THE pound has bounced back against the dollar. It is now worth what it was before Kwasi Kwarteng’s ‘fiscal event’ rocked the markets 12 days ago. And share prices are going up as well. Hooray! Time to break out the champagne? Well not quite.
The pound is still 20% lower than it was last year. Which is bad news for the cost of all those items that are priced in dollars, like oil. And the cost of all those items that are affected by the price of oil, which is just about everything else.
What really happened with the mini budget was that it made things that have been going badly get suddenly worse. So the headline news was the £65 billion the Bank of England had to find to rescue the pension industry. But for many pensioners it came too late. If you are getting close to retirement your pension fund will have put your money in low-risk investments like government bonds instead of stocks and shares.
But the rise in interest rates has been driving down the value of government bonds. Some have declined by 40% this year, with 16% of that coming since the mini budget. Scottish Widows have a £1 billion ‘pension protector’ fund that has suffered heavy losses. So, many people who were planning to retire soon may have to choose between taking a lower pension or carrying on at work in the hope that their fund recovers.
Truss and Kwarteng ask us to pin our hopes on economic recovery. But production has been declining for three months and we may already be in recession. The Tories have made things worse and are being punished at the polls. But it is hard to see how a Starmer government could make things better.
Capitalism is in crisis. The USA is raising interest rates to protect big business in America. This has a knock-on effect around the world. Australia has just raised its interest rates. Countries in South East Asia are spending their reserves to prop up their currencies against the dollar. Even the Euro, backed by the European Central Bank, is struggling to maintain parity against the dollar.
We may be on the brink of a worldwide recession that would mean economic decline and poverty for wealthy nations and absolute destitution and starvation in the poorest nations. There is no national solution and competing world powers are incapable of coming together to find an international solution. We need a movement that challenges Capitalism, instead of appeasing it. While centrists shriek, Socialism has the answer.
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