Stock market crashes imminent?

On the contrary, given he says the credit squeeze is a "serious crisis", his analysis looks close to yours. Any road up, his belief in the crisis strengthening the economy is a figment of your imagination, it’s an elaborate inference from his statement that this “reckoning” is welcome. After all, it would be ridiculous for him to paint any of this as a nice idea, such reckonings are simply necessary.

If you've taken out a cash ISA Jef you are OK with interest rates going up. If you've taken out an ISA through a financial consultant and are paying one or two per cent... well, never give a sucker etc., etc.

I got a shares one through my bank so I reckon my money is long gone.

How long have you had it? If it tracks the FTSE, it's only back to where it was this time last year...

I think I started puting in at the end of 2005 start of 2006, so I might be ok.

Ah fuckit, I should ask revol for some stock tips.

Jef, if you pay someone to manage any fund they will take a percentage whatever the losses (or possible gains) thus reducing losses year on year.
You'd be better off backing the second favourite each way in an eight horse two or three year old non-handicap race.

Baboon I understand that they take a fee. I also understand that share trading costs money and I don't know shit about it.
I could have stuck in a cash ISA but I figured I'd make more on the stock market.

Do the ICC have a preferred ISA provider? Although what with their state socialist tendencies I think they'd be more in favour of premium bonds.

While July boasted the highest house price rises in two years, August has been a different story. Just a blip or is the bubble going to burst?

Mervyn King, the governor of the BofE, after saying that the BofE would not bail out financial institutions in trouble "recklessness" as he put it, said that he would only sanction helping out "in the national interest". These words were hardly repeated yesterday in the unprecedented bail out of Norther Rock (assets £113 billion). Northern Rock is no Barings 1995, and the bourgeoisie will not allow it to go to the wall. That the BofE has had to intervene on this scale in the national interest shows both the development and the crisis of state capitalism in the this particular expression of the debt/credit crisis.
The next development of the crisis overall seems to be the added spectre of inflation re-emerging. All the basic foodstuffs, the basic energy requirements of all countries, but particularly the major economies, are threatened with the rising prices working their way through the system now. Inflation can only add a further factor of instability.

Northern Rock is interesting because it has little direct connection with the sub-prime woes. Unlike Barclays which has had to pump in massive amounts of cash to save its various funds, for example. Instead it's a victim of the seizure gripping the money market which has been the result of the sub-prime debacle. The potential for contagion is clear.

What's also interesting is how this is being presented i.e. in the Guardian as the "first major financial institution in the UK to run into serious trouble as a result of the credit crisis ", apparently forgetting Barclays grabbed a whopping stack of cash from the BoE a couple of weeks ago. Also, according to Declan Curry on the BBC this morningthis is not a "bail out", it's a "loan" to tide the bank over a "short-term crisis". Poor Declan is really desperate to calm people's nerves - he moaned last week about how stock rises (which add billions to the market) never get reported.

Apparently there have been queues of people outside NR branches, desperate to get their money back - in short, a run on the bank appears to have begun. It remains to be seen how serious this will be in practice.

Shares of all the main mortgage providers have plummeted on the news, triggering a new round of stock market instability and apparently city vultures are already betting on who the next casualty is going to be.

The inflation baboon mentioned is already starting to hit domestic British food supplies. The English Breakfast could be under threat! Any story that mentions the British Pig Executive has got to be worth reading - and no, I'm not talking about the Metropolitan Police

these are two different things. Barclays borrowed overnight from the BoE for clearing purposes. Banks do this fairly often (though Barc was of course notable for the size, £1.6bn).

The BoE is actually saying that it will give Northern Rock "as much as it takes" to keep it afloat. Though NR is reportedly yet to draw on the facilities.

It is coming from the fact that banks are not lending each other money, not because NR has a load of bad loans on its books (it is actually pretty tough to get a mortgage from NR).

Also, Northern Rock depends raising money through selling its mortgages on to other banks through bond packages - something which has all-but dried up now. And unlike other high street lenders or investment banks it has little other business than mortgages, meaning it doesn't look too promising for the future ...

The BoE hasn't done a bail-out since the seventies, I believe ...

the BBC frontpage top story is interesting to watch, everytime i check NR's shares are down more... "Northern Rock shares plunge 22%" ... "25%" ... "28%" ... "32%"

I know ... seen that too ...

rumours had been spreading for a couple of weeks about Norther Rock, so my guess is hedge funds will have shorted on the bank, et voila!

more importantly (for me) - will savers lose all their money?

unlikely, it's one of the safer lenders.

There's an article in the Times about what happens when a bank goes bust. As the situation stands, I can't see this happening although it's almost certain NR will be taken over. On the other hand, this could be the beginning of systemic break down in confidence. If that happens, what happens to our savings is going to be the least of our problems!

Marshall, yes, Barclays was a different matter but it's still significant that they had to do it. All the financial press was concerned about it and was seen as symptomatic of something deeply wrong at Barclays. For a major clearing bank to be in such a condition is significant in my view.

One of the smaller mortgage lenders went bust last week. But that a lender the size of NR is in trouble shows the scale of the fallout current contaminating the markets.

OK, so the property bubble has finally bust, with collapse in sub-prime (US) and buy-to-let (UK) loans. What does that mean, for the future? (Other than giving people the satisfaction of saying "I told you so")

1. The housing market is going to be in decline for a few years to come, both in the US and in the UK.

2. That's bad news for speculators who borrowed money to buy existing apartments (buy to let) or build new ones (property developers). But few tears will be shed for them - they knew the risks, and raked in the gains for long enough.

3. It's not a big deal for everyone else - eventually (though not any time soon) the housing market will stabilise around a new, lower, equilibrium, and existing homeowners can go back to selling up and moving on when they want to just like in normal times. All it means for ordinary (non speculator) homeowners is that they will have to suffer the inconvenience of being unable to move house or move town for a few years.

4. Tenants wanting short term lets have a few boom years ahead - desperate bankrupt or semi-bankrupt landlords will be sitting on piles of unsellable vacant properties and will be cinches to win over for short term low rental deals. In the UK, short term rentally legally means (technically) furnished apartments and houses.

5. Builders are going to flat out stop building new housing units - no property developer is going to pay for housing which cannot be sold/can only be sold in a falling market.

6. That will throw huge numbers of construction workers onto unemployment, which then causes a recessionary impact on the wider economy, but especially in skilled working class residential areas.

7. In the UK, construction workers include a lot of Poles. They are unable to claim UK benefits if they haven't been registered as UK workers for a year. That might become an issue.

8. A lot of the gentrification projects many of us have been fighting against will be rendered moot by all this. Sadly the sites won't get turned over for construction/refurbishment of social rented housing (the obvious solution and need following housing market failure). From past experience, they'll be left vacant for a decade or more in the hope that interested private developers will someday re-appear. A powerful community movement would be able to stop that - someday I hope we'll have that.

9. In the wider economy, there is no reason for an overall recession to be triggered by this - provided the Fed (and other central banks) print money and pump it out to all the lenders who are in trouble. So far, that looks to be what they are doing. Lets hope they do do that, because the alternative is a real nasty restriction on credit generally, which would cause a several-year-long recession for everybody. That would be very bad news for most of the population, other than the wealthiest, so it is always a risk. But so far, it looks like central bank bailouts funded by printing money are the route that will be taken.

10. Printing money like that can lead to inflation. Inflation is also caused by rising oil prices, being driven by the wars and threat of wars in Iraq and Iran. We could now be entering into both situations at the same time.

11. Governments don't like giving pay rises to their own workers, but especially so in times of inflation (low public sector pay rises help bring down inflation). On the other hand, public sector workers especially demand cash pay rises in times of inflation. That gives rise to conflicts.

12. Wealthy elites don't like inflation - it erodes the value of their cash savings, acting like a tax from the rich to the poor. If it goes on long enough, they'll want to see the Fed and other central banks tightening up credit and raising interest rates (a reversion of the policies in (9) above, now justified for the wealthy elite because the sub-prime lenders who caused the problem in the first place will by now have moved into the clear). That'll damage and bankrupt small firms, and manufacturing firms, triggering a real full blown recession.
A powerful social movement wide enough to be involved in central bank issues would be able to stop that - someday I hope we'll have that. And a recession (if god forbid one should happen through this) will finish eventually. Capitalism continues onwards. A lot of us loose our jobs and homes through a recession, but without organised anti-capitalist political movements, the system itself will not be threatened.

minor runs on northern rock, 4-5% of deposits withdrawn so far... http://news.bbc.co.uk/1/hi/business/6996136.stm - on the tele cops were turning people away until monday because the queues were so long.

meanwhile, apparently their e-banking is experiencing 'technical difficulties' preventing withdrawals, while the talking heads are saying nothing to see here, move along, everything will be fine once the money markets get their confidence back.

Saw this on the news this morning. When you think about it, this is actually serious stuff. We're not talking about some insignificant bank like Barings or BCCI but one of the top 5 mortgage lenders in the country.

Some quick responses to afrasers post. I think this correctly identifies some of the troubles ahead, although we may quibble about the details. He elucidates the trap the bourgeoisie now find themselves very effectively: torn between the twin poles of credit crunch and rising inflation. The fluctuations in the commodity market suggest inflation could be making a serious comeback and I think this is going to be a decisive factor in how this conjunctural crisis evolves in the long-term.

He also states quite correctly that any recession will end, eventually. But he then suggests capitalism will just carry on as it has before. This is not the case. It will certainly carry on (this is not capitalism's final crisis by any stretch of the imagination) but it will be wracked by profound changes. The economic crisis in the 70s led to significant changes in the way the bourgeoisie managed its economic policies - the shift from neo-keynesianism to a pseudo-monetarist militarism. The recession in the 80s led the dismantling of large sections of its industrial base in the West. The recession in the 90s reinforced both these trends, but even more strongly and also contributed to the collapse of the USSR.

Some economic analysts are already talking about the changes in the financial industry that will result:

This may or may not be true, but they will have to find something which performs the same function to keep the economy going. If they can't, then we are talking about a period to come that will be wracked by crises far more extreme than what we're seeing now. The system cannot survive indefinitely under such conditions but although it's theoretically possible capital could dissolve solely because of the economic crisis, this seems unlikely to happen in reality. Instead, the ongoing economic crisis will fuel all the other self-destructive tendencies inherent within decomposing capitalism: rampant militarism, famines, social instablity, etc.

We all hope for a social movement that can challenge this perspective and there are signs of a growing potential for this. But we don't one that's going to be "involved in central bank issues"! We want one that will destroy central banks and the need for them. Ultimately, this is the only way out for working class.

afraser's post demonstrates a typical conservative position on these boards regarding the economic crisis of capitalism: a little hiccup here and there for capitalism, some possible consequences (some possibly positive), some sectors of the economy (possibly) affected, but, basically, everything is all right; the working class might be hit but such is life, capitalism is a positive, resilient system and (the implication is) it is will last forever. Meanwhile, things might change "someday"....though for what reason we don't know. Idealism and mysticism!
Already, millions of workers have lost their homes while still being lumbered with debt which afraser agrees to as an aside. Tens of thousands of jobs immediately gone in the financial industry. Tax and rate rises for the vast majority of workers from now. And the threat of a recession deepening every day. This is an expression of the fundamental crisis of capitalism, a crisis of the flight to credit and debt a policy that has been promoted by the bourgeoisie in order to keep the wheels of the economy turning from one day to the next. A world awash with fictitious capital, debt and speculation - the system is gangrened to the core and no amount of idealist wishful thinking about it "getting back to normal" (which is what the ideologues of the bourgeoisie have said from the start of this particular expression of the crisis) can hide that fact. afraser might support, welcome even, the "intervention" of the bourgeoisie into the money markets but he'd do better looking into the extent and depth of the economic crisis, steadily worsening since the late 1960s and taking a dramatic dive from the late 1980s. This is just one more expression of it, one more beacon along the way.
The fifth largest bank in the fourth largest economy in the world going under and being bailed out by the Bank of England. Only the first 2 grand of people's savings gauranteed, 90% of the next 30 and nothing after that. There's a lot more to come. For example, British banks have punted billions into valueless Chinese banks whose accountancy practices make Northern Rock look a model of probity and this is working its way through the system.

So, the US response to the initial onset of a collapse in a credit boom is to implement a sharp cut in interest rates

[http://www.ft.com/cms/s/0/a1fe0416-6610-11dc-9fbb-0000779fd2ac.html]

The problem for them is that there really is nothing else they can do. This is now the second time they've used the trick in a decade. They may be able to reinflate the bubble - although this is far from certain, at least in the immediate - but this simply make the next financial shock all the more dangerous.

So, to forestall an economic recession largely created by cheap credit, the US Federal Reserve has made it, er, cheaper to borrow money ...?

You really don't like the contradictions within capitalism do you Marshall?

The BofE after weeks of taking a very hands off approach to the crisis*, has injected £10 billion into the credit markets. This seems to be the latest of a series of humiliations, notably being forced to offer a guarantee to Northern Rock.

These actions, along with those of the Fed yesterday, show the absolute determination of the bourgeoisie to confront the crisis head on. It also shows the fundamental contradiction they face in doing so.

* This led to some critics in the city to describe the BoE's approach as "Victorian", i.e. laissez faire. A point often made on these boards is the change in the level of state intervention with the onset of the 20th century. The bourgeoisie are perfectly well aware of this change even if some revolutionaries are not. Banking crises were common in the 19th century, but did not attract the enormous state intervention at work today.

In the meantime, economists in the US have predicted that the housing slump in the US could be the worst since the Great Depression

Much is made about the stock market "bouncing back" and graphs showing prices "back to normal" again after financial upheavals. In the first place this ignores the job losses, directly and indirectly involved in financial upheavals (ie, contributing to the general increase in unemployment), the hits that pensions funds take and the general increases taxes that work their way through the system. But the price of shares is a very crude and unreliable indicator for the health of the economy (see the discussion above) and the dividend yield ratio is generally reckoned to be a better indicator of the economy's health. The last time I saw it, a couple of years ago, the dividend yield ratio was lower than in 1929.
Marshall is right; in order to try to overcome the problems that come from "cheaper money", debt and credit, the bourgeoisie are forced to cheapen money and extend debt and credit. This indicates to me not only the further development of state capitalism, but the crisis of state capitalism both now and in the longer term. Capitalism is not an eternal system.

Cutting interest rates (and printing new money like the Bank of England just did) is the standard thing to do in this circumstance. I just came across this in Paul Krugman's 1999 The Return of Depression Economics:

Which, hypocritically, was the opposite of what the IMF was then insisting on for Argentina and all the other expendable countries, but now is the second time since 1999 that rule has been followed in the United States.

The surrounding paragraphs from that book - it's the concluding chapter - are relevant also:

Although Marxian doctrine says otherwise, capitalism is in fact entirely stable - providing that obvious Keynsian measures like these (cutting interest rates, printing money for defecit spending) are taken in times of recession. Capitalism will be replaced only by deliberate human action, rather than waiting around for it to magically collapse of its own accord.

Afraser, I think you're carricaturing mine and baboon's view. We don't advocate waiting around for capitalism to collapse. We need to act now before it collapses (actually a slow deterioration, an epoch of catastrophe if you will), because if this happens it will take human civilisation with it. The economic crisis is the root of all the catastrophes humanity has endured in the 20th century and beyond. I have repeated several times that although I think a purely economic disintegration of the system is possible over an extended period, it's unlikely we'll ever get to that point because of the other self-destructive impulses fed by the economic crisis.

And your approach is completely ahistorical. You seem to see capitalism as some kind of pendulum swinging between opposite poles of boom and bust for all eternity. That view leaves no room for trying to understand the profound changes in the economy (and the bourgeoisie's management thereof) in the last 30 - 40 years, let alone the last century. And why you don't seem to understand the historic evolution of the world situation.

Finally, the fact that capitalism needs Keynesian intervention demonstrates it's not entirely stable. Why did the bourgeoisie invent Keynesianism when it had survived perfectly well without it for a good hundred years? Why did they throw it out again at the end of the 70s and develop the economic equivalent of alchemy, so-called "Reaganomics"?

It isn't at all surprising that, in general, current belief represents the ideology of the ruling class. From cradle to grave, day in, day out, we are indoctrinated to the view that capitalism is an eternal system. It is a popular view, even in anti-capitalist circles, that capitalism can go on for ever making movements here, adjustments there and so on. It was a view that sucked in even the most intransigent and far-sighted revolutionaries around the time of the world's biggest ever revolutionary upheavals. It's not surpising that this view persists. The consequences of it can be clearly seen in afraser's post in defence of idealism and his baseless "deliberate human action". Baseless, idealistic because there is no connection to reality except what afraser appears to think is a "good idea". It's a static, conservative, almost reactionary point of view. Capitalism, overall, is collapsing and if it continues unchecked, despite all the good ideas in the world, it will, sooner or later, take us all with it. Its trajectory is clear over the 20th C, just as the trajectory of this particular stage of its economic crisis is clear from the 1960s through the 1980s to now. The developments to maintain capitalism that afraser quotes are nothing but the developments of state capitalism begun by all states in the 1930s and expressed in fascism, stalinism and the democratic state. Today we are seeing the development of the crisis of state capitalism.
If the contradictions of capitalism, for example its drug-like addiction to increasing amounts of credit, can be continually put off to a higheer level, they are not contradictions at all but part of the mechanisms for the effective management of the system. This appears to be afraser's view. If it's the case that the "contradiction" of credit and debt is fully part of the effective management of the system, then why does the bourgeoisie need to make such a fuss about it. Why doesn't it just trumpet its mastery of its control of the system? Indeed, cretinous economists like Anatole Kalesky have hailed the state's recent interventions as a "triumph". But the more intelligent representative of the bourgoisie, even though trapped within the capitalist framework, know very well that piling up these contradictions to new levels mean that they will have their revenge (see for example, the invidious position of the governor of the Bank of England).
A "entirely stable" capitalism? Don't be silly. It won't "magically collapse of its own accord", it is collapsing, with eminently visible consequences, under the weight of its own contradictions.