13 Days Remaining

Wednesday 1st
posted by Morning Star in Editorial

LAST week’s report from the Union Bank of Switzerland on billionaire wealth calculated that there are just over 1,500 billionaires globally.

Last year their wealth increased by 20 per cent and now amounts to just over six trillion dollars — that is, more than double the value of the UK’s annual output.

Current figures from Money Charity indicate that one third of all households in Britain have no savings at all and that the average household debt is a record £57,000. Of this about £7,000 is consumer debt and the rest housing costs.

Real wages are declining in face of inflation at around 1 per cent a year. These figures, though shocking enough, do not show the full picture.

Poverty is concentrated among the third of households with no savings and either surviving on benefits or low wage incomes. And according to the Trussell Trust last year, a quarter of the million households compelled to resort to food banks did so because of low wages.

Ultimately, this means other quite poor people are helping to subsidise the profits of those, often public-sector contractors, who pay starvation wages. And the government’s refusal to do anything to remedy the debt trap of Universal Credit can only make matters worse.

This is the background to the deliberations of the Bank of England tomorrow on whether to raise interest rates — potentially a doubling to 0.5 per cent, an increase that will be magnified by the time it reaches the millions of working-class households in debt.

On the one side there is the argument that the current very cheap borrowing rates in the wholesale market for other banks and financial institutions fuels “asset inflation.” This has pushed stock market prices and the scale of investment in property to record highs.

Similar interest rate policies across the world are what have fuelled the massive increase in billionaire, and millionaire, wealth.

For the privileged few most of the cheap money goes into leveraged investment, borrowing very cheap and short-term in order to acquire assets that can be “sweated,” quickly bought and sold at much higher rates.

Corporate borrowing and mergers and acquisitions, the buying and selling of companies, are both at near record highs — similar to rates preceding previous market crashes, a worry for central bankers.

It is also argued that an interest rate rise is necessary to slow the economy in order to bring down the rate of inflation from the current 3 per cent.

Traditionally, this worked through cutting employment, reducing “labour market pressures” and a reduction in wages. Today real wages are already falling. But, for free market economists, a further fall can only be good. It means higher profit income to cover the inflated asset prices.

The arguments on the other side are not likely to impress Britain’s central bankers. A rise will push hundreds of thousands of households, possibly more, into real poverty.

More seriously for the City, it could trigger a significant fall in consumer confidence and spending. But, for the central bankers paid to manage the excesses of free market capitalism, this is likely to be a price worth paying.

This is also why the Chancellor of the Exchequer is rejecting calls for an end to austerity cuts. Those within his own party, fearful of the electoral consequences of a meltdown in the NHS and the total lack of affordable housing, are being told to shut up.

Increased interest rates will affect government borrowing too. Debt reduction targets must be maintained whatever the social costs.

All this underlines the importance of the Labour Party’s alternative strategy aimed at developing a powerful public sector and a State Investment Bank that can pull the economy out of its current control by big business speculators — and to scrap Universal Credit and redevelop mandatory sectoral collective bargaining to address the issue of low wages.