MERVYN KING, the head of the Bank of England from 2003 to 2013, has added his name to the number of the capitalist world’s heavyweight banking fraternity who are openly acknowledging that the entire capitalist system is on the verge of one gigantic crash.
In his new book, ‘The End of Alchemy: Money, Banking And the Future of the Global Economy’, King, who presided over the collapse of the banks in 2007/2008 and who was responsible along with the Labour government of Gordon Brown in organising the billions of pounds bailing them out, is in effect confessing that it was all in vain.
Not only did all the massive bail-outs of a bankrupt banking system by the US Federal Reserve and the Bank of England fail to put an end to the crisis but, King is forced to admit, the subsequent measures taken by central banks and governments to resuscitate the banks and ‘kick-start’ the shrinking economies of the capitalist world, have only deepened the crisis.
The policy of pumping trillions of dollars, pounds, euros and yen, of worthless paper money into the banks through Quantitative Easing (QE) has only had the effect of creating an even bigger bubble in the world’s financial system.
The policy of handing out free money to the banks was augmented by the policy adopted universally by central banks of historically low interest rates; fuelling a massive inflationary rise in asset prices while at the same time leading to a deflationary crisis throughout Europe and the US.
This has created, according to King, a ‘prisoners dilemma’ for the central banks – if they raise interest rates and make borrowing more expensive they will kill off what remains of manufacturing industry.
It would also have a catastrophic effect on workers who have incurred massive personal debt just to live under austerity regimes. By not raising interest rates and keeping the free money tap turned on they are simply building up the global debt bubble to the point of explosion.
All this leads King to write: ‘Without reform another crisis is certain, and the failure… to tackle the disequilibrium in the world economy makes it likely that it will come sooner rather than later.’
King’s solution to this crisis is to raise productivity and reform the banking system.
By raising productivity King presumably is advocating a dramatic increase in the rate of exploitation of workers in the form of making them work harder for less money.
As for reforming the banks this has been the empty promise made by governments in an effort to convince the public that something can be done to tame the ‘excesses’ of the banks.
None of the reforms have worked for the simple reason that the banks are too big to fail and are in fact in charge of the capitalist system. This was recognised by another central bank ‘insider’ Neel Kashkari, head of the Minneapolis Federal Reserve, when he stated that America’s biggest banks present a ‘nuclear’ threat to the US economy and that the only way to reform them would be to break them up.
But in a recent speech, Kashkari admitted this was impossible, saying: ‘No rational policymaker would risk restructuring large firms and forcing losses on creditors and counterparties using the new tools in a risky environment, let alone in a crisis environment like we experienced in 2008. They will be forced to bail out failing institutions – as we were.’
Both King and Kashkari have seen the writing on the wall – another bank collapse much bigger than 2007 is imminent – indeed it has already begun with the collapse of banking shares across Europe and the UK in recent weeks – and that the working class will be expected to pay for it through savage austerity cuts, hinted at by chancellor Osborne over the weekend.
The only solution for the working class is to restructure the banks out of existence by bringing down this bankrupt capitalist system and advancing humanity to a socialist society where the banks and industry are under the control of and work for the benefit of all.
