THE Ernst and Young Item Club, whose computer model of the economy is the same as the Treasury’s, said last Friday that banking regulations that have been in place for a number of years must be suspended by governments, or the capitalist world and Britain faces a future that ‘will make 1929 look like a walk in the park.’
1929 was the year of the Wall Street crash and stock market crashes all over the capitalist world.
These led in 1931 to a national government in Britain and to massive cuts in wages and benefits, which ushered in the ‘hungry thirties’ and the hunger marches.
In Germany, the weakest of the major European capitalist states, the crisis created the massive currency inflation that undermined bourgeois democracy and prepared the way, with the failure of working class leadership, for the rise of fascism, Hitler’s victory in 1933, Germany’s rearmament, and the Second World War.
These events cost hundreds of millions of people their lives. They are now being termed a ‘walk in the park’ compared to the evils that bourgeois economists are now predicting will emerge as the capitalist world economy slumps – unless the floodgates of inflation are opened, they say.
Ernst and Young want to see regulations such as Basel I and Basel II junked. These are the mechanisms whereby a bank has to count eight per cent of its assets along with its liabilities, because of the risk of a run on its deposits.
The demands amount to a last desperate throw of the dice to try and obtain more ‘liquidity’ in the wake of last week’s Central Bank intervention of £50 billion aid to the banks, which came to nothing.
The Bank of England has already given an assurance, that after it turned itself inside out and abandoned its earlier refusal to aid failing banks, on the grounds that it would encourage more bankers to take even greater risks, it is now prepared to go much further.
It has now revealed that it is willing to suspend the Basel regulations as is being demanded.
The Bank’s Paul Tucker said in a recent speech that regulatory authorities around the world are monitoring banks’ ‘liquidity and capital positions, including the context of Basel II’.
Meanwhile inflation is marching onwards and upwards, led by oil, gas, and metal prices, including gold.
The inflationary surge is now forcing food, petrol and oil prices higher worldwide.
Food prices have sent inflation in the eurozone to its highest level in more than six years.
The 13-nation bloc that uses the euro saw consumer prices rise 3.1 per cent in November compared with a year earlier, up from October’s 2.6 per cent increase. The rise exceeded forecasts and is above the European Central Bank’s (ECB) 2 per cent annual target.
The ECB has refused to cut rates, faced with the sharpening contradiction of rising inflation and slower economic growth.
Energy prices climbed 3.4 per cent in November compared with a month earlier, while the year-on-year rise was 9.7 per cent.
Food prices rose 4 per cent year-on-year or 0.7 per cent month-on-month.
Meanwhile, US factory prices are at a 34-year high. Prices paid to US producers rose 3.2 per cent in November, the highest monthly gain since 1973.
The Bank of England is now going to be faced with demands for more interest rate cuts, regardless of its warnings about the dangers of rampant inflation.
The reality is that further rate cuts and a deregulation of the banks will expose Britain’s role as the most indebted of the world’s capitalist powers, and lead to a massive run on the pound and to the worst of all possible worlds, sky high interest rates and a slump in production.
The fact is that the sharpening contradictions of capitalism cannot be reconciled, they have to be resolved.
This can only be done by a socialist revolution. This will prevent any repetition of the events after 1929 by the expropriation of the bosses and bankers and the replacement of the anarchy of capitalism by a planned socialist economy.