Banks tremble at the thought of the end of Quantitative Easing

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THE pound fell below $1.49 against the dollar on Friday, close to a three-year low. Sterling traded as low as $1.4858 at one point.

The problem is that while the new Bank of England Governor, Carney, has warned that UK interest rates will not rise from 0.5% for up to two years, and that Quantitative Easing (money printing) will also continue, the US is now ‘talking recovery’ and ending its QE programme.

It has announced that in June its economy ‘strengthened’ with 195,000 jobs ‘created’. This has strengthened the talk of Federal Reserve chief, Bernanke, that the end of Quantitative Easing (QE) is in sight. The expectation is that September will see the beginning of this end.

Currently $85bn dollars a month, over a trillion dollars a year, are being printed or electronically created to be handed over to the banks in the form of bond purchases – a crucial life support measure without which they would collapse.

Bond prices fell, interest rates rose and share prices fell all over the capitalist world at the thought of the consequences of the ending of US QE.

However, the US economic miracle is itself something of a mirage. The unemployment rate remains at 7.6% because more people entered the labour force in search of work, according to the US Labour Department, while the US trade gap increased by more than expected to $45bn (£30bn) in May.

The figure of 195,000 jobs created, is itself undermined by the fact that many of the new jobs are part-time or very low-paid.

Richard Moody, chief economist of Regions Financial Corp, has commented that while the level of monthly hiring would be considered quite healthy in a fully recovered economy, the reason the labour market is still viewed with disappointment is because the US still hasn’t recovered all the jobs it lost in the downturn.

The result is that jobs are harder to find for older Americans who are unemployed and for younger people just entering the workforce.

‘The problem is the hole we are digging out of is so much bigger,’ Moody said.

The Federal Reserve has been buying $85 billion in Treasury and mortgage bonds each month since late last year.

The purchases pushed long-term interest rates to historic lows, fuelled a stock rally and encouraged consumers and businesses to borrow and spend.

The low rates have helped support an economy that’s had to absorb massive government spending cuts and a Social Security tax increase that’s shrunk paychecks this year.

However, many of the job gains are in lower-paying industries. The hotels, restaurants and entertainment industry added 75,000 jobs in June. This industry has added an average 55,000 jobs a month this year, nearly double its average in 2012. Retailers added 37,000. Temporary jobs rose 10,000.

The health care industry added 20,000 jobs, construction 13,000. But manufacturing, which includes many higher-paying positions, shed 6,000. The manufacturing sector has weakened this year, in part because struggling economies in Europe and elsewhere have reduced demand for US goods.

Many of the new jobs are only part-time. The number of Americans who said they were working part-time but would prefer full-time work jumped 322,000 to 8.2 million – the most in eight months.

The underemployment rate includes not only the unemployed but also people with part-time jobs who want full-time work and people who have stopped looking for work. In June, the underemployment rate rose from 13.8 per cent to 14.3 per cent.

The crisis of US and world imperialism continues unabated and is deepening, with oil prices once more on the rise as a result of the imperialist powers setting Libya and then Syria ablaze.

The US ruling class has now decided that it cannot continue with printing trillions of dollars for the banks in this situation. The withdrawal symptoms will be of a catastrophic nature constituting the death agony of a bankrupt social system.

There is only one way out of this crisis – it is to replace bankrupt capitalism with world socialism, through the victory of the world socialist revolution.