IN THE early hours of last Friday, a seismic crash in the value of the pound against the dollar caused panic amongst the world’s traders and speculators.
The value of the pound dropped by more than 8% from $1.26 to $1.1491 in just eight minutes. This represents a massive drop in the world currency markets where even a one cent change is reckoned to be a big deal.
Sterling, in the words of one analyst, ‘fell off the cliff’ in what has been called a ‘flash crash’. Thirty minutes later, the pound had recovered to $1.24, still a big drop of two cents. This sudden and unexpected collapse of the pound in a matter of minutes has had the experts rushing around trying to find a reason, blaming ‘fat finger’ syndrome or a rogue glitch in the heavily computerised world of currency trading.
Neither of these reasons can explain the fact that the pound has been dropping consistently since the working class stunned the bankers and bosses by voting to leave the capitalist EU club.
Since that day, it has declined to a 31-year low against the dollar. Most commentators in the bourgeois press are pointing to Theresa May’s speech to the Tory conference indicating that it would be a ‘hard Brexit’ – that is leaving the EU without any agreements on trade.
To this they add French President Francois Hollande’s warning that the EU would make British capitalism pay a heavy price to deter other countries following suit. The political crisis of the Tory Party and the economic crisis are inexorably linked today, with one affecting the other.
So fragile is British capitalism that a speech by May, designed to keep her Tory Brexiteers happy, rebounds immediately on the world money markets. Underlying all this is the fact that the pound is grossly overvalued, in no way reflecting the perilously weak state of the British economy.
The latest figures from the Office of National Statistics (ONS) on industrial production show that Britain’s industrial output fell in August by 0.4% instead of the predicted increase of 0.1%.
This fall was despite the fact that exports had been made cheaper by the devaluation of the pound. Separate figures produced by the ONS showed that Britain’s trade deficit with the rest of the world widened, with the UK’s deficit on trade in goods and services estimated at £4.7 billion in August, up by £2.5 billion from the previous month.
British capitalism will have to pay for this deficit by borrowing money from the international markets, but with the pound sinking like a stone and industry collapsing, these money markets will be reluctant to lend money except at a huge cost, if at all.
Meanwhile, the banks, on which the British economy is almost totally reliant, will find themselves locked out of Europe in the event of a ‘hard Brexit’, beset by thousands of regulations preventing them from moving their capital freely across Europe in search of profit.
The big banks, like HSBC, have already indicated they are thinking of pulling out of the country while those remaining will go bust. Meanwhile, all the borrowing to cover up the UK’s descent into bankruptcy will be paid for by the working class as far as the capitalist class is concerned.
Despite all May’s protestations about building a ‘fairer’ society, the only way for this bankrupt system to limp on will be to cut all public expenditure on welfare and the NHS while cutting the wages of public employees in order to pay off capitalism’s massive debts.
Entire industries like steel, where production has collapsed, will simply close down.
In this crisis the role of the leadership of the TUC, which is desperately crawling before May and begging to work with her in keeping this bankrupt system going, is beyond treacherous.
There can be no compromises; the unions must fight for every job and against all austerity cuts. A new leadership must be built to replace those who want to work with the Tories, a leadership prepared to organise a general strike to kick out the Tories and go forward to a workers government and socialism.
