"Black Mondays used to be a once-a-decade event - now they're coming along more regularly than a London bus" declared one senior London trader as the UK stock market suffered the biggest one day points fall on record.
Stock markets also plunged worldwide on Monday 6 October. Unsurprisingly, it was the banking sector which suffered the biggest losses. The 'credit crunch' is turning into a freezing up of the world financial system. Every day another bank teeters on the brink of collapse.
As The Socialist has repeatedly warned, the finance-dominated, debt driven boom of recent years could not continue indefinitely, and when it reached its limits the world would face a severe economic crisis. Faced with overwhelming evidence, this conclusion has now been drawn by the vast majority of capitalist commentators.
Jeremy Warner summed up the situation in The Independent, saying: "So destructive has this storm in the banking system become that without the correct policy response it is certain to plunge the world into severe recession or even depression. Even a month ago, I would have regarded this as an extreme view which was highly likely to be proved wrong-headed. Yet events have since moved with terrifying speed and there is now a very real chance of them ending very badly indeed."
Far from being able to find a 'correct policy response', the world's governments have been reduced to little more than horrified onlookers, desperately and empirically trying to intervene in response to the latest disaster unfolding before them. Their ineffectiveness was summed up by the president of the World Bank, Robert Zoellick, when he declared simply: "The G7 is not working".
No matter how many emergency summits or 'war cabinets' are held, the efforts of capitalist politicians are having a limited, and sometimes even a negative, effect. Chancellor Alistair Darling's speech, designed to calm the markets, was a trigger for the latest plunge in the FTSE ( Financial Times Stock Exchange Index) - wiping £100 billion off the value of shares.
The markets had hoped that Darling would announce a 'part-nationalisation' of the entire banking system, using taxpayers' money on a huge scale to rescue the banking sector. Instead Darling limited himself to generalities with virtually no policy content. Nonetheless, the government will have no choice but to introduce some kind of scheme along those lines - a British version of the US $700,000 Paulson plan - in order to try to avert catastrophe. However, as the continued nightmare on Wall Street shows, the announcement of such a plan is far from guaranteed to 'put a floor' under the crisis.
At one stage the possibility of a pan-European version of the Paulson plan was mooted. However, both the British and German governments have said that they will not take part in any EU-wide banking rescue programme. The crisis is laying bare the limits of the European Union.
One of the fundamental contradictions of capitalism is the antagonism between the world market and the nation state. In the previous decade, with the launch of the euro, it could seem superficially that European capitalism had been able to overcome some of those limits. However, this was never fully the case. And now, under the impact of economic turmoil, each national government is acting to try to defend capitalism in its own country, even if doing so damages the eurozone as a whole.
The Irish government broke ranks by declaring it would guarantee all banking deposits in Irish banks. In reality, few, if any, national governments have the funds to 'guarantee' all banking deposits. However, the Irish move put enormous pressure on other countries to follow suit, in order to prevent depositors moving their money to Ireland. A series of countries have done so. Germany, the biggest economy in the EU, panicked by the collapse of Hypo Real Estate, the second biggest mortgage bank in the country, made a similar declaration, only to partially retreat from it later.
As the tensions that have already developed indicate, as economic crisis develops, there will be a possibility of some countries pulling out of the euro altogether. Even a complete breakdown of the currency cannot be excluded.
However, Britain, outside the eurozone, remains among the most vulnerable of the major capitalist powers to the coming recession. The British Chambers of Commerce have described the outlook for the British economy as "exceptionally bad".
Under the pressure of the crisis, a show of unity has temporarily broken out in New Labour. The 'ultra-Blairites' have come behind Brown for now - summed up by Peter Mandelson joining the cabinet for the third time. This will enrage working-class people who remember him as the man who summed up New Labour by declaring: "We are intensely relaxed about people getting filthy rich" and was twice removed from the cabinet for sleaze.
Mandelson's rehabilitation is an indication that, while the government is ineffective and panic stricken in the face of the economic crisis, it is clear on one thing - the working class will be expected to 'tighten our belts'. Over the last three New Labour 'boom years', pay has remained stagnant for 80% of people, while family incomes have fallen for a third. As unemployment starts to rise, a determined struggle by the trade unions and the working class to defend our pay, jobs and conditions is urgently required. This needs to be linked to a mass repopularising of socialist ideas, as the only real alternative to the nightmare of twenty-first century capitalism.
CWI Britain and Wales