|In London the decision of the Bank of England not to cut interest rates,
despite the poor state of British industry, illustrates the tight corner
that the imperialist powers are in financially.
>The Bank of England ignored growing calls for a cut in interest rates by
>leaving base rates unchanged on Thursday at 4 per cent for the 11th
>This equalled the post-1950s record for interest rate stability between
>February 2000 and January 2001, when rates were on hold at 6 per cent.
>The news, while expected, disappointed manufacturers, who hoped for a cut
>to re-invigorate stagnant production and help to counter falling demand
>The Bank's monetary policy committee - back to its full complement of nine
>after the appointment of Sir Andrew Large as a deputy governor - as usual
>did not disclose its reasons. But it has been attempting to strike a
>balance between the gloomy global outlook and continued vigour in the
>domestic housing market.
The housing market especially in London is booming to a catastrophic
degree, with essential working people unable to get housing. What is
happening is that as stock prices look to fall, savings and investment are
switching to housing, often on a buy to rent basis.
What is happening underneath? The state, in coordination with other
imperialist states, defended the west against the Asian financial crisis
several years ago by a coordindated reduction in interest rates. This
depreciated the value of existing capital in order to maintain the
circulation of the current economy. The burden has fallen on pension funds
But interest rates have dropped to such a low level that further cuts are
becoming irrelevant. They would also push up the price of housing even
more. The use value of housing is based on an assumption that the
circulation of the economy will continue to sustain consumers. British
industry will not be helped by a further cut in interest rates, so it is
said. The only thing now that will help British industry is a revival or
the European economy.
So the problem is increasingly demanding a global solution.
Thus the workings of capitalism, whatever short term measures its servants
try to impose.
Western consumers have only to start heeding the advice to save more in
preparation for their retirement, for the imperialist economies to find
they can no longer defy the law of gravity by spinning in the air with
circulation in the service sectors.
The fundamental contradiction between the accumulation of capital and the
limited consuming power of the masses remains. For capital to continue to
accumulate, the masses must accept a reduction in their pruchasing power
whether on their current spending, their credit card interest rate, or in
their future spending as pensioners. Productivity may increase the use
values available but in terms of exchange value this is ultimately a zero
sum game between capital and labour.
Meanwhile the news about the expansion of Chinese manufacturing exports is
ominous for the imperialist west. No remaining reduction in the Bank of
England's lending rate could balance the impact of low Chinese labour costs
coupled with advanced methods of production.