"The most wrenching since the end of the second world war" is how Alan Greenspan, ex-head of the US Federal Reserve, described the current crisis engulfing the US economy. Other commentators are suggesting it will be the worst crisis since the Great Depression of the 1930s.
The collapse of Bear Stearns, the fifth biggest US investment bank, demonstrated once again to the world's markets that serious crisis is unavoidable despite all the attempts of the US central bank, the Federal Reserve, to prevent it by pumping liquidity into the markets on a vast scale. Further cuts in US interest rates are very likely, but they will not reverse the housing slump or quickly overcome the colossal debt burden of the financial sector.
The Bear Stearns crisis has echoes of Northern Rock, but on an even bigger scale. It is true that a private buyer was found to 'rescue' Bear Stearns. But JP Morgan was only prepared to buy it at a bargain basement price and on the basis of the US government underwriting it to the tune of $30 billion. Similar to Gordon Brown's failed attempts to get Virgin to buy Northern Rock, the risk has been nationalised, while future profits are privatised.
The US subprime crisis began eighteen months ago. It still has much further to go but already around a million people have lost their homes. Wages are falling and unemployment is rising. The US economy accounts for 25% of world GDP and its consumer market is six times as big as those of India and China combined. When the US sneezes the rest of the world inevitably catches a cold. If the US gets a bad dose of flu, however, the rest of the world may well get pneumonia.
However, listening to Alistair Darling's UK budget, you would think that the sound of the biggest economy in the world, the US, entering recession had barely reached the ears of the British government. Darling did downgrade the forecast for economic growth in 2008 by half a percent to 1.75 from 2.25%, but then predicted growth would bounce back in 2009. Most economic commentators have warned, rightly, that this is grossly over-optimistic.
It is true that, unlike in the US, the British economic crisis has not yet reached the point of impact and it is not possible to predict exactly when it will. Nonetheless, it is coming and the first effects are already being felt. Britain's biggest bank, HSBC, has announced a loss on its US housing investments of almost £9 billion. A glimpse of the scale of the credit crunch, and how much worse it could potentially get, was shown on Tuesday 18 March when the Bank of England offered the banking sector an extra £5 billion in emergency credit; the banks tried to claim more than £23 billion.
Even now, the coming economic storm is beginning to impact on the lives of working and middle class people in Britain. House prices outside London are falling. In some cities they have already dropped by between 5 and 10%. Even before the latest turmoil on the stock markets, mortgage lenders were withdrawing more than half the mortgages they had previously offered. Effectively, it is no longer possible to get a mortgage unless the bank has cast-iron guarantees that you will be able to pay it back.
Some estimates suggest that 50,000 jobs will be lost in the City of London this year. This in turn will result in job losses amongst the many workers who service the city. The finance sector plays such a dominant role in the British economy (it was responsible for 30% of overall growth in Britain between 2003 and 2006) that the growing crisis there is bound to affect the rest of the economy.
Against this background, Alistair Darling's 'more of the same' budget has gone down extremely badly. The latest opinion polls show the Tory lead over Labour growing, one giving them a 13 point lead - the highest in over twenty years.
Six weeks ago polls showed that New Labour still had a seven point lead over the Tories on the issue of the economy. Post-budget the Tories have an eight point lead on this issue. This could be temporary - the opinion polls are very volatile - a reflection of the extremely slight difference between the three establishment, pro-big business parties. Nonetheless, it is a very worrying sign for New Labour that it is no longer seen as trustworthy on the economy, even before the crisis really bites.
However, they should not be surprised. Darling's budget continued New Labour's consistent record of attacking the working class and helping the super-rich. There is enormous anger in British society at the growing gulf between the majority and the tiny elite of billionaires. Even looming economic crisis has not brought the orgy of money-making by the 'masters of the universe' to an end.
End of year bonuses for 2007 in the City of London exceeded all previous records. Responding to this pressure, the government had proposed a £30,000 tax on the 'non-doms'. But in the end, even this paltry measure, which LibDem leader Nick Clegg rightly described as "no more than a flea bite", was watered down.
Nor was the extremely minimal proposal to introduce a windfall tax on the energy companies carried through, despite British Gas announcing a 500% increase in its profits last year, at the same time as imposing double digit price increases on customers. The £50 increase in the winter fuel allowance for pensioners will not come close to covering the increased cost of heating their homes.
While there were continuing kisses for the billionaires, there were only kicks for the rest of us. The government made it clear it is intending to push ahead with trying to force 2.6 million people off incapacity benefit, along with its plans to force lone parents into work. In addition, public sector pay restraint and 'modernisation' (ie privatisation) of the public sector remain the order of the day.
Up until now, the anger that exists against New Labour's attacks on working class people has been partially muted because of the availability of cheap credit, and continued economic growth. In the coming period, this will no longer be the case. There is an overwhelming need for a determined trade union struggle against the attacks raining down on working-class people; combined with the development of a mass socialist political alternative that acts in the interests of working class people; rather than that of the billionaires.