THE chief of the Federal Reserve Bank, Bernanke, has hinted heavily that the developing slow down of the US economy will be met with another interest rate cut, regardless of its impact on the already collapsing US dollar, and the flight out of the dollar into gold.
The thought of a rate cut has sent Wall Street shares soaring.
Meanwhile, the boss of the Bank of England is singing quite a different tune.
Like some soothsayer he has looked into the chicken’s entrails and seen a horrible vision, worthy of Macbeth’s Weird Sisters: ‘it’s the concern, the fear, the sheer uncertainty out there which is driving the risk that there might be a substantial credit squeeze’, he says pondering the prospect of rate rises.
Further: ‘The real risk’ is that ‘market fears about further moves in asset prices might impair the balance sheets of the banking system in the United States, which would lead to a classic credit squeeze’ – a slump and a banking collapse.
Meanwhile, the Labour government has increased its loan to the beleaguered Northern Rock bank to nearly £30 billion, lending an extra £2.7 billion in just the last week, raising its total loans to £29.8 billion.
The BoE has also announced a new five-week liquidity facility to try to ensure that the big banks don’t run out of cash over Xmas.
Governor King is wary that the Bank of England – at the same time as the US Federal Reserve is throwing caution to the winds to raise production and inflation by cutting interest rates – will be raising rates to counter rising inflation, despite the fact that output is falling.
The whole thing is making King feel ‘rather uncomfortable’ that ‘the Monetary Policy Committee (MPC) will not be able to keep inflation close to the target in the face of these further increases in commodity and energy prices.’
This is giving rise to an impossible situation for British capitalism where ‘We’re trying to balance the risks to inflation with the downside risk if activity slows sharply.
‘The committee’s current judgement is that the most likely outcome is for output growth to slow and inflation to rise at least for a period.’
King added: ‘With borrowing more expensive and less easily available, the personal savings rate is likely to rise, leading to slower growth of consumer spending.’
One MPC member, David Blanchflower, said that his concern ‘is that output would decline more on the downside than others had thought’.
He further warned: ‘If the housing market declines, there would be a decline in consumption.’
Another, MPC member Tim Besley has expressed fears of runaway inflation.
Meanwhile the mortgage lenders have pleaded with the Bank to cut interest rates to stop them going bust.
The latest report from the Council of Mortgage Lenders (CML) warns that, ‘funding pressures have started to crystallise for a number of lenders’. It says their ability to borrow from other financial institutions is getting worse, not better. The CML says the Bank of England should consider cutting interest rates sooner rather than later.
Rate cuts in the US and rate rises in the UK will lead to an intensification of the capitalist crisis and to a run on the dollar and then the pound, and a run on the banks.
In this situation the government’s sole concern will be to bale out the banks and place the whole burden of the crisis onto the backs of the working class and the middle class. There is only one way to resolve the deepening crisis of capitalism and that is by a socialist revolution that expropriates the bosses and the bankers and brings in a workers government and socialism.
