US interest rates have now been increased to five per cent, with last Wednesday’s 16th monthly increase in a row.
In fact, the new chief of the Federal Reserve, Bernanke, promised there was more to come, saying ‘some further policy firming may yet be needed to address inflation risks’.
The immediate result of this was Thursday night’s 142 point fall on Wall Street, which continued falling on Friday, and was followed by collapses in stock market prices all over the world. This included Thursday’s 41 point fall of the FTSE-100 index in London which continued on Friday with a 90 point fall by midday, a £26 billion fall in share prices.
The US is already in the grip of a $655 billion trade deficit for 2005, which has worsened in 2006 with a $201 billion trade deficit for the first quarter of the new year.
The government’s spending deficit was $427 billion for 2005, a debt that is financed by countries like China buying US Treasury bonds.
Now the US dollar is falling towards 1.30 to the euro, while oil prices rose yesterday to $73 a barrel, and gold to $726 an ounce.
The US economy has been shattered by the near tripling of oil prices and the enormous rise in other basic commodity prices while a third of its trade deficit is in fact its deficit with China.
Now, threatening ominously in the background, are moves by China and other states to safeguard their reserves (China has reserves of $870 billion) by purchasing large quantities of gold (the only real money under capitalism), thus plunging the dollar into a nosedive, and with it the world’s paper fictional monetary system.
All the efforts of the US to stem this developing crisis by trade war attacks on its rivals and by the invasion of Iraq to capture its oil resources have only served to intensify its crisis many times over.
This has driven US imperialism into a frenzy, leading to massive attacks on the US working class such as the motor car workers, and plans for new wars particularly against Iran and other oil bearing strategic states.
US imperialism is at the centre of the world capitalist crisis.
However, the weakest link in the capitalist chain remains Britain.
Surveying the British capitalist scene in the aftermath of the latest US interest rate rise, the Bank of England chairman, King, raised issues about growing inflation. His fears have reached the point where he stated that the forthcoming increase in the minimum wage by 30 pence an hour, would result in wages being driven up all over the pay chain, and bring disaster.
The situation has reached the point where 30 pence an hour is going to bring down capital!
The outcome is that there are to be at least two rises in interest rates in Britain, to defend the pound sterling and dampen down an already super weak economy and a rampant housing market that is still in full inflationary flight.
The middle class already owe £1.3 trillion in household debt, and individual bankruptcies have already reached 23,351 in the first quarter of the year (the highest level since records began in 1960), and housing repossessions to over 20,000 in the first quarter.
Increases in interest rates will turn the middle class into paupers, and see many more thousands of people go broke, many more thousands of homes repossessed, with the re-emergence of negative equity.
The impact on jobs will also be disastrous.
Unemployment is now increasing every month, both for the claimant count and for the numbers seeking work.
For the first quarter of this year there was a trade deficit in goods of £18.9 billion, making for a gigantic trade deficit for 2006.
Higher interest rates will see that figure rocket upwards, with the closure of whole sections of what industry remains.
British capitalism, already sick and ailing, will have its back broken by the developing crisis.
The only way forward for the working class is to overthrow this bankrupt capitalist system with a socialist revolution and go forward to socialism.
