THE Bank of England is acting like a rabbit frozen in the headlights of a powerful car.
It knows that, this Thursday, it wants to cut interest rates to try to slow up the rapid decline of the British capitalist economy, just as the CBI and the TUC is advising it. However, at the same time, it is also terrified of the inflationary whirlwind that it will reap by doing so.
It looks across the water to the US Federal Reserve Bank. The Fed has cut interest rates from 5.25 per cent down to three per cent only to see US production decline further, with joblessness growing and the dollar falling sharply against the yen and euro, touching off share crashes all over the planet.
Pressing on regardless, the Federal Reserve chief, Bernanke has spelt it out to Wall Street that the US will continue to slash rates.
This reckless tactic is in fact putting acute pressure on the Chinese and other governments that hold multi-billion dollar US Treasury bonds that finance the huge US government deficit.
They are being driven to contemplate turning away from the US dollar into gold, bankrupting the US in the process.
The US economy is a giant, while the British capitalist economy is a massively indebted joke. It cannot take the massive risks that Bernanke has decided on for the US.
In Britain there is £1.4 trillion of domestic debt, bigger than the entire economy itself.
The pound is rapidly falling in price, the economy is rapidly declining and its banks are battening down the hatches preparing for the worst to happen.
The HSBC, the UK’s largest bank, has just made a £8.7bn loss as a result of the collapse of the US sup-prime mortgage market. It has admitted that the outlook for the bank in 2008 was ‘uncertain’.
There have already been runs on British banks such as the Northern Rock, which has had to be nationalised after £100 billion was ploughed into it by the Brown government.
There are many Northern Rocks in the UK, and no government can bail them all out, that’s for sure.
A rate cut, and the consequent fall in sterling, will rapidly lead the way to a run on the pound Sterling and the banks, with thousands queuing for their money.
Inflation is already mounting rapidly as gas, electricity, fuel prices, and food prices rocket at a rate of around 20 per cent.
A further inflationary leap in prices will lead almost immediately to gigantic wage struggles by pauperised workers that will threaten the very existence of the state.
A rate rise will strengthen sterling but collapse what is left of the service economy, while crashing the housing market.
This is why the Bank of England is trembling at the prospect of what it should do about interest rates.
The prospect is that it will put its head into the sands and do nothing, awaiting the further development of the crisis.
The working class however does not have the luxury of being able to put its head into the sands.
Prices are now rising every day, pauperising millions of workers, and their families.
The working class must wake up its trade unions from their deep reformist sleep and insist that they fight to defend its living standards.
The unions must draw up their own cost of living index, made up of working class necessities, and insist that as well as annual increases there must be an increase every three months, in line with rises in the trade union cost of living index.
All industries that want to close or sack workers must be nationalised and be put under workers’ control.
Repossessions of workers homes by the banks must must be halted by trade union action.
There must be a programme of public works to build millions of homes and provide work and skilled training for youth.
The trade unions must be prepared to bring down the Brown government and to go forward to a workers government to put an end to capitalism.