THE US Federal Reserve has raised interest rates by 0.25 of a percentage point – its first increase since 2006.
This is after years of near-zero interest rates, while the capitalist state promoted quantitative easing, and massive austerity programmes, so as to provide the banks with trillions of dollars, euros and pounds to keep capitalism from completely collapsing.
Now, the US Federal Reserve Bank has inched open the floodgates, with a 0.25% increase in interest rates to 0.5%. This tiny increase, made with trembling hands, so as to ‘return to normality’, has begun a process that will force interest rate rises worldwide, with major companies and states going bust in the process.
The US’ capitalist rivals cannot stand idly by and watch the almighty dollar appreciate, with capital flowing into the USA. They must respond in kind. Rising US interest rates will mean higher debt repayments for ‘emerging market’ governments and businesses – as the amount owed is denominated in dollars.
And with higher interest rates in America, investment capital will be encouraged across the Atlantic and away from Europe and Asia in the hunt for better returns. The Fed decision will force the Governor of the Bank of England, Carney, and his colleagues on the Monetary Policy Committee, to raise interest rates in Britain early in 2016. A UK rate rise will see hundreds of thousands of homeowners unable to pay their mortgages and face repossession, as well as making the over £1 trillion of household debt unrepayable. As well, the cost of borrowing for both the capitalist state and private capitalists will rocket upwards.
Economists had argued, too late in the day, that rates must rise, to prevent excessive consumer borrowing and prevent bubbles emerging in the housing market and other types of assets. Now they are set to burst!
Higher interest rates will also drive down the ‘emerging’ economies, who rely on exporting commodities such as oil, coal, iron ore and food. However, in the front line of those who are about to be sacrificed as the crisis of capitalism deepens is a US working class which is trapped in personal debt running on average at about 130% of take-home pay. As well, the effect of increasing the cost of repaying the trillions of dollars worth of debt by even a small amount will push to the wall large multi-national corporations that have only survived the capitalist crisis by borrowing vast sums on which they can barely afford to re-pay interest at the up-till-now nominal rates.
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. Now they will have to face the music. A feature of the recent Italian banks crisis was that the government resolved it by expropriating the deposits of ordinary people, causing at least one suicide. Under the Italian ‘bail-in’, to stave off collapse, bank depositors along with bank shareholders had their money confiscated in order to pay off the bank debts.
In the eurozone, bail-in rules, called the Bank Recovery and Resolution Directive (BRRD), will become law next month. This bail-in legislation is not confined to the eurozone; similar legislation is being driven across the capitalist world by the Bank for International Settlements through the various state central banks, including the Bank of England, the US Fed and the European Central Bank. Each country will enact its own version of the BRRD.
The truth is that workers who have endured massive austerity to save the bankers from 2008-2015, will not stand for their funds being expropriated to save the bankers and the bosses once again.
They will respond to such blatant attempts at theft with socialist revolutions to put an end to capitalism and bring in socialism.