DESPITE all the recent words from Mark Carney, Governor of the Bank of England, about the underlying health of British capitalism, his actions yesterday revealed that the Bank is, in fact, desperately trying to head off an imminent banking crash.
Yesterday Carney ordered every bank in the country to put aside an extra £11.4 billion to deal with any ‘future economic slowdown’. Carney warned them they should be prepared for much tighter rules on credit card lending as the growing realisation of the massive personal debt run up by everyone in the country has turned into a full-scale panic amongst the Bank’s leading economists.
Among the new measures being insisted upon by Carney is that the rules on affordability checks on mortgage borrowers must be toughened up to try to stop them lending to customers who are unable to afford the repayments.
This is part of the new regime which follows on from the Financial Stability Report from the Bank’s Financial Policy Committee (FPC) that looked at risks in the banking system. According to this report there was a danger of banks becoming ‘complacent’ over the years because of ‘strong employment and economic growth’.
The FPC attempted to justify this sharp turn around – from claiming that the British banking system is healthy to suddenly declaring that the banks are at risk and need an extra £11.4 billion to stop them going bust – saying:
‘As is often the case in a standard environment, there are pockets of risk that warrant vigilance’, before going on to observe: ‘Lenders may be placing undue weight on recent performance of loans in benign conditions.’
All these soothing words about ‘pockets of risk’ cannot disguise the fact that the Bank is now terrified that the massive surge in unsecured loans, borrowing on credit cards and car finance especially, is vastly outstripping wages.
This has forced the Bank to completely reverse its decision last year to cut the ‘buffer rate’, the amount banks have to hold to cover bad debt, to zero. The situation is quite clear – the economic ‘recovery’ of world capitalism following the banking collapse of 2008 was based entirely on the massive expansion of debt.
Trillions of dollars, pounds and euros were created artificially through Quantitative Easing (QE) schemes and handed to the banks, while interest rates were kept at near zero levels to make borrowing cheap.
The banks and financial schemers used all this free money to speculate wildly on the world stock markets with company shares nowadays being hundreds of times more than the actual value of these companies. This bubble will inevitably burst and bring down the world capitalist banking system.
The central banks are terrified that unless this is curbed by cutting off the free money through ending QE and raising interest rates the whole system will collapse. But even a slight increase in interest rates ( currently at 0.25% – the Bank is forecasting a rise to 7%) will plunge ordinary workers, who have only survived austerity through accumulating cheap credit, into bankruptcy creating a mountain of bad debt that the banks have no money to cover.
British banks will go the same way as the Italian banks which had to be bailed out last weekend as they sank beneath the weight of billions of euros of bad debt. The banks will be relying on being ‘too big to fail’, confident that a Tory government will rush in and save them with another bail-out paid for by the working class through austerity cuts.
The working class, however, is not in the mood for another round of seeing its wages permanently held to poverty levels and its welfare state and NHS destroyed in order to keep the bankers in luxury and this bankrupt capitalist system staggering on.
The only way forward today is in the overthrow of capitalism through the victory of the socialist revolution in Britain and throughout the world. For the working class in Britain the immediate issue is to kick out this crumbling Tory minority government and go forward to a workers government that will carry out socialist policies including the nationalisation of the banks under workers management.