ON Thursday night, the captains of British capitalism assembled for a sumptuous banquet at London’s Mansion House to listen to the latest economic plans from Tory chancellor, George Osborne, and the head of the Bank of England, Mark Carney.
While trumpeting a marvellous recovery, Osborne was forced to point out the dangers to the UK economy from abroad – where a ‘weak Eurozone, unpredictable geopolitics and the slowdown in some emerging markets’, threatened any recovery – and the dangers at home.
Osborne was downplaying these dangers, the Eurozone is not just weak it is completely disintegrating with the European Central Bank last week forced to introduce negative interest rates for banks and now reported to be on the verge of starting its own version of Quantitative Easing (printing billions of worthless euros to hand to the banks) in order to stave off a banking collapse.
Similarly, to talk of unpredictable geopolitics doesn’t do justice to the carnage wreaked by US and British imperialism across the world.
The crisis in Iraq and the threat to its oil supplies has already driven the price of oil up to a nine-month high, an increase that will mean sharp hikes in the price of petrol pushing up the cost of every single basic commodity.
While Osborne shrugged off these impending disasters, he concentrated on the big threat from within, the housing bubble, pledging to give the Bank the powers to cap mortgages and restrict the amount banks could lend in mortgages in an effort to depress housing prices and prevent a complete collapse.
Carney in his speech described the housing market as ‘the greatest risk to the domestic economy.’
He unexpectedly indicated that the B of E intended to raise interest rates much earlier than had been expected.
On the very day of his speech, commentators were confidently predicting any rise would not occur before April 2015 (just before the general election), now an increase in the near future is certain.
What is causing this desperate rush to increase interest rates from their historic low of 0.5% is the growing realisation that the banks and mortgage lenders are massively overexposed to huge debts that cannot be repaid.
When the housing bubble bursts, as it certainly will do very shortly, all the vastly inflated house prices and associated mortgages will cease to be assets and become bank liabilities.
Just as the US sub-prime mortgage collapse in 2008, this will bring the banks crashing down, bringing the economies of the capitalist nations down with them.
But the solution to drive up interest rates will have a catastrophic effect on the working and middle class.
According to housing specialists, 2.3 million households – that is 1 in 4 of home owners – are at risk of defaulting with even a small increase in interest rates.
This figure will escalate as further increases are heaped on month by month as planned by the Bank.
After 4 years of austerity that has seen wages and benefits slashed to the bone, the vast majority of families today are just clinging on financially.
Osborne’s great ‘recovery’ has been achieved not through any economic growth but through the massive accumulation of personal debt, including mortgages, credit cards and loan sharking.
The immediate prospect for the majority of mortgage holders is default followed by repossession.
For those without a mortgage the future is equally grim. With affordable social housing having been destroyed and millions forced into the private rent sector, the cost of these rents, already sky high, will go through the stratosphere.
Capitalism can offer no solution to the acute crisis of housing, every attempt to resolve it through raising interest rates will only have the effect of pushing millions of families out onto the streets or face the choice between eating or housing.
The only way forward for the working class is to advance to a socialist, planned economy, where the banks and land are nationalised and the resources of society are mobilised for a massive campaign of building decent, affordable homes for everyone.