Record job losses follow mortgage debacle
The U.S. Bureau of Labor Statistics published a report on July 2 confirming the growing economic disaster facing the working class. In June 14.7 million people were unemployed and the unemployment rate was 9.5 percent. Since the start of the recession in December 2007, the number of unemployed workers has increased by 7.2 million and the unemployment rate has risen by 4.6 percentage points. (bls.gov)
African Americans have a 14.7 percent unemployment rate, with 12.2 percent for Latina/os. The unemployment rate for teenagers is 24 percent. The number of long-term unemployed, those jobless for 27 weeks or more, increased by 433,000 to 4.4 million people, or three in 10 unemployed workers.
The number of people working part-time for “economic reasons,” meaning involuntary part-time workers, was 9 million, up 4.4 million since the start of the recession. Another 2.2 million unemployed workers were not counted in the official statistics because they had not searched for work in the previous four weeks, including 793,000 “discouraged” workers. The average workweek for production and nonsupervisory workers fell to 33 hours, the lowest level on record for the Bureau, which began keeping records in 1964.
In Michigan, the jobless rate has surpassed 15 percent, the first time in 25 years that any state has had an unemployment rate so high. Fourteen other states and the District of Columbia have official unemployment rates surpassing 10 percent: Alabama, California, Florida, Georgia, Illinois, Indiana, Louisiana, Nevada, North Carolina, Ohio, Oregon, Rhode Island, South Carolina and Tennessee.
The Federal Reserve projects that the national unemployment rate may surpass 10 percent by year’s end and warned that the economy may not return to full health for at least five years. (Washington Post, July 16)
Despite these devastating statistics and projections, President Barack Obama’s top economic adviser, Lawrence Summers, seems to see a rosy picture. In a speech on July 17, Summers pronounced that the federal economic stimulus plan was working and had averted an economic collapse. (New York Times, July 18)
Roots of the economic crisis
The current recession with its growing unemployment is rooted in the lowering of wages and elimination of decent-paying union jobs. In “Low-Wage Capitalism,” author Fred Goldstein cited studies which confirm this trend. The State of Working America 2006/2007 study reflected that from 1973 until 2005 there was a drop of close to $40 or 7 percent in the weekly earnings of 80 percent of the working class. A Bureau of Labor Statistics chart noted a drop of $55 a week in earnings from 1973 to 2004, calculated in 1982 dollars. (page 106)
When wages decline, workers become increasingly unable to buy back the goods and services they produce, leading to capitalist overproduction, recession and unemployment.
What staved off the current crisis for a number of years were the trillions of dollars that were poured into the capitalist economy through credit schemes. First the banks extended easy credit through credit cards for a number of years. When the cards maxed out, the capitalists turned people’s homes into sources of credit and cash by illegally and artificially pushing up home values and luring people to put their homes up for collateral in home refinancing schemes. The banks made tremendous profits by charging huge fees as well as high interest rates in the subprime and predatory lending boom.
“Sources and Uses of Equity Extracted from Homes,” a study published by Alan Greenspan and James Kennedy in March 2007, points out just how much cash was artificially infused into the capitalist economy because of this. They estimated the amount of this “free cash,” which they defined as the value of home sales, refinancing or home equity loans, minus mortgage debt paid off at the time of closing and closing costs.
The figures are enormous. The amount of “free cash” generated was $757.8 billion in 2002, $1.003 trillion in 2003, $1.170 trillion in 2004, and $1.4289 trillion in 2005. This infusion of trillions of dollars helped stave off a recession as it allowed workers and the poor to keep buying consumer goods and services even as their wages fell.
The artificial bubble bursts
The over $1 trillion a year that fueled consumer spending through the housing boom has now been eliminated from the economy. The housing bubble has burst and home values are on a free fall. As a result, home refinancing and equity loans have virtually halted. Homes are not selling.
Homeowners are paying overvalued mortgages, often with high, upwardly adjusted interest rates, resulting in the still-growing and record-breaking foreclosure crisis. RealtyTrac reported on July 15 that the numbers of homes on the verge of foreclosure rose 15 percent in the first half of 2009. (realtytrac.com)
To put this in perspective, the Obama stimulus plan, which plans to pump $787 billion into the capitalist economy during 2009 and 2010, is about one-half of the $1.43 trillion that was injected into the economy in 2005 alone through overvaluing homes and then extending credit on that basis. Workers’ credit cards are still maxed out, so that source of stimulus has also dried up.
When Summers speaks about the Obama economic plan succeeding, he is probably looking at bank profits which have rebounded at least temporarily. The banks were the beneficiaries of a $750 billion federal bailout, trillions more in cheap money poured in by the Federal Reserve, and hundreds of billions more through the bailout of AIG.
Even the Home Affordable Program put in place by the Secretary of Treasury is really a disguised bailout for the banks, while affording relatively minimal relief to homeowners facing foreclosures.
While some homeowners have been able to utilize the program to get their interest rates reduced, by calculating payments based on 31 percent of income, the principal on their loans remains high, though these homeowners do end up paying a more reasonable rate for an overpriced mortgage. This allows the banks to keep the mortgages on their books as assets, rather than having to write off the decline in the real value of the homes.
The lenders are also receiving billions of dollars to participate in the Home Affordable Program, such as $3.5 billion for Chase, $2.83 billion for Wells Fargo, $2.6 billion for Bank of America—which includes its subsidiary Countrywide—and $2 billion for Citi Mortgage (financialstability.gov) This is on top of the $750 billion in bailout funds they have already received.
Despite these handouts, the banks have been so slow to implement the Treasury plan that Secretary Timothy Geithner is actually holding a meeting with them on July 28 to beg the banks to do more.
What can workers do?
A simple moratorium on foreclosures would go a long way to give the Home Affordable Program some teeth, but despite talk about a moratorium on foreclosures in his campaign, President Obama has not uttered the word since being elected.
The structural basis for the current unemployment crisis hitting the working class—the lowering of wages and elimination of decent-paying union jobs in this era of globalization and low-wage capitalism—has not changed. Unemployment and lower wages continue to manifest in the growing crisis now that the capitalists have exhausted artificial means of pumping cash into the economy.
The only answer to the growing unemployment and deepening crisis for the workers and the poor is for the working class to fight back with an independent program for jobs or income now and for a moratorium on foreclosures and evictions. Workers also need to demand a real stimulus plan with trillions of dollars allocated to rebuild our cities and keep the factories open and producing for human need and not profit.
Workers must demand enforcement of the federal Full Employment Act, a law on the books which says that maintaining full employment is the top priority of the government and Federal Reserve. The demonstrations in September at the G20 summit in Pittsburgh are the next step in building such a movement.