THE BANK of England yesterday vowed that it would ride to the rescue of the world’s financial markets by joining with other central banks to ‘ensure all necessary steps are taken to protect financial and monetary stability’ from the impact of the coronavirus.
The Bank’s pledge followed the lead of the US Federal Reserve which announced on Friday that it would do whatever was necessary to stop the historic collapse of the global stock market.
The Bank of Japan also joined in yesterday saying it was prepared to intervene to try and stem the crash.
This intervention by leading capitalist central banks follows the dramatic fall in stock markets last week as the money markets finally woke up to the fact that the coronavirus is developing into a worldwide pandemic.
Last week, over $5 trillion dollars was wiped out from world stocks as the reality finally dawned on the speculators and hedge fund managers that coronavirus is not some local difficulty confined to China and causing a slight hold-up in the supply chain of major manufacturers, but is threatening to close down major industries and tip giant corporations into bankruptcy.
Capitalism internationally has been steadily crushed under a mountain of debt already piled up by the central banks after the crash in 2008, and now the Bank of England, along with the Fed and Bank of Japan, are promising to avert the economic disaster by creating trillions more in worthless paper money to keep the entire capitalist system from its inevitable collapse.
It was reported in yesterday’s Telegraph that panic has set in amongst the world’s leading credit agencies, Moody’s and S&P’s, who have issued a warning about a world credit crunch and a world recession.
S&P’s head of credit research for Europe and the Middle East, Paul Watters, mused that this ‘Could be the straw that broke the camel’s back’ saying that sectors that rely on huge amounts of debt while making little profit are at risk of going bust.
This sector includes the European car industry, which last month saw Renault shares downgraded by Moody’s to the status of ‘junk’, – meaning that the company is viewed as a strong candidate for going bust unable to repay any of its debt.
S&P’s were a bit more generous rating it as BB -, just one rung above junk status, while the world’s leading car companey Volkswagen was rated at BBB+, just a hair’s breadth away from its shares being junk.
Other companies, especially in the health provision sector, are even worse than junk with their debts six times the amount of their earnings.
What this means is that all these companies and corporations across Britain, Europe and the US who have been kept on life support and who have commanded massive share prices through acquiring more and more debt are now faced with these ‘loans’ suddenly drying up as the investors pull their money out under the threat of default. These ‘zombie’ companies will go bust overnight and there is nothing that the central banks can do to stop it.
Turning on the money tap and creating an even bigger debt mountain will only increase the instability of the world capitalist financial system and hasten its collapse.
It will not magically re-open all the factories in China (which supplies the world’s industries with vital components and which accounted for 40% of all global growth in 2019) that have been closed down and show no signs of reopening, nor will it prevent the closure and lock-downs of factories and entire cities throughout the world as the pandemic spreads across all nations.
The fact is that capitalism stands on the very brink of a financial and economic crash that will dwarf anything seen before and there is nothing that the central banks can do to prevent it.
The coronavirus has exposed capitalism as a bankrupt system that can provide nothing for the working class except poverty and misery, and the only way forward is to get rid of it through socialist revolution. This is the time to build sections of the Fourth International in every country to lead the world socialist revolution to victory by expropriating the world’s capitalists and bringing in a planned socialist economy worldwide.