THE Governor of the Bank of England, Mervyn King has forecast that there is a bumpy road ahead for both the national and the world economy.
He pointed to the fact that inflation is rising on a world scale, including the Chinese economy from where huge volumes of cheap commodities have been penetrating the EU and US markets.
These had the effect of a downward, deflationary pressure, in the face of the massive and record breaking inflationary leaps in the price of gas, oil and metal prices.
What has changed is not just that the Chinese economy is using up vast quantities of high priced and imported gas, oil and steel, but that the Chinese working class is pushing forward in a revolutionary way. It is demanding that the workers state legislates a raft of benefits, including job security and higher wages for workers who work in the Special Economic Zones where the western capitalists have made their major investments.
These moves have left big business groups declaring that in the event of such legislation, they will quit China and take their capital with them.
Meanwhile the US ruling class is facing inflationary pressures at home, an ever declining dollar, a huge government spending deficit ($554 billion in 2005) and a balance of trade deficit at $63.5 billion for April, and looking to reach close to $800 billion for 2006. It was $716 billion in 2005.
As well the US is spending hundreds of billions of dollars a year on the war in Iraq, with much more of the same type of expenditure to come.
All this puts a huge strain on US capitalism, which needs to defend the dollar to ensure that the US government deficit is covered by purchases of federal government bonds to prevent the US from going bankrupt.
In this situation the US ruling class is lashing out, closing down factories, sacking workers, moving plant and industries abroad, scrapping trade union contracts and refusing to any longer help to finance workers retirement pensions and healthcare.
Its need to keep the price of the dollar up is being threatened by the rise in the price of gold to over $600 an ounce and the predictions that this will surge to $1200 an ounce.
In this situation, foreign holders of US dollars are constantly considering changing their dollars into gold lest they are left holding billions in worthless paper dollar notes.
Moving out of dollars into gold would mark a qualitative change in the development of the world crisis since it would bankrupt the USA for a start.
These are the contradictions just under the surface of the world economy. No wonder that share prices are on a roller coaster, with each revival followed by a greater fall.
In this situation the Federal Reserve Bank has got no alternative but to increase US interest rates on a monthly basis. This is driving interest rates up all over the world, with a particular impact on Britain.
Britain has none of the strengths of the gigantic US economy but has in terms of population a comparable trade debt of £65 billion for 2005 and government spending deficit of £48.6 billion for 2005.
As well, it has a domestic debt of £1.3 trillion, a product of the Labour government’s exhortations to the middle classes to throw caution to the winds and spend, spend, spend, to keep what service economy there is functioning.
The coming increases in British interest rates will bankrupt the middle class, including the tens of thousands of mortgage holders who will face seeing their homes repossessed. A raising of bank rates will see the number of unemployed accelerate upwards – it has already reached 1.6 million, 5.3 per cent of the population.
Such a crisis will force the government of the day to take crisis action, hoisting up interest rates further and at the same time slashing state benefits, public sector jobs and wages. To defend itself the working class will have to bring down the government and go forward to a workers’ government through a socialist revolution.
This crisis is not a British crisis. It is a world crisis that will only be resolved by the overthrow of capitalism and imperialism on a world scale, that is by a socialist revolution throughout Europe spreading to the United States.