HOSTILITIES have broken out between rival gangs of economists on the eve of the meeting of the Bank of England’s Monetary Policy Committee (MPC) which will decide what to do about its interest rate this Thursday, currently at 5.5 per cent.
The Thatcherite monetarists led by Patrick Minford and Tim Congden are pointing to the collapse of the Sterling interbank market at the fastest rate in modern history, with market loans plunging from £640 billion in August to £249 billion by the end of September.
These economists are demanding up to a one per cent cut in the rate this Thursday, regardless of the inflationary consequences, and are angrily declaring that a failure to do this will be an act of irresponsibility that will lead to banks with no cash, and to a ‘profoundly deflationary credit downturn’, ie to a slump.
In the opposite camp is Derby University professor David Smith. He is accusing the monetarists of completely underestimating the inflationary danger, and not understanding the critical and dangerous situation that the MPC finds itself in.
He likened the situation of the committee to a party ‘walking along a narrow and dangerous Alpine ridge in a blinding blizzard’ who ‘can’t see anything’. What an indictment of capitalism and its High Priests that they are leading millions – while being blinded by bourgeois economic ‘science’ – towards the edge of a precipice.
He added that it is popularly assumed ‘that the risk is a credit implosion leading to a second depression, but there is also a serious risk on the other side of the ridge in terms of inflation.’
He warned that a huge inflation in gold and oil prices is taking place and that the situation resembles the inflationary period of the early 1970s after the Yom Kippur war when inflation rocketed upwards.
He concluded that it would be dangerous at this stage to consider that ‘the economy had fallen out of bed’ and that ‘there is a risk rates will have to go up next year, not down’.
The Bank of England is being advised to watch and wait, and to keep rates as they are, until the form that the crisis is to take reveals itself with crushing force. It is to act after the event.
The system of capitalist commodity production that humanity has created dominates the capitalists, the supposed owners of the means of production, with its economic high priests being amongst the most ignorant as to what is happening.
The Morgan Stanley Bank has also entered the fray, accusing Gordon Brown of preparing the way for a disaster in Britain.
Its equity report forecasts that earnings will contract over the year, and that house prices will fall by 10 per cent next year with further declines possible in 2009.
They are forecasting the ruin of hundreds of thousands of mortgage holding householders
Its equity report continues that: ‘As our Prime Minister has been so fond of telling us, the UK economy has enjoyed a record 15 years of economic growth . . . However instead of using this golden period to bolster savings and prepare for leaner times ahead, the public sector is in deficit’.
The report adds that a fall of over 1,000 points is possible in the FTSE index.
Brown is the chancellor who famously boasted that he had mastered the boom to bust cycle of the capitalist system and to prove his conviction sold a good portion of the British gold reserves when gold was on sale for a relative pittance, thus losing billions for the British Treasury.
At the time none of the banking fraternity criticised Brown, they were far to busy building up their debt mountains.
The capitalist system is heading for a major crash and the one thing that is absolutely certain about this situation is that the working class and the middle class will have to bear the full cost of the collapse.
The only way to resolve this sharpening crisis of the world capitalist system is to abolish it with a socialist revolution, that will replace the anarchy of capitalist production with planned production on a world scale to satisfy people’s needs.
