I have already noted that the cryptocurrency market is crashing this weekend.
The risk of contagion into other financial markets is high because:
- The risk of Trump imposing unsustainable tariff rates of the sort he announced on China on Friday, triggering major market disruptions, is high.
- Far too many large companies now hold crypto assets.
- So too do some pension funds, utterly recklessly.
- By their very nature, crypto investors are volatile and prone to panic, and that sentiment is contagious. The flight for safety can very rapidly create broader financial instability.
These are the basis for my fears.
How far could markets crash? By a very great deal, I suggest.
The S&P 500 already reacted on Friday afternoon:
That was a 2.7% loss on the day.
But the capacity to fall a lot further is enormous. Nothing has justified the increase in value since mid-2023, and all of that is AI-based hogwash that is now more than ready to fall apart:
That market would easily fall by 40 per cent in that case.
This has been waiting to happen. It might not all do so this week, but such a fall is now possible. And so far, the UK media is almost entirely ignoring this.
I am not. And although I stress this might all blow over, the fundamentals very strongly suggest otherwise, with even the Bank of England suggesting that was the case last week.
I am worried, not because we do not need a correction, but because of the ramifications.
And the question is, have we got a government courageous enough to deal with this?
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The last big crash was 2008. The government has been avoiding creating money since then (with a short break for the pandemic). The government needs to create about £100billion a year (to offset inflation and support growth). It has 17 years of backlog (less some money created during the pandemic). The shortfall is, therefore, considerably more than £1 trillion.
Perhaps this is how the Minsky cycle works. When the crash happens the government is forced to create the money that should have been created before.
It could be a big crash.
“And the question is, have we got a government with the understanding and mental capacity (courageous enough) to deal with this?”
A cursory glance at the current cabinet shows a line up that would grace any circus clown troop. Courage? They have no capacity whatsoever to understand what is going on and what is needed – again a cursory glance at the weekly pronouncements of Reeves is enough to show this. She is utterly clueless and always has been (that is why she is there). The situation offers an opening for parties that have not been groomed by the usual finance suspects to make policy announcements and build a narrative – which could/should fit in with the need for a narrative to counter the garbage that comes from the Deform/Tory party.
Who knows how big the next crash will be?
Start at the current post 2008 bloated CBRA and work your way up from there. The BoE Neo-lib hacks probably set that amount naively with their fingers crossed behind their backs.
Last time it all blew up, the finance sector told us that it was so hard to manage complex transactions and the volume of ‘trades’ but were left to get on with it by your democratically elected governments. Add in the still under controlled derivatives market – code for ‘side betting’ on other people’s assets and insuring other peoples stuff so you get a payout which actually amplifies losses and as I said, who knows?
And now crypto – a shadow banking system added and allowed. It is a lack of courage that got us to this. I can’t see any being generated now.