THE disarray and panic that is a permanent state for the central banks of Europe and America was on open display yesterday.
In the US, the head of the Fed, Janet Yelland, told Congress that they would almost certainly be raising interest rates when the Fed meets on December 16. Any rise in US interest rates, which have remained at near zero levels for nine years, will drive up the cost of borrowing both for the banks, companies and, of course, the working class which is mired in personal debt running on average at about 130% of take home pay.
The effect of increasing the cost of repaying the trillions of dollars worth of debt by even a small amount will push the so-called ‘zombie’ companies into bankruptcy. These ‘zombies’ are in fact large multi-national corporations that have only survived the capitalist crisis by borrowing vast sums on which they can barely afford to pay even extremely low interest rates.
Raising interest rates is part of the ‘creative destruction’ being advocated by a section of the capitalist class and which involves huge sections of US manufacturing and mining industries being bankrupted in the hope that the strongest may survive. For the millions of workers struggling beneath a mountain of personal debt, they will certainly not survive.
In Europe, the ECB has pulled back from following the Fed lead, with its head, Mario Draghi, announcing that its Quantitative Easing programme of printing 60 billion euros (£43 billion) a month to hand to the banks is being extended by six months to the spring of 2017 – it had been due to end in September next year.
Even though Draghi extended QE, the money markets reacted with fury – they had been expecting an increase from 60 billion to 80 billion euros a month – the European stock markets crashed with record losses recorded in markets across the world.
These markets are completely addicted to floods of free money being dished out, first by the US then by Britain and now the EU, and the prospect of this supply being cut off spells disaster for them, dwarfing the crash of 2008.
Draghi’s surprise move was undoubtedly forced by the powerful German ruling class who, for historic reasons, have a justifiable fear of printing money to solve capitalism’s economic crisis. They have their own idea about ‘creative destruction’ which involves forcing the eurozone countries to stop struggling on by borrowing vast sums of this free money and running up unsustainable national debt and get down to the real task of implementing ‘structural reforms’.
The structural reforms they want to impose on France, Spain and Italy in particular are aggressive austerity cuts on the wages, conditions, pensions and welfare benefits of workers and their families along with the privatisation of all state-owned enterprises. They want to inflict on the whole of Europe the austerity measures inflicted on the Greek working class.
For bankrupt British capitalism, the world financial crash will be catastrophic. With over 80% of the British economy reliant on the banking and financial sector and its industry effectively wiped out, it is helpless in the face of the international crisis precipitated by the decisions of the Fed and ECB.
In fact, the Bank of England has always slavishly followed the lead of the Fed, making it certain that interest rates in the UK will be pushed up as well, driving what remains of UK industry into bankruptcy. For workers and their families who have only survived the crisis so far through cheap credit – the average UK household will be £10,000 in debt by end of year – any increase in interest rates will spell disaster.
What is clear is that capitalism is bankrupt, every attempt to solve its crisis by manipulating interest rates and the money supply has failed. It can only hope to survive by smashing up the lives of hundreds of millions of workers. For the working class, the only solution to this crisis is in the overthrow of capitalism through the world socialist revolution.
