Late last Friday, Moody’s Investors Service, one of the world’s three main credit rating agencies, downgraded the sovereign credit rating of the UK and stripped the country of its coveted triple-A rating.
For over a year, all three ratings agencies have put Britain on ‘negative watch’; now Moody’s has taken the plunge in the aftermath of recent figures showing the UK economy contracted last year while the sovereign debt grew.
According to Moody’s, rising debt levels and ‘a deterioration in the shock absorption capacity of the government’s balance sheet’ meant that there was no short-term prospect of British capitalism dragging itself out of the economic gutter.
In their explanation of this downgrading, Moody’s stated it was due to ‘continuing weakness in the UK’s medium-term growth outlook’ and the risk that the government was failing to reduce the ‘high and rising debt burden’.
This sovereign debt is estimated to be a vast £1.5 trillion, well over 70% of GDP and likely to reach 90% in the near future.
Moody’s further warns that ‘any relaxation of deficit reduction’ would inevitably lead to a further downgrade – a clear threat to the Tory-led coalition not to hold back on the brutal austerity programme that is laying waste to jobs, cutting pay and benefits while at the same time smashing up the Welfare State in order to pay back the debts of the banks.
The hopeless reformists of the Labour Party leadership immediately jumped on this downgrade as ‘proof’ that the austerity measures should be relaxed a little, that the policies of the Tory chancellor, George Osborne, were somehow not working.
Osborne has always used as justification for the savage austerity cuts already made that they were vital in retaining the triple-A rating.
Osborne, however, read the threat from Moody’s correctly, saying: ‘Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it.’
As far as the international bankers and financiers are concerned, the reason Osborne and the government’s policies aren’t bringing down the sovereign debt is because they haven’t gone far enough.
They want to see the whole of spending on the Welfare State, schools, hospitals and benefits stopped and all that money handed over to the banks, an all-out war against the working class and every gain that workers have ever made.
The immediate effect of Moody’s downgrade was to drive the pound down on the currency markets against the dollar and the euro.
This collapse was good news for a small band of capitalist parasites, the hedge funds who make a killing out of ‘shorting’ currencies, that is, borrowing large sums of one currency on the market and then selling that currency and so driving down its price.
Once it has hit rock-bottom, you simply buy it back cheap – the difference between the high price you sold at and the cheap price you re-buy at constitutes a massive profit.
The king of the hedge funds, the multi-billionaire George Soros, is boasting of making a fortune by betting on the pound collapsing.
For workers and their families, the collapse of the pound means an immediate rise in the cost of living as the price of imported goods and foodstuffs goes through the roof.
Far from there being any relaxation of austerity or a reversion to some mythical ‘plan B’, as the Labourites constantly plead, the scene is set for a massive confrontation between the classes as the capitalist class attempts to smash the working class completely in order to rescue this corrupt and decaying system.
This confrontation must be resolved by the working class bringing down the government through an all-out general strike and going forward to a workers’ government that will expropriate the banks and end the reign of the speculators forever.