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Economy: Unemployment Spreads As Foreclosure Storm Hits Major Cities

Deirdre Griswold

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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.


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