Will The U.S. Economy Recover This Time?
The following article originally appeared on OpEdNews.com.
As we all know, the massive wave of subprime mortgages that defaulted in 2007 and 2008 caused the biggest financial crisis since the Great Depression. What most people don’t yet know, however, is that the “second wave” of mortgage defaults is on the way. A huge mountain of adjustable rate mortgages are scheduled to reset this year, and once those ramped-up mortgage payments have to be made, then once again there are going to be plenty more folks who simply cannot or will not continue paying on those mortgages, most of which will be foreclosed, leaving the banks with tens of thousands of properties which they will eventually be forced to sell, for prices well below what had been considered a fair market price. This in turn will press the market value of all other homes down still further, well below their current value.
But what if six million great new well-paid jobs are created in the next six months, to replace the six million we’ve lost in the last few years? Wouldn’t that allow these owners to hang on? Well yes, it might begin to, but with Obama and most members of Congress having been bagged and captured by the big banks, what are the chances that such jobs will be created?
The answer is, zero.
Even though the U.S. financial system nearly experienced a total meltdown in late 2008, the truth is that most Americans simply have no idea what is happening to the U.S. economy. Most people seem to think that the nasty little recession the banksters got us into is almost over and that very shortly we will be experiencing another period of economic growth and prosperity, just like we always have before.
The reality is that we are being sucked into an economic black hole from which the U.S. economy may well never fully recover. Here are some reasons why:
Our mammoth indebtedness
Collectively, the U.S. government, the state governments, corporate America and American consumers have accumulated the biggest mountain of debt in the history of the world. Our massive debt binge has financed our tremendous growth and prosperity over the last couple of decades, but now the day of reckoning is here. Cash strapped cities are already beginning to crumble: http://www.businessinsider.com/it-begins-cash-strapped-cities-begin-to-crumble-2010-2
On top of that, the Federal Housing Administration (FHA) has announced plans to increase the amount of up-front cash paid by new borrowers and to require higher down payments from those with the poorest credit. The FHA currently backs about 30% of all new home loans and about 20% of all new home refinancing loans. Problem is, tighter standards (and falling wages) mean that ever fewer people will be able to qualify for loans. Ever smaller numbers who qualify means that there will be ever fewer buyers for homes. And ever fewer buyers (reduced demand) mean that home prices are going to drop even further than they already have.
Hard to find jobs, much longer periods of unemployment
More than 6 million U.S. workers had been unemployed for 27 weeks or more in December 2009. That was the most since the U.S. government started keeping track in 1948. In fact, it is more than double the 2.6 million U.S. workers who were unemployed for a similar length of time just the year before, in December 2008. The reality is that once Americans lose their jobs, they are finding it ever more difficult to find new ones that pay a salary anywhere near what they previously earned. And why would that be? A few reasons:
- a) Most of the jobs they previously had have been sent overseas where low-wage workers now do them at a fraction of the cost to employers,
- b) unions have been busted and/or have been prevented from forming,
- c) computers and automation are doing ever more of the work,
- d) those who still have decently paid employment are voluntarily putting in extra long hours of hard work to make sure that they are not the next ones to be laid off.
- e) ever more workers are being given no other choice than part time and temporary employment, through agencies this saves the employer from having to pay/provide benefits.
One million discouraged workers
In December, there were 929,000 “discouraged” workers who are not counted as part of the labor force because they have “given up” looking for work. That is the most since the U.S. government first started keeping track of discouraged workers in 1949. Unprecedented numbers of Americans have simply given up and are now chronically unemployed. Some areas of the U.S. have already entered another Great Depression. The mayor of Detroit estimates that the real unemployment rate in his city is now somewhere around 50 percent.
Who won World War II, anyway? One would never know by comparing modern day Hiroshima to modern day Detroit. Much of Detroit appears to be a war zone, while Hiroshima is a bright, beautiful, bustling city where most everyone has a good job that pays significantly more than is received by their American counterparts, especially in Detroit. http://www.freerepublic.com/focus/chat/2349112/posts
For decades, our leaders in Washington pushed us towards “a global economy” and told us it would be good for us. Problem is, workers in the U.S. must now compete with workers all over the world, and our profit seeking and completely unbound corporations are free to pursue the cheapest labor anywhere on the globe. Millions of jobs have already been shipped out of the United States, and Princeton University economist Alan S. Blinder estimates that 22% to 29% of all current U.S. jobs will be “offshorable” within two decades.. The days when blue collar workers could live the American Dream are gone and they are not coming back.
During the 2001 recession, the U.S. economy lost 2% of its jobs and it took four years to get them back. This time around, the U.S. economy has lost more than 5% of its jobs and there is no sign that these jobs are ever coming back. Why is this? Answer: The migration of American jobs overseas is not going to stop any time soon.
All of this unemployment is putting severe stress on state unemployment funds. At this point, 25 state unemployment insurance funds have gone broke and the Department of Labor estimates that 15 more state unemployment funds will likely go broke within two years and will need massive loans from the federal government just to keep going.
Almost 40 million Americans now receive food stamps, and the program is expanding at a pace of about 20,000 people a day. One in eight Americans now depends on food stamps, including one in four children. www.nytimes.com/2010/01/03/us/03foodstamps.html A significant part of the United States of America is beginning to turn into a kind of underdeveloped third-world country.
The number of Americans who are going broke is staggering. Almost one and a half million Americans filed for personal bankruptcy in 2009 — a 32% increase in one year:
The decline of the dollar as global reserve currency
For decades, the fact that the U.S. dollar was the reserve currency of the world gave the U.S. financial system an unusual degree of stability. But all of that is changing. Foreign countries are increasingly turning away from the dollar to other currencies. For example, Russia’s central bank announced on Wednesday that it had started buying Canadian dollars in a bid to diversify its foreign exchange reserves.
Then too, the leaders of Brazil, Russia, India and China met recently to discuss the possibility of replacing the dollar as the world’s reserve currency. The problem is, such a replacement could very well result in a complete collapse of the US dollar versus virtually all other currencies. While US multinationals might rejoice in this, temporarily (since overseas sales in foreign currencies would get a boost from a weakening dollar), eventually American consumption would suffer — we wouldn’t be able to afford imports to anywhere near the degree we had. And, as foreign economies that have been servicing our debt came to realize that “the music has stopped playing” and they don’t want to be “left without a seat,” they might very well stop funding our debt. Interest rates would then rise as falling demand for U.S. Treasury certificates sent yields skyrocketing. You think we’d ever see mortgage rates at less than 5% in our lifetime again? No, we would not. Mortgage rates would then go sky high, greatly reducing the number of potential home buyers. And what would that do to the market value of most homes?! The answer is that reduced demand would cause prices to plummet.
Ever larger numbers of state and local governments are either going bankrupt or are on the verge of it
Example, Jefferson County, Alabama is on the brink of what will likely be the largest government bankruptcy in the history of the United States– surpassing the 1994 filing by Southern California’s OrangeCounty.
No money for pensions
The U.S. is facing a pension crisis of unprecedented magnitude. Virtually all pension funds in the United States, both private and public, are massively underfunded. With millions of Baby Boomers getting ready to retire, there is simply no way on earth that all these obligations can be met. Robert Novy-Marx of the University of Chicago and Joshua D. Rauh of Northwestern’s Kellogg School of Management recently calculated for Forbes magazine the collective unfunded pension liability for all 50 U.S. states. The total? $3.2 trillion!
The Social Security & Medicare Crisis
Social Security and Medicare expenses are wildly out of control. Once again, with millions of Baby Boomers now at retirement age, there is simply going to be no way to pay all of these retirees what they are owed.
Federal debt was already out of control
So, will the U.S. government come to the rescue? The U.S. has allowed the total federal debt to balloon by 50% since 2006, to $12.3 trillion. The chart below is a bit outdated, but it does show the reckless expansion of U.S. government debt over the past several decades.
Corporate tax revenue is way down
It is going to become even harder for the U.S. government to pay the bills now that tax receipts are falling through the floor. U.S. corporate income tax receipts were down 55% in the year that ended on September 30th, 2009.
So where do we (our government) get the money?
From the Federal Reserve of course. The Federal Reserve bought approximately 80% of all U.S. Treasury securities issued in 2009. Who bought most of the rest? The big banks who were provided with trillions of dollars worth of zero-interest or near-zero-interest loans, ostensibly so that they could loan it out to small businesses and would-be home buyers. Instead they spent some on the purchase of treasury certificates, and gambled the rest on risky investments around the world.
In other words, the U.S. government is now being financed by a massive Ponzi scheme — it is borrowing billions from itself, paying interest to itself on the money borrowed, all the while encouraging other investors to play along with this inherently bankrupt scheme.
And oh by the way, the Federal Reserve loaned/gave to the banks a total of $23.7 TRILLION of this funny money, not just the reported $700 Billion in TARP money that Obama and the corporate news media keep talking about. http://www.youtube.com/watch?v=lDJc0PZV-Bk
The reckless expansion of the money supply by the U.S. government and the Federal Reserve is going to end up destroying both the value of the U.S. dollar as well as the remaining collective net worth of all Americans. The more dollars there are, the less each individual dollar is worth. In essence, inflation is like a hidden tax on each dollar you own. So, when our government floods the economy with money, the buying power of the money you have in your bank accounts goes down. What do you think this is going to do to the value of the U.S. dollar?
The day of reckoning is here. God bless America?
When an empire is as badly run as ours has been, there is no way it is going to be “blessed” in the long run. (God is no longer going to be able to “bless’ America.) Soon enough we will be faced with an inescapable conclusion: Our empire and its poisonous fruits are about to destroy the entire fabric of our society and doom us to the same sort of irrelevance that Spain experienced by the nineteenth century. Hopefully we citizens will come to see in time that the vast wealth we expend on our permanent struggle for domination of the globe and for the enrichment of our parasitic military and executive classes, if diverted to useful investments, could make us the wealthiest and healthiest society in history. If so, we must rise up against our purblind financial elites (who are unable to even conceive of life without the privileges of global and societal domination) before they can foreclose those options in favor of continuing the self-destructive path we are currently on. These people are quite literally insane, and we must not allow them to go on and on with no accountability whatsoever, feeding their megalomaniacal sense of entitlement with the same frenzy with which we middle-class consumaholics (those of us who haven’t yet been dropped into the underclass) — feed our seemingly bottomless gullets.