying that the war will put ‘pressure on food prices’ and impact the cost of living at home, both for customers and business.
Clearly there is only one way out of this raging crisis of the dying capitalist system, with its plans for wars, famine and genocide for billions of workers globally.
This is for the working class to mobilise in general strikes across the globe to overthrow the warmongering imperialist regimes and their allies with socialist revolutions, to establish a world federation of socialist republics to provide the means of life to all workers and their families.
Join the Workers Revolutionary Party and Young Socialists to build the revolutionary leadership that the situation requires, to go forward to a socialist revolution in this crisis situation!