Unemployment spreads as
Foreclosure storm hits major cities
By
Deirdre Griswold
Published Jan 10, 2008 9:38 PM
Sour. That’s been the taste of the U.S. capitalist economy for some time
now for a large and growing sector of the working class.
Real wages have been declining ever since the 1970s, so that now most
families/households need more than one wage earner to get by. Pensions, paid
vacations and health coverage seem like fairy tales from a golden past for
millions of full-time workers, let alone the millions more who are part-time,
self-employed or work for “temp” agencies.
Yet all the suffering caused by plant closings, by job losses due to high tech,
and by the shift of industry and services to lower-wage, non-union areas had
seemed to be off the radarscope of establishment politics. The politicians
didn’t want to talk about how the high-paid CEOs of the transnational
corporations would commit any crime against the workers to increase the profits
raked in by their bosses.
That was yesterday. As though overnight, the economy now looms very large as a
political issue as a tide of mostly younger people floods into the primaries.
All the candidates of the big business parties, Democrats and Republicans, are
honing their I-understand-your-pain demagogy, hoping to catch this new wind in
their sails.
It can’t be avoided any longer. The evidence pointing to an economic
meltdown grows stronger every day.
Rising unemployment and the ‘R’ word
The most recent statistical development is a rise in the monthly unemployment
rate to an official 5 percent, with a simultaneous drop in new jobs created, to
only 18,000 in December. It bears remembering, however, that these figures way
understate the true jobless rate in this country. They don’t count the
“discouraged” workers who have given up looking for work. They
don’t count the people who can’t get enough work to survive. In
fact, a person is considered employed if s/he worked just one hour in the
week.
Nevertheless, the jobless statistics, as minimal as they are, do show which way
things are moving. And it’s down. More and more, corporate economists,
government officials and pundits are using the “R”
word—recession—to describe what’s coming. Some say it has
already begun. David Rosenberg, Merrill Lynch’s chief economist for North
America, said on Jan. 9 that the unemployment figures, taken with all the other
gloomy news, prove that a recession “isn’t even a forecast any more
but is a present-day reality.”
Now, even President George W. Bush, who has avoided the people’s economic
problems like the plague, had to go before the cameras on Jan. 7 and talk about
the “challenges” in the economy. His motive was obvious:
he’ll defend his tax cuts for the rich even as the national debt soars
above $9 trillion and every worthwhile government service and program is
threatened with cuts.
Even as Washington was bracing for the fallout from the weakened economy,
Democrats and Republicans in Congress passed Bush’s “defense”
budget in December—nearly $680 billion for fiscal 2008, not counting the
“supplementary” bills that come up twice a year to finance the wars
and occupations in Iraq and Afghanistan. This DoD budget is 10 percent larger
than last year’s.
With so much money already committed to war and destruction, what will be left
for education, health, parks and recreation, fixing infrastructure like bridges
and levees, and other useful functions of the civilian government once a
recession takes hold?
Which leads to the question of how severe this downturn is expected to
be.
Mortgage storm hits major cities
By now, everyone knows about the mortgage crisis that is decimating whole
neighborhoods and causing panic in city governments as “Foreclosed”
signs mushroom on more and more lawns and porches.
Several million families, lured by mortgage companies into buying homes with
offers of no down payment and an initial low interest rate, have now either
already lost their homes or are staring default in the face as the rates
“reset” and their monthly payments double or triple.
But there’s more to it than that. The foreclosure crisis is also
happening at the same time that workers are being hit by a double whammy of
layoffs and pay cuts as well as price increases, especially for health care and
transportation.
Add the increased mortgage payments and, for millions of families, especially
in the Black communities, it is a “perfect storm” that has engulfed
their lives and turned them upside down.
In Detroit, which has been virtually abandoned by the auto companies its
workers made rich and which has the sad distinction of leading the country in
foreclosures, activists are demanding the governor declare a moratorium that
would prevent the banks and mortgage companies from seizing people’s
homes.
In Cleveland, where the mostly Black inner city was the first to lose homes to
the auctioneer’s hammer, the crisis has now spread to the largely white
suburbs where auto workers protected by union contracts had lived a fairly
comfortable existence. Many have now been laid off.
In Baltimore, a majority Black city, the racist, predatory lending practices of
Wells Fargo Bank are the subject of a lawsuit. The city charges that when Black
people applied to the bank for mortgages, two thirds were told they qualified
only for the more expensive “subprime” mortgages. But only 15
percent of the bank’s white customers in the same area were channeled
into subprime loans, says the city’s lawsuit. The subprime rate is at
least 3 points higher than the prime rate and results in much larger monthly
payments.
The suit says that Baltimore is in a foreclosure crisis; notices of default,
foreclosure sales and lenders’ purchases of foreclosed properties rose
more than five times between the first and second quarters of 2007.
The heartache of losing one’s home is devastating and can have a
long-lasting effect on physical, mental and financial health. Yet much more
attention is being paid in the corporate media to the problems of Wall Street
than of Main Street.
Markets decline and Fed is split
On Jan. 8, the stock and bond markets tumbled on rumors that Countrywide
Financial, the biggest mortgage lender in the country, might declare
bankruptcy. The Wall Street Journal’s Marketbeat blog, in a piece called
“Countrywide shares tanking,” quoted market strategist Joe Kinahan
as saying that the volatility of the company’s stock was “through
the roof—it’s almost a panic situation.”
The Dow Jones Industrial Average of stock prices had hit a record high above
14,000 in October. A steady decline has been going on since then, and by the
second week in January the DJIA had fallen below 12,600—a loss of about
10 percent. While the market is always fluctuating, this kind of sustained
decline is more than a “correction” caused by inflated stock
prices—like a heart that is fibrillating, it points to weaknesses in the
organism itself, especially when accompanied by other very significant economic
problems.
Before last year, new housing construction had driven much of the economic
growth in this country. New housing starts have now declined as existing
foreclosed homes are put on the market at fire-sale prices. The ripple effect
is felt in lumber, roofing and siding materials, furnaces and plumbing,
appliances, home furnishings—every industry associated with home
construction.
As companies reduce production, laying off workers and/or cutting their hours,
the crisis spreads into other markets and services. States and municipalities
like Baltimore are particularly worried right now that their tax base will
shrink at a time when social problems and the need for palliative services are
on the rise.
Over the last two decades, several market crises seemed to threaten a general
recession. When that happened, the federal government stepped in through the
Federal Reserve system, this country’s central bank, and lowered interest
rates to stimulate the economy. But this time the bank is in a deep
dilemma.
According to news reports, the Fed’s directors are split over what to do.
Charles Plosser, head of the Federal Reserve Bank of Philadelphia—where a
lot of “old money” resides—in a speech to the Gladwyne, Pa.,
Chamber of Commerce worried that the “risks of higher inflation”
might outweigh the risks of “even weaker economic growth.” In other
words, the economy faces the dreaded “stagflation,” when government
intervention to ease credit could unleash a serious inflationary spiral. (Wall
Street Journal, Jan. 8)
Not all areas of the economy have turned down, however. The military-related
stocks in the SPADE Defense Index increased in value by over 22 percent last
year.
Besides pumping in credit, or liquidity, to stave off a capitalist economic
crisis, the other major government intervention intended to stimulate the
economy—and pump enormous wealth into a handful of corporations
well-connected to the military brass—has been the growing
“defense” budget. Military spending, however, creates fewer and
fewer jobs as the armed forces and their weaponry become more high-tech.
And what was originally a stimulant can become a depressant as the capitalist
government goes ever deeper in debt to pay for future, present and past
wars—especially if these wars, which are meant to expand the territory
available for imperialist super-exploitation, end in failure, as happened in
Vietnam and is doing so again in Iraq and Afghanistan.
That federal debt now exceeds $9 trillion—or $30,000 for every woman, man
and child in this country. You’re paying the interest on that debt right
now, even if you’re not aware of it. It’s in every bill you pay,
every tax taken from your paycheck, every service you should be getting from
the government but aren’t.
For now, the hope of many people to find a way out of this horrible mess seems
to be centered on the elections. Whoever is the next president, however, the
capitalist economy will respond to its own inner dynamic, which seems to be
driving it toward a significant recession.
If that happens, the rich ruling class will do as always and put profits before
people, which means more layoffs in both the private and the public sector as
the budget crisis deepens. California Gov. Arnold Schwarzenegger is already
calling for automatic budget cuts when the state’s revenues
fall—which would mean significant layoffs of state workers.
The time-tested recipe from earlier periods of crisis and intense class
struggle shows that the only way for the working class to defend its interests
is through independent, militant action that asserts that the workers’
right to their jobs and a decent standard of living must take precedence over
the profits of the rich.
Articles copyright 1995-2012 Workers World.
Verbatim copying and distribution of this entire article is permitted in any medium without royalty provided this notice is preserved.
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