The Virtual US Recovery is in Troubleby William Engdahl
Most newspapers are filled with reports of a growing US economic recovery after nearly three years of recession and stagnation. President Bush speaks of steady growth beginning. The Federal Reserve head, Alan Greenspan, says much the same. Wall Street stocks are rising on hopes of future boom. The sober reality, however, is that the economy of the United States is on artificial life support. The Bush Administration is doing everything possible to feed the illusion of recovery, what we might well call a virtual recovery, until the November elections. He is doing this at a huge cost to not just the US, but also to the entire world economy.
In normal postwar US recessions, companies reduced debts, laid off workers and prepared to go forward with a better debt-to-revenue basis. Private households have normally reduced their debts and cut back in spending in a normal recession. This is no normal recession. The situation is alarming, and not at all the usual recovery. For the first time since the Great Depression in the 1930's American families are dramatically increasing their private debts during and after the so-called end of recession, officially announced back in November 2001. Instead of the usual period of savings and caution, families have borrowed to record levels. The central bank of Greenspan has encouraged the biggest consumer debt orgy in world history, since the collapse of the dot.com bubble in March 2001.
Personal debt levels rise, jobs vanish
Since the end of 2000 private consumer debt has exploded from 70% of Gross Domestic Product (GDP) today to 82% today. As of April 2003, total private consumer debt, mortgage and other debt (auto, credit card etc.) stood at $ 9.3 trillion. This is a huge rise. Most of the debt has been concentrated in the debt for home mortgages and related loans. Here total household debt has risen to just over $ 7 trillion. That is $ 25,000 debt for every man woman and child. Average credit card debt alone is $ 12,000 and rates paid to banks for that debt are well above 14% a year.
<snip>
Housing bubble about to pop?With real unemployment rising to near 11 %, wages stagnant or even falling, it is not surprising that some families are having trouble surviving. Personal bankruptcy filings are at a record high. And now there are signs for the first time that, despite lowest interest rates in 43 years, families are starting to have trouble paying their home mortgages. Today the ratio of household debts to personal asset worth is at an all-time high of 22.6 %. Many families are forced to work two or even three jobs to pay bills, especially cost of the mortgage on their home.
Home prices have climbed dramatically in the past 3 years as low interest rates have encouraged banks to lend to even high risk families. Government or semi-government agencies with names like Fannie Mae or Freddie Mac take the risk off the hands of the local lending bank onto the US taxpayer. For more than one hundred years, US banks lent money for buying a home based on very conservative rules that required a significant initial cash payment, usually 25-30 % of the value of the mortgage loan, and proof that the family had collateral or assets worth more than the home in event of payment trouble. Today, using new financial derivatives and government guarantees, banks lend without even thorough checks of credit. In some cases loans are for 125 % the value of a home. And the US Congress is planning to introduce a law, 'The Zero Down Payment Act of 2004' that would allow certain buyers to buy without a penny of cash first. They are playing with fire.
More:
http://www.currentconcerns.ch/archive/2004/02/20040201.phpTYY
Printer-friendly format
Email this thread to a friend
Bookmark this thread
(1000+ posts)
Send PM |
Profile |
Ignore
