ON Thursday evening, the US Federal Reserve policy committee decided yet again that it did not dare to raise interest rates by a fraction of one per cent for fear of bringing down the entire world capitalist economy.
For nearly a year now the Fed and its head, Janet Yellen, have been promising the money markets that they would be ending the nine years of historically low interest rates, between 0-0.25%, since 2008 when the banking crisis erupted and came within a gnat’s whisker of bringing down the whole international banking system.
In order to bail-out the banks from bankruptcy, the Fed embarked on the twin policies of Quantitative Easing (QE) and near-zero rate interest levels. These policies, soon adopted by Britain and the EU, were designed to provide the banks and speculators with ‘free’ money. QE flooded the financial markets with huge amounts of worthless bits of paper masquerading as money.
The Fed alone printed a staggering $4.5 trillion which was handed to the financial sector, whose debts had caused the crisis, with the promise to the public that this money would ‘trickle down’ into what was termed the real economy, kick-starting manufacturing industry out of its terminal decline and providing jobs and a buoyant wage economy for workers.
Along with QE was the near-zero interest rates on all this free money. None of the vast amounts produced by the central banks trickled down, quite the opposite. They shot upwards straight into the pockets of the bankers and speculators who used it in a wild frenzy of speculation on the world stock markets.
Since QE started, the international stock markets have ballooned by over 215%. Much of the speculation centred on the so-called emerging markets, the BRICS nations (Brazil, Russia, India, China, South Africa), that were supposed to rescue world capitalism.
Huge dollar loans were made to these countries. They have accumulated $7.5 trillion of external debt (an increase of $2.8 trillion since 2008) and any increase in the cost of servicing this debt through any increase in interest rates will collapse not just the industries and banks but entire nation states.
This in turn would bring down the world capitalist banking system in a crash that would make 2008 a walk in the park by comparison. Added to this explosive mixture is the slowdown in the Chinese economy which was predicted by bourgeois economists and central bankers to become the engine for capitalist regeneration after the crash.
Yellen made it clear on Thursday that the ‘fragility’ of the international economy meant the Fed would once again put off any interest rate rise. Previously, the Fed has always insisted that it acts only in the interests of US capitalism and without regard for the economies of other countries.
It is an admission by Yellen that the world capitalist system is so entwined that no nation state can isolate itself from this crisis, even one that appears on the surface to be the most powerful.
It was this realisation that lay at the heart of the Fed’s decision that has caused panic in the financial markets. Initially, they greeted the fact that the gravy train would be continued with euphoria, but as the message began to sink in, that all the cheap talk about recovery is just wishful thinking, so the panic set in. London and European stock markets dived as investors rushed to sell shares and seek safer assets for their money.
One investment banker summed it up saying the Fed was ‘shining a very bright light on the large debt and liquidity trap it and other G7 central banks have spent 7 years crafting’. For the working class of the world, the message couldn’t be clearer. Capitalism as a social system has reached the end of the road. Every attempt to stabilise it has only built up the pressure in the system to the point of explosion.
Only by the overthrow of capitalism and its replacement on a world scale by socialism, where production is for human need and not for the profit of a tiny handful of bankers and bosses, can humanity advance.
The task of the hour is the building of sections of the International Committee of the Fourth International in every country to organise the victory of the world socialist revolution.
