ON Wednesday the world capitalist crisis deepened after the US Federal Reserve cut its interest rate from 4.75 per cent to 4.50 per cent.
Its immediate impact was to send the US stock market upwards by 138 points, but to crash the US dollar.
The decision of the Federal Reserve was to ease credit restrictions on banks which have already been savaged by the sub prime mortgage crisis, and whose indebtedness was known. The rate was cut just a few days after Merrill Lynch declared an $8 billion loss!
However, even the Federal Reserve issued a caution to the banks not to expect any further easing of interest rates.
This half-hearted attempt to gain a breathing space by feeding the banks’ debt mountain was doomed to failure.
The rate cut was followed by a leap in the price of oil, which was already being driven upwards by the prospect of a Turkish invasion of northern Iraq touching off a generalised Middle Eastern war, and the news that US domestic crude stocks fell by 3.9 million barrels last week.
The price of oil rose to $96 a barrel, while gold hit a 27 year high of $799 an ounce, as the US dollar fell against the pound sterling and the Euro, with the pound reaching the unheard of heights of $2.08.
Yesterday afternoon Wall Street opened over 200 points down while the London FTSE-100 share index was 140 points down, with £30 billion lopped off share prices by mid-day.
The ever collapsing dollar means that there will now be enormous pressure on the Chinese and Japanese banks, that hold billions in US Treasury bonds which finance the US federal government deficit, to pull out, and buy gold instead.
We are on the brink, therefore, of a sudden deepening of the crisis where the US will be forced to defend itself from state bankruptcy by suddenly increasing interest rates, bankrupting a group of the major US banks, and with them the sections of US industry that they are associated with.
As the crisis emerges, the old saying that when the US catches cold the world catches pneumonia must not be forgotten.
The emergence of the sub prime mortgage crisis in the US caused a run not on the US banks but on the British Northern Rock bank.
The crisis erupted and came to the surface at the weakest point of world capitalism – bankrupt Britain whose domestic debt of £1.3 trillion exceeds the Gross Domestic Product.
The worsening of the US crisis will lead to a run on the grossly inflated pound sterling, and to higher interest rates in Britain that will see industries shutting down and tens of thousands of people losing their homes.
It is at this point that Brown’s government of all the talents will be enlarged to become a national government with a programme to impose the whole cost of the capitalist crisis onto the working class and the middle class.
Workers and their trade unions in Britain must get ready to resolutely defend their jobs, wages, pensions, homes and basic rights.
A new and revolutionary leadership must be built in the trade unions. The trade unions must draw up their own cost of living index, and demand wage increases that match the increases in that index.
They must fight all sackings and demand the nationalisation of all closure threatened industries.
They must oppose all attempts by the banks to repossess people’s homes, and instead demand that the banks are nationalised and mortgage debts abolished.
Moves to impose massive cuts and closures on the workers to prop up the banks must be met with a general strike to bring down the government and go forward to a workers government and socialism.
This programme of action marks the way forward.
