The 1.5% cut in base rates has confirmed what we have been saying since January of this year: the UK is entering its most severe economic recession since the 1930s. Even the most optimistic economists are predicting that the UK will be in recession for the whole of 2009 – that is negative growth in the economy for all four quarters of the year. The International Monetary Fund – capitalism’s global central bank – is estimating that the UK economy will contract more than any major economy in 2009 and that 2010 will only see a bottoming out and stagnation. This is why the Bank of England, having bickered previously over making 0.25% cuts in base rates, decided to go for a massive 1.5% cut with more to follow and a likely almost zero interest rate level by the end of 2009.

Like everything Brown and Darling have tried to do, to first avert a first a financial crisis and then an economic crisis, it has come to late and without an understanding of the dynamics of the crisis that capitalism faces. Compare what has happened in the UK to the United States (US) where they have cut rates aggressively and have already given tax rebates to try and avoid a recession.

Of course this type of Keynesian intervention has never averted a recession or pulled economies out of a depression contrary to popular myth. These policies if put in place in time can delay the onset of a recession and reduce its depth and length. In the 1930s it was a massive increase in military expenditure and ultimately war that created the conditions for the recovery of capitalism.

What the global leaders are desperately trying to do is stop the global economy going into a depression where economies have periods of years of negative growth and stagnation. Unlike the 1930s they have acted swiftly in the US to avert such a disaster for capitalism. But this time the banking crisis is not just restricted to the US but is a global banking and financial crisis. The banks and financial institutions have exposure to a global recession that is multiplied by the use of complex financial instruments and derivatives. The banks positions in these instruments are not known and the dynamics of the losses created by these products are not fully understood or quantifiable.

Even then if the banks were taken under full state control, governments will be sitting on unlimited liabilities. They could cancel some contracts – such as credit default swaps – but the legal consequences of such a move is unknown.

The cuts in interest rates and tax rebates have so far had little effect on stimulating demand from consumers or encouraging capitalists to make fresh investments in new projects, these are the two prerequisites for any type of economic recovery. This is because individuals face an uncertain future over their financial future and hoard any extra money they receive to pay off creditors or deal with that surprise bill.

Banks on the other hand were at first unwilling to pass on the cuts in base rates from central banks to other banks and financial institutions because they did not know what risks these borrowers carried – who would be the next Northern Rock. Now they need money in their tills – called tier 1 capital – to cover losses on sub-prime lending products; mortgages; loans to corporations and private equity schemes and pay outs on bankruptcy insurance – credit default swaps (CDS).

Here in lies the major problem for capitalism: a complete freezing up of the credit markets. First it was lending within the financial system that was affected. Now it has spread to lending to individuals, small businesses, corporations, local states and countries. Bringing the whole global economy to a standstill.  Banks are recalling loans and refusing to roll over loans as they need the money to protect them from future write-downs and losses on CDS and other derivatives. That’s why governments have been giving them bailouts to drag the banks back from the brink of bankruptcy. But there will be another run on them as we approach year end and we start to see large corporate bankruptcies.

General Motors is warning that without a government $30 billion loan bailout they could go bankrupt in 2009. In the third quarter of 2008 they made a $4.2 billion loss and contributed to the 240,000 people who lost their jobs in the US in October of 2008. Ford plans to make a further 11,000 redundancies in the next two months. And as the credit freeze bites every level of society there be millions more all over the world that will lose their jobs.

In the Far East and Asia the decline in the northern mature economies is pulling most of their economies into recession. These economies are dependant on exports to the rich north and act as a manufacturing base for their industries. China may escape recession but it will see a steep reduction in growth which will lead to factory closures and redundancies.

Brown is portrayed as the saviour of the financial and economic system. But he is fact one of the major architects of its problems. With Blair he extended the privatisation of housing, created an easy credit environment and deregulated the financial system. All these things were done to avoid a repeat of the crisis of 1974/75 when too many goods were being produced and capitalists run out of investment avenues.  This created the fertile ground for a housing and credit bubble with a whole series of financial products and practices that speculated off the back of these bubbles.

Working people and the poor of the world will be in the firing line as the face the fallout from capitalism’s crisis. Capitalists will attempt to shut workplaces, lay people off and restore profitability by increasing productivity through relative wage cuts and flexible working practices. Public services will come under attack as the government tries to make up the huge shortfall in revenues from decling personal and corporate taxes. They will also have to plug the hole in their finances from bailing out the banks with more bailouts likely in the future.  Socialists will have plenty of opportunities to stand alongside those who stand and fight against this capitalist onslaught and put the case for a rational economy under the control of ordinary people that meets their needs.