than 2 million homes in the US were in
foreclosure in December 2007. Between
January and July 2008, $690 billion in
mortgages are scheduled for interest rate
jumps, based on adjustable rate mortgages
(ARMs) contracted two years ago.
ARMs are not sub-prime mortgages. They
are higher quality mortgages, supposedly
with less risk of default. However, the
lenders expect that at least $325 billion
of these loans will go into default, adding
another 1 million homes to those already
scheduled for foreclosure. The housing
bubble, which was created by the Federal
Reserve Bank and major US lending institutions
to artificially keep the economy afloat,
2005, the housing bubble accounted for
50 percent of all US economic growth.
There was a tremendous amount of housing
bubble borrowing during the middle of
this decade, which inflated home prices
by 30 to 40 percent beyond their actual
worth. New home buyers purchased houses
with little or no money down, as housing
prices kept inflating upward. And those
who already owned homes refinanced their
mortgages to get the cash difference for
what appeared to be a constantly rising
market price for their homes.
the housing bubble deflates and home prices
continue to drop, many of these homeowners
will find themselves with negative equity-owing
more than their houses are worth. Negative
equity leads to foreclosures and very
big losses for lenders. If home prices
fall by 30 percent, there will be 20 million
homeowners with negative equity.
home sales are now down 23.5 percent from
a year ago and home prices are down 13
percent over the same time period. Even
the affluent suburban communities that
surround America's big cities are now
reporting foreclosure trends not seen
in 60 years.
financial system-banks, mortgage houses
and other non-bank financial institutions-made
a lot of loans that are likely to tank.
Many of these bad loans they sold to investors,
including pension funds, other banks and
financial institutions, "hidden" in bundled
are predicting a "Financial Tsunami,"
saying that all of these events are just
the tip of the iceberg. As a result, lending
institutions are not lending. From August
to November 2007, lending was down 9 percent.
Not since the Federal Reserve began tracking
these numbers in 1973 has lending constricted
so rapidly. The mortgage crisis has already
become a credit crisis that has now begun
to choke many credit-worthy, economically
healthy small- and medium-sized businesses
that are being denied loans they have
regularly gotten in the past.
top of this is the exploding national
debt that is increasing at $1.4 billion
a day, or nearly $1 million a minute.
As our government continues to print money
to fund its military budget, the national
debt stands at more than $9 trillion.
Foreign investors and governments own
44 percent ($2.23 trillion) of the publicly
held portion of the US debt. They are
losing money on these holdings, as the
dollar continues to drop in value against
other major currencies.
Japan and the petro-dollar rich Middle
Eastern countries account for most of
the foreign-owned publicly held US debt.
China and Japan combined own more than
$2 trillion in dollar-denominated assets.
is no question that the US economy faces
a major crisis. The only question is how
long the capitalist class can forestall
the inevitable crash that precipitates
a general world economic crisis. At present,
a large part of that depends on how long
China, Japan and the oil-producing nations
of the world can continue to prop up the
economy through buying US debt.
can we conclude? First, we can be certain
that the situation and the consequences
for our class are serious. What must we
do? Certainly, nothing can be done without
organization and a strategic understanding
that the coming of this crisis means that
this society of necessity must be transformed
into one that distributes the necessities
of life according to need, not ability
article originated in the People's Tribune
PO Box 3524 , Chicago , IL 60654 , 773-486-3551,
Feel free to reproduce unless marked as
Please include this message with reproductions
of the article.