IN his November Autumn statement, Chancellor Osborne was full of optimism that the crisis of world and British capitalism was being resolved, with his savage austerity measures playing a decisive role.
Less than two months later, in his January 7 statement he revised his position, saying that, ‘2016 is the year of mission-critical’ for British capitalism. His change of attitude is a product of the deepening crisis and the panic in the City of London.
Already, the US has raised interest rates and is set to raise them again. Britain will have to follow suit or see the pound sterling collapse. However, rate rises will create havoc in a situation where UK households have debt worth 135% of their income according to the Bank of England. The pre-2008 crisis norm was around 105%!
Unsecured borrowing from credit cards to personal loans is above its pre-crisis level, at £11,800 per household, up £600, according to the TUC analysis. Plus, those who took out a mortgage since 2007 have never seen a rise in the Bank of England’s base rate. And with the average mortgage charging interest of just 3.07%, even a rise of 0.25 percentage points would hurt.
It will mean the amount needed to pay interest on the typical mortgage would rise by 8%. Rate rises will mean hundreds of thousands of bankruptcies and evictions. Now the Standard Chartered Bank has predicted that oil prices will collapse to as low as $10 a barrel.
Only a major war in the Middle East between a Saudi-led coalition and Iran could drive oil prices up and save the major oil companies from collapse. As if this prospect was not enough, along comes the Royal Bank of Scotland in full panic mode with its war cry ‘Sell Everything!’
RBS had warned clients of trouble just before the 2008 crisis. It has now repeated its call with this advice to clients: to brace themselves for a ‘cataclysmic year’ and a global deflationary crisis, with stock markets falling by 20%. In a note to its clients the bank’s credit team said markets are flashing stress alerts akin to the turbulent months before the Lehman crisis in 2008. ‘Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small,’ it warned in a client note.
RBS added: ‘China has set off a major correction and it is going to snowball. Equities and credit have become very dangerous.’ With this perspective, the London stockmarket and its FTSE 100 index are facing their greatest crash. The RBS expects Wall Street and European stocks to fall by 10p% to 20%, with an even deeper slide for the FTSE 100. With its heavy weighting of crisis-ridden energy and commodity companies, the FTSE 100 is heading for the precipice.
As the RSB says ominously, ‘London is vulnerable to a negative shock. All these people who are “long” on oil and mining companies thinking that the dividends are safe are going to discover that they’re not at all safe.’ RBS first issued its grim warnings for the global economy in November but events have moved even faster than it estimated. It has now accused the US Federal Reserve of ‘playing with fire’ by raising rates into the teeth of the storm.
RBS is now calling for a retreat, even suggesting that there will be no rate rises by the Bank of England before the crash hits, and the next action by the Fed must be a humiliating volte-face and a rate cut.
Larry Summers, the former US Treasury Secretary, has joined the fray saying that it would be a mistake to dismiss the current financial crisis as froth. Demonstrating the validity of Marx’s theory of the Fetishism of commodity production and the markets, he has declared that the markets often sense a gathering storm when their formal masters, the policy-makers, are still asleep at the wheel.
The working class however cannot afford to engage in this mysticism and fatalism. Capitalism has long outlived any usefulness or necessity it had. It must be put out of its misery by the organisation and victory of the world socialist revolution, with its anarchy of production and worship of the markets replaced by worldwide economic planning to satisfy people’s needs.