THE Bank of England governor, Mervyn King, has dropped a bombshell in a letter to the House of Commons Treasury Committee.
He revealed that the Bank had secretly intervened as the ‘lender of last resort’, to hand £61.6 billion to the Royal Bank of Scotland and Lloyds banks, in October and November 2008.
This was just after the collapse of Lehman Brothers when banks started falling like ninepins.
The so-called secret ‘Emergency Liquidity Assistance’ was on top of the billions of pounds of other support through loans and guarantees, and the £37 billion of equity investment pledged to both banks and Lloyds TSB, which later took over HBOS.
King, in his letter to Treasury Committee MPs said that the Bank acted as ‘lender of last resort’ to financial institutions in difficulty. It added that the Bank had decided to use its powers to prevent disclosure of the support in its 2009 Annual Report.
‘In most cases, confidence can best be sustained if the Bank’s support is disclosed only when the conditions that gave rise to potentially systemic disturbance have improved to a point where the disclosure itself should not be a cause of such disturbance.’ he wrote.
King told the Committee that the secret measure ‘was to prevent a loss of confidence spreading through the financial system as whole’.
King’s insistence that secret support of the bankers and bosses is the best rule, automatically raises the issue of how much more debt has the public purse been loaded up with secretly, and of how close the pound sterling is to disaster, and a British Weimar.
In his address to the Committee, Governor King scotched all the twaddle about a recovery.
He stated that ‘looking ahead the economy continues to face profound challenges’, and that the ‘lower level of spending has opened up a significant margin of spare capacity in the economy.’
He added: ‘That margin of spare capacity will act to pull down on inflation in the medium term.
Notwithstanding this effect, inflation is likely to rise sharply in the coming months, from its current level of 1.5 per cent to above the target, reflecting an increase in petrol price inflation and the prospective reversal of last year’s cut in VAT.’
His ‘vision’ is rising unemployment, a continuing slump with spare capacity growing, plus rising inflation.
He admits his fears concerning the banks: that ‘Powerful forces are continuing to restrain spending in the economy. Banks are actively trying to reduce their leverage. There is a long way to go in that process, and whilst it is continuing, the availability of credit to households and companies will be impaired. That, combined with uncertainty about future incomes and profits, will make households and companies reluctant to spend.’
He adds that ‘The need for a credible plan to consolidate the public finances is clear to everyone, and will mean a lower share of national income is devoted to consumption – either public or private – in the future.’
He concludes that ‘These forces will act to restrain spending for a considerable period.’
There is no recovery here, just banks that are so deep in debt that they will not lend, with the consumption of commodities falling along with rising inflation, rising unemployment and wage cuts as public finances are consolidated by the levelling of the Welfare State.
There is no future for the working class and the middle class under this bankrupt capitalist system, except to accept poverty, and repay the bankers’ debts and fight the bankers’ wars.
Capitalism is in its death agony.
The working class must be mobilised to carry out a socialist revolution that will expropriate the bosses and bankers, and bring in a socialist planned economy to organise production to satisfy people’s needs, not to satisfy the requirements of a handful of billionaires.