THE BANK of England’s Monetary Policy Committee met yesterday and voted to increase interest rates by 0.25%, pushing the rate up to 4.25% – the 11th consecutive increase by the Bank, hoisting the rate to its highest level in 15 years.
The Bank insisted it was forced to make an increase because the official inflation rate in the UK jumped up to 10.4%, driven by massive increases in food prices which have increased at the highest rate in 45 years.
In fact, the Bank was forced to increase the rate not just because of inflation, still spiralling out of control, but in order to keep up with the decision of the US central bank, the Fed, to increase its interest rate by 0.25% on Wednesday.
The simple thinking behind pushing interest rates up from near zero to 4.5% is that by increasing the cost of borrowing for everyone – banks, companies and individuals – their ability to spend is slashed, magically leading to a cutting of the price of goods and services.
The reality is that for companies it increases their determination to hold down workers’ pay, and sack workers, in order to afford their repayments on their debt, while for workers it means slashed living standards.
For the government, it will massively increase the interest repayments on the national debt of over £2.4 trillion, meaning the Tories will be insisting there is no money for public sector pay or investment.
The fact that all the previous increases in interest rates haven’t had the slightest effect on bringing down inflation is no deterrent to the bankers who see increases as a way of driving the working class into submitting to pay cuts.
The increase in interest rates has become a burning issue for the world banking system itself following the collapse into bankruptcy of the Silicon Valley Bank (SVB) in the US and the global giant Credit Suisse bank in Switzerland.
The underlying crisis that precipitated the collapse was that the banks had heavily invested in government bonds, supposedly a ‘safe’ investment, to store their investors’ deposits.
The effect of increasing interest rates inevitably drives down the price of government bonds meaning that when SVB had to sell the bonds it made a loss of $1.8 billion on this safe investment.
The Fed and the Bank of England rushed through panic measures to try and prevent the contagion of a banking collapse sweeping through the world.
SVB was closed down with the US government guaranteeing no losses to investors or shareholders while Credit Suisse was taken over by the rival UBS bank, a merger forced through by the central banks.
Following these collapses, the financial markets were confidently predicting that the Fed and Bank of England would at least pause any increase in interest rates to ‘calm’ the situation.
It now turns out that the central banks are pushing on with a world banking crash, confident that while weak banks go to the wall the stronger ones will survive through being bailed-out by pauperising the working class, just as they did after the 2008 crash.
However, the scale of the capitalist financial crisis is much greater than in 2008 and capitalism is on the brink of a world recession, financial collapse and a world revolution by the working class of the world.
This was spelt out by Sonja Laud, the chief investment officer at the financial service company Legal and General who told the BBC yesterday: ‘Over 70 years and every hiking cycle we have seen in that period, we have never seen a hiking cycle that has not led either to a recession – which is 80% of the cases – or a financial crisis, or both.’
She continued: ‘The question always has been why should this time be different? If you slam on the brakes, the chances are something will break and it is always the weakest links that are flushed to the surface first.’
The powerful working class will not allow its lives to be destroyed by the bankers and bosses but will take action across the world to defend its wages and conditions by putting an end to capitalism.
The most urgent task today is to flush capitalism down the drain of history through the victory of the world socialist revolution. For this to happen we must immediately build sections of the International Committee of the Fourth International worldwide to provide the leadership for a victorious worldwide socialist revolution.
