The summer has not been a good season for American capitalism. The instability of the financial markets, the credit crunch, the roller-coaster of the stock market, the housing bust, the record fall of the dollar's value, all show that the American economy continues sinking deeper into trouble. The speeches reassuring the population about the "good fundamentals of the economy" coming out from the White House are sounding more hollow than ever. In fact by mid-September the deterioration of the economic situation was so obvious that the Federal Reserve's wizards abandoned their wait and see attitude and came to the rescue with their traditional medicine in hopes of avoiding a catastrophic descent into the economic crisis. However, despite the Fed's sharp reduction of its interest rate bench mark, the deterioration of the economy has not shown signs of change. On the contrary the trend seems to indicate that the worst of the present developing recession is still to come.
The American housing collapse that started in 2006 has continued to deepen. The housing industry, this engine of the American economy so central to its economic growth after the last recession in 2001, is totally broken. Every day there is more bad news coming out from this industry. The construction of new houses has slowed to a trickle. Nonetheless by last September the stock of houses offered for sale nation-wide rose to a ten-month, the highest on record. New home prices have fallen in 20 of the biggest cities throughout the country, while sales of existing homes have stalled despite a nation-wide decline in their nominal value. In other words, despite a decline in prices of new and existing houses there is not much of a solvent demand to revive the embattled housing market.
Moreover as the housing bubble continues to lose air, the number of homes in foreclosures has soared to new record levels --by 36 percent between July and August. Nationally foreclosures have more than doubled in the past 12 months. The states where the housing boom was at strongest are now leading the bust: between July and August, foreclosure filings jumped by 48 percent in California and 77 percent in Florida. Nevada has the highest foreclosure rate in the country - one of every 165 households. Yet there is no end in sight. According to most economic predictions in the next few months foreclosures are bound to skyrocket, as the housing industry absorbs the shocks of the actions that created the exuberance of the housing boom --rampant speculative investments, shoddy lending practices that allowed people to borrow beyond their ability to repay, and adjustable rates that are now going to reset to higher levels. In fact the bourgeoisie is so worried about the social and economic consequences of a massive default of mortgage debt that is rushing to put forward some kind of plan that will alleviate the situation.
The housing bust has also generated much finger pointing within the bourgeoisie. There is much "soul searching" about who is responsible for the housing industry's unsustainable "exuberance" and awful bust. The favorite villains that are blamed to a greater or lesser degree by the right and the left wings of the bourgeoisie are:
- The financial institutions that created the artificial housing demand by their shoddy lending practices.
- The quick-profit -hungry speculators who helped drive real estate prices to the stratosphere.
- The irresponsible home owners who rushed to cash in their fictitious wealth created by the rising value of their properties.
- The gullible borrowers who got into mortgage debts beyond their means
All these allegations do nothing but hide the real stakes that are contained for society by this phenomenon of boom and collapse of the capitalist economy.
From a Marxist revolutionary perspective, the fact is that the housing boom and bust are in the last instance not that much different. Both are expressions of the crisis of capitalism. Since the end of the sixties capitalism has been mired by its own contradictions in an open economic crisis that has gotten ever more catastrophic. Every few years we witness a sudden collapse of the economy after a moment of respite, a "boom and bust" cycle like the one we just saw in the housing industry, or before it the ascent and collapse of the stock market and the internet economy. The dominant class likes to portray these ups and downs as normal moments of an otherwise healthy system - the so-called business cycle. Nothing is further from the truth. At best this is a self-delusional understanding of the system determined by the bourgeoisie's own survival instincts, if not a simple mystification to hide the bankruptcy of capitalism.
The reality is that for over thirty years in the US and throughout the world, faced with a crisis that can't be overcome, state capitalism has been trying to keep afloat an ever sicker economy using means that at the end of the day are themselves a factor in the aggravation of the crisis. In the absence of a sufficient solvent demand that can absorb the ever growing production and realize a decent profit, the bourgeoisie has, on the one hand, escaped head on into the terrain of speculation. More and more capital finds its place not in the real production of goods and services, but in the "casino" economy of the stock markets. On the other hand, to alleviate the saturation of the world market, the bourgeoisie has manipulated everywhere the mechanism of credit. This has left the whole world economy sitting on a mountain of public and private debt that can't be repaid.
This manipulation of the economy through state capitalist interventions has allowed the bourgeoisie to more or less successfully have its economy running throughout the world, but at the same time preparing ever more catastrophic economic situations.
This is the real history behind the housing boom and collapse in the US and some other European countries: The "exuberance" was created by an aggressive state capitalist intervention aimed to get out the economy from the morass brought on by the collapse of the stock market and the internet economic revolution. In the US it was fed in particular by a policy of cheap money to stimulate consumption that went at one point as far as setting interest rates below the rate of inflation. This cheap credit created in the real estate industry an artificial demand that pushed up prices and stimulated construction and production in other related industries. However, as the saying goes, all good things must come to an end. And the rest is the story of the housing bust of which millions of words have been written in the bourgeoisie press.
There is at present much debate among bourgeois economists about the state of the American economy and its immediate future. There is in fact not much to brag about. Beyond the housing bust the monstrous federal deficit driven up by the war effort and the feeble state of the manufacturing industry are also clear signs of an economy in big trouble. The mood is gloomy and the bets are overwhelmingly on the side of a coming recession. Mr. Bush has recently expressed his hopes for a "soft landing". It seems that the surest bet to make is that it won't be a soft landing for the working class. In fact since the worst of the presently developing recession is still to come, we will be seeing in the immediate future a proportionate increase on the attacks on working and living conditions as the bosses try to make workers bear the brunt of the crisis.
Workers must respond to these attacks on their own terrain, on the terrain on the class struggle. Eduardo Smith, 10/13/07.