“As things stand, there are enough bubbles that are set to burst within a year. When they do burst they will cause significant economic disruption. The fallout won’t lead to a 1929-style crisis, and it won’t resemble the 2001 dot-com burst. Rather, it will be more like the housing crisis of 2008.”
This was the recent prognosis of David Roche, former head of strategy at US financial giants JP Morgan and Morgan Stanley, in an article titled A Crash Is Coming.
Roche’s analysis is typical of a growing segment of the more astute defenders of capitalism who are pointing to the stress points in the global capitalist economy—particularly the huge bubbles that have emerged in the private credit market, state sovereign debt, and AI investment. Any or all of these, when they burst, could tip the global economy into a new recession or even a slump.
So, what is happening—and why? The collapse of US car parts supplier First Brands and subprime car lender Tricolor in September was indicative of increasing problems in private credit markets. JP Morgan chief executive Jamie Dimon expressed his concern: “My antenna goes up when things like that happen. I probably shouldn’t say this, but when you see one cockroach, there’s probably more. And so everyone should be forewarned at this point.”
The International Monetary Fund’s recent Global Financial Stability Review also highlighted the problem. IMF managing director Kristalina Georgieva said it was the issue that kept her awake at night.
Speaking at the IMF’s annual meeting in Washington, DC, she said the Fund was concerned about the “very significant shift of financing” from the banking sector to non-bank financial institutions (NBFIs). These NBFIs are not regulated as closely as banks, she pointed out, meaning the world could end up in “a difficult place” if the private credit sector continues to grow significantly while the global economy weakens.
Bank of England governor Andrew Bailey warned: “We certainly are beginning to see, for instance, what used to be called slicing and dicing and tranching of loan structures going on—and if you were involved before the financial crisis, then alarm bells start going off at that point.”
In other words, we are seeing similar practices to those that led to the 2008 subprime mortgage crash. Then, it was the packaging and repackaging of mortgage debt that was sold as AAA assets to financial institutions and investors—but proved worthless when the US property market collapsed.
The consequences of this casino capitalism led to eight million job losses in the US alone and an almost two-year-long economic recession. Capitalist governments, including those in the US and UK, were forced to nationalise major financial institutions to prevent liquidation. State intervention and hundreds of billions in quantitative easing followed to “save the system.” A decade or more of austerity ensued as those same governments made the working class pay for the crisis.
Private credit markets have since emerged as a critical source of funding for business as traditional banks have retreated since the 2008 crisis. In the case of Tricolor and First Brands, both made use of asset-backed debt and bundled loans to borrowers with little or no credit history, splitting them into tranches and selling them to investors.
So, history is repeating itself—only in an even more dangerous way. In fact, “traditional” banks are also deeply entangled in non-bank credit markets. According to Roche, banks have lent about 10 percent of their loan books to the intermediaries that create non-bank private credit. The shadow banking sector is now “bigger in Europe (3.8 times GDP) than in the US (3.1 times GDP).”
Roche continues: “Even a 20 percent loss on European non-bank credit… would result in a net loss of US $5 trillion. That’s the size of the German economy. The figure for the US would be US $7 trillion, or 24 percent of US GDP—the equivalent of French and Italian GDP combined.”
Bad enough? It gets worse for those who eulogise capitalism as the best possible system through which to organise the world.
AI bubble
Next up is the AI asset bubble, which is growing to gargantuan proportions. Such is the capital being invested in AI—primarily by US-based tech giants including Google, Meta, Amazon, and Microsoft—that it can never yield a profitable return.
“AI investment accounted for 40 percent of all US fixed asset investment (excluding construction) last year, yet it contributed only 0.5 percent of GDP growth. That is forecast to fall to 0.2 percent this year. Worse still, in 2025, US fixed investment (excluding AI and other IT) is expected to shrink by 3–5 percent.”
Annual AI investment is forecast to reach $1.5 trillion in 2025 in the US alone. A recent Massachusetts Institute of Technology report revealed that 95 percent of companies investing in generative AI have yet to see any financial returns. Sam Altman, the CEO of Chat GBT OpenAI, warned that some company valuations were “insane.”
The inevitable crash will have a devastating impact, given the intertwining of capital investment markets, the stock market, big tech, and millions of workers’ jobs. In the words of Stephen Roche: “The sums involved today dwarf most previous credit bubbles, and they penetrate the real economy deeply and ubiquitously, like arteries.” And like arteries—when damaged or diseased—they can lead to heart attacks, strokes, or other catastrophic events.
Amazon employs 1.2 million workers in the US. Yet by using AI and robotics, it aims to cut future employment by 600,000 staff by 2033, as well as reducing the current headcount by not replacing workers who retire or leave. In other words, capitalists are using AI to increase profit margins with fewer workers. Marx would have much to say about the viability of that, given that human labour power is the key source of surplus value.
Stock market volatility
A “market correction”—or crash—when it comes, will be brutal. Corporate insolvencies are already rising in both Europe and the US. In the UK, insolvencies have been at a 30-year high for the past two years.
“Fragility events”—huge swings in company stock prices—are dramatically increasing in the US.
Individual stocks have gained or lost more than $100 billion in market value in a single day 119 times so far this year—the highest annual total on record. This volatility is driven by derivatives, as retail investors and hedge funds pile into short-term bets on single stocks, according to Goldman Sachs.
The volatility of the tech giants—Meta, Alphabet, Microsoft, Apple, and Amazon—worth a combined $15 trillion and linked to the AI bubble, could be a precursor to an enormous financial crisis if and when investment funds begin to turn away from these stocks.
Sovereign debt is also another weight around the neck of the world economy. Debt-to-GDP for advanced economies will reach 95 percent this year and could rise to 123 percent by the end of the decade. The US, according to the IMF, will see its debt-to-GDP ratio rise by 20 percent to 143 percent by decade’s end—exceeding previous records set after the pandemic and surpassing the debt burdens of Italy and Greece.
This also reflects the serious decline of US capitalism, which has accelerated since the 2008 Great Recession. Trump’s election in November 2024 and the rise of economic nationalism and protectionism are driven by that crisis, which has imposed a deteriorating social and economic position on the US working and middle class.
The increased use of debt to maintain the functioning of the capitalist economy—and the repackaging of debt through complex financial instruments—is a sure sign of an economy locked in crisis.
Facing overall decline, capitalist governments have increasingly turned to the state for assistance. That was clearly the case in 2008 with bailouts and QE programmes funded through public money. But it hasn’t gone away. Even Trump is relying on a form of state intervention, including tariffs and direct investment through government stakes in private-sector companies such as Intel or rare earth producer MP Materials.
Trump’s use of tariffs has also added to the destabilisation and crisis tendencies of the world economy. With the average tariff rate for trade with the US now around 18.6 percent—the highest since the 1930s—the cost is increasingly borne by workers in the US and internationally through job losses and higher inflation.
China-US conflict
But it is the conflict with China that has dominated US strategic thinking over at least the last four presidencies. “You need America to be very, very strong to secure global security,” JPMorgan Chase’s chief executive said, explaining the bank’s new “Security and Resiliency Initiative”—a $1.5 trillion, 10-year plan to support critical US industries in advanced manufacturing, defence, quantum computing, and battery storage.
With China making rapid advances up the value chain of production in technologies ranging from EVs and renewable energy to semiconductors, AI, robotics, and military applications, Trump has been forced to compromise with the CCP regime.
The latest deal with China—a temporary agreement to settle the dispute over rare earths and minerals, which China dominates—has been critical to global manufacturers of advanced semiconductors and military technology. The conflict between the two powers will contribute to, and be exacerbated by, a new capitalist crisis.
There is no going back to the era when US imperialism was the sole dominant world power following the collapse of Stalinism in 1990–91. The CWI has long pointed to the emergence of a multipolar world, with a declining but still powerful US and a rising China as its dominant poles.
The end of the period of capitalist globalisation has given way—in this era of stagnation and decline for world capitalism—to an increasingly fractured world order, one in which beggar-thy-neighbour policies and inter-regional and national conflicts are pursued with a vengeance.
It is the working class and the poor internationally who are the main victims of this capitalist chaos. And it is the same working class who will be expected to pay the price of any new crisis that may erupt at any time.
However, the working class learns through experience. Just as the 2008 crisis brought in its wake mass workers’ struggles and the emergence of left parties and leaders—from Corbyn to Sanders, from Podemos to Syriza—so this new crisis will prepare the ground for new political developments.
This time, the ideas of socialism can emerge as a mass force. The vision of replacing rotten capitalism with democratic socialist planning will have mass appeal. Public ownership and democratic workers’ control and management of the world’s resources—to end poverty, inequality, and oppression—will attract millions to its banner. Ending the rule of billionaires and the super-rich, and replacing it with the rule of the majority—the working class—is the future we must fight for.