At each stage of the crisis the U.S. government and central bank have had to take bigger and bigger actions to try to stabilize the crisis. The Federal Reserve has loaned out about $500 billion to banks and other institutions, while the U.S. government has committed another $300 billion in loans. Now the Bush administration is planning to commit up to $700 billion more to buy up bad mortgages to try to aid struggling banks. The Federal Reserve will start to provide loans to businesses in addition to banks. Each of the past ‘rescues’ have failed to stabilize the economy and there is no good reason to think the latest plan will either.

The Bush administration wants to ‘avoid finger pointing’ when all the fingers are pointing at the free-trade and deregulatory policies of the Bush years that contributed to the free-wheeling and fraudulent mortgage mess. Nor can former Federal Reserve chairperson Alan Greenspan escape responsibility for the low interest rates and lack of enforcement that contributed to the housing boom and bust.

But the roots of the crisis go much deeper than just the laissez-faire (free-market) policies of Bush and Greenspan. The economic system of monopoly capitalism itself is the cause of the current crisis. Today giant multinational corporations that can produce more than they can sell dominate the world economy. Even with advertising that invades every corner of our lives and easy credit, these corporations can produce more cars, steel, airplanes etc. than can be sold.

U.S. businesses have been on an anti-union drive for 25 years, making it easier to cut wages and benefits. Their lobbying in Congress has led to cuts in welfare, the minimum wage and unemployment benefits, forcing more and more workers to take low-paying jobs. They shamelessly exploit millions of new immigrants, even children, and call the ICE if the immigrant workers try to fight back. Corporations send their work to other countries, eliminating better paying jobs here in the United States. At the same time the workers in Asia and Latin America earn just a fraction of what the jobs were paying in the United States.

While this leads to ever-greater profits for a handful of super-wealthy, it means that the masses of working people cannot afford to buy back what it produced. This is not just a result of greedy CEOs (although there is no lack of them). This is a result of drive for profit that is part and parcel of capitalism. Under a capitalist economic system, production is social, with tens of millions of workers contributing to the production, distribution and sale of goods and services, while the means of production (factories, transport and stores) are privately owned, with the profits flowing to a small capitalist class. This contradiction is at the root of economic crisis under capitalism.

With a lack of investment opportunities in the production of goods and services, profits have flowed into a financial sector that has been growing like a cancer the last 30 years. Today there are more than $600 trillion of financial derivatives such as Mortgage-Backed Securities (MBS), Collateralized Debt Obligations (CDOs) Credit Default Swaps (CDS), etc. whose value is 40 times the entire U.S. economy.

The deregulation of the 1980s and the growth of basically unregulated financial institutions was not just a policy of the Reagan era, but an outgrowth of the need for capital to have new places to invest. Today the pendulum is swinging back, with many billionaires, politicians and mainstream economists abandoning their free-market rhetoric and calling for more regulation and government monies to help shore up the financial system. Billionaires and their armies of lawyers are masters of corporate manipulation and it is beyond a doubt that they will skim hundreds of millions and even billions of dollars off of these government rescue plans – just look at what the military contractors have done for years.

Of course, as socialists, we have no problem in principle with government intervention in the economy. But we have to point out the hypocrisy of the Bush administration, which opposed spending a few billion more for health care for low-income children, opposed extending unemployment insurance for laid off workers and which was not willing to spend one dime on millions of households losing their homes to foreclosures. But when the big banks and insurance companies are in trouble, all of a sudden hundreds of billions of dollars are available.

Another danger is that right-wingers will call for even more cuts in government spending, saying that there is no money. Of course, there is a grain of truth to this, as the Bush administration has cut taxes for the rich and spent almost $700 billion on wars in Iraq and Afghanistan. But this crisis should help expose the Bush-McCain program to privatize Social Security and Medicare and put our retirement and health care in the hands of private insurers like AIG, which only avoided bankruptcy through a government takeover.

This crisis has made it painfully clear how much the U.S. relies on foreign capital to keep the economy running. The government takeover of Fannie Mae and Freddie Mac was in part to calm the fears of other countries, which have lent Fannie and Freddie more than a $1.5 trillion. In the second quarter of 2008 (April through June), foreign investors sold $150 billion of Fannie and Freddie debt, the largest outflow ever. Just before the government takeover, the Secretary of the Treasury was meeting with foreign investors to calm their fears.

In the past, the U.S.-dominated International Monetary Fund and World Bank have inflicted painful austerity plans involving cuts in government spending, privatization of government services and higher interest rates in return for loans to developing economies in financial distress. Some foreign investors may well ask why the U.S. should not have to take the same painful medicine if U.S. businesses need capital now.

In the face of growing cuts at the state and now federal level, our focus needs to be building a grassroots movement that can fight for the people’s needs: to fund our schools, to provide health care for all, to provide jobs for laid-off workers and to stop the wave of foreclosures. The struggle to protect our schools, clinics, jobs and homes needs to unite with peace and justice movements to end the wars in Iraq and Afghanistan and to stop the wave of raids and deportations targeting Latino communities. Only such movement can put the heat on any new administration to meet the people’s needs.

Our slogan needs to be: Make the rich pay! Taxes need to be raised on the rich, starting with making the Social Security payroll tax apply to all income and restoring the top income tax rates on high-income households. We need jobs or income for unemployed workers! We need a universal health care system that will eliminate costly insurance companies and tell the big drug companies to lower their prices – or else. We need an extension on unemployment benefits and the social safety net must be extended.

The crisis has made it even clearer for all to see that both the Republicans and Democrats are parties of big business. Both parties’ leadership and presidential candidates supported the $700 billion bailout for bankers and billionaires. Having said that, the defeat of the Republicans would be a repudiation of their leadership on deregulating the economy into crisis at home and charging into war abroad. But only a massive people’s movement can force Democrats in power to win more reforms that benefit working people and at the same time show more and more people that Democrats are not for real change; only socialism can bring that about.

#UnitedStates #Editorial #Socialism #capitalistCrisis #IncomeDisparity #bankBailout #mortgageCrisis

The official unemployment rate stayed at 5.5%, the same as May, but up a percentage point from a year earlier. However this was largely due to a large number of unemployed giving up on looking for work, as the number of jobs fell but the number of unemployed (and looking for work) stayed the same. One reason for giving up the job search is that more and more of the unemployed are unable to find jobs for six months or more, with almost one-fifth of the unemployed out of work for more than a half year. The median length of unemployment jumped from 8.3 weeks in May to 10 weeks in June. The median, or time where half have been unemployed longer and half shorter, was only 6.2 weeks just one year go.

The official unemployment rate also covers over the growing number of underemployed, especially workers who have to take part-time work because no full-time jobs are available. These numbers have been growing as businesses and government find it cheaper to hire part-time workers who they can pay less and offer fewer or no benefits. The percentage of workers with part-time jobs because of the state of the economy increased from 6.6% in May to 7% in June (vs. 5.6% a year ago).

Latino communities were the hardest hit in June, as the unemployment rate for Hispanics rose from 6.9% in May to 7.7%. The unemployment rate for Latinos has risen by two percentage points over the last year, more than twice the rate of the overall increase in unemployment (+ 0.9%). This sharp rise reflects both layoffs in construction, where many Latinos work, and the ‘last hired, first fired’ practice that keeps the unemployment rate for oppressed nationalities higher than whites.

In the last week of June, new claims for unemployment insurance benefits increased by 16,000 from 388,000 to 404,000. This level of claims for unemployment benefits was last seen in 2003 in the aftermath of the last recession, and is up by 100,000 claims or one-third since a year ago. More and more household name businesses from American Airlines to Starbucks are announcing major layoffs, as the slowing economy and rising prices of fuel squeeze corporate sales.

While the mainstream media did cover the dire situation in the job market, news that two-thirds of states could run out of funds to pay unemployment benefits in the next year attracted little coverage. All told, states have only $38 billion in their benefit funds, as compared to the $54 billion they held in 2001 just before the last recession. Even worse, about one-third of states could run out of money in six months, and a few, such as Michigan, are already borrowing from the federal government to pay their benefits. This lack of funding for a key safety net program is a result of the pro-business, anti-tax the wealthy policies widespread at the state level. Low unemployment insurance premiums charged to businesses increase profits, but leaves the unemployed and needed state social programs at risk during a recession.

The federal government’s tax rebates designed to stimulate the economy did manage to keep consumer spending from falling along with job losses, with one big exception: the sales of new cars tanked in June, falling about 20% from a year earlier. While the tax rebates did help many households keep a square meal on the table and fuel in the gas tanks despite the soaring cost of food and gasoline, the rebates could not support sales of cars and other big-ticket items, which typically fall during a recession. With car sales slumping despite another round of price cuts, look for even more layoffs in the auto industry in the future.

While the Bush administration is almost pathetically trying to insist that the economy will avoid a recession, some economists are calling for more and even greater spending by the federal government. Most (but not all) recessions have a ‘double-dip’ pattern, where the initial slowdown is followed by an even greater drop months later. With households burdened by debt, falling home prices and growing layoffs, while businesses are cutting back on investment in new plants and equipment because of falling sales and state and local governments having to cut spending or raise taxes, the second half of the year could be even worse than the first half. A second dip caused by a vicious cycle of less spending leading to more layoffs and then even less spending could emerge.

Even worse, corporations and governments try to put the burden of the recession on working people and the poor. Corporations are laying off while paying outrageous salaries to their top managers, or going into bankruptcy to slash wages and benefits, while often paying their managers bonuses to ‘stick around.’ State and local governments try to cut welfare and health care rather than raise taxes on the rich.

Only the federal government has the ability to try to borrow and spend blunt the affects of the downturn. However the federal government is limited by the trillions of dollars already borrowed to pay for Bush’s tax cuts and wars in Iraq and Afghanistan. It will take a massive people’s movement – to end the war, end the tax cuts for the rich and force the government to pay for social programs, infrastructure, aid to distressed state and local governments and help households in danger of losing their homes – to lessen the effects of the recession while making the rich pay.

#SanJoseCA #Analysis #Unemployment #capitalistCrisis #IncomeDisparity

These reports also showed that the African American and Latino communities were the hardest hit. One million of those who fell below the poverty line were African American or Latino. Latinos and African Americans also lost the most in terms of their money incomes, which fell 3 to 4%, as compared to less than 1% for whites.

African Americans not only have the highest poverty rate (24.1%), but also had the largest increase in poverty last year. It is no surprise that the African American community has been hardest hit by the recession, as they are historically the ‘last hired and first fired.’ The loss of millions of manufacturing jobs has hurt African Americans especially hard, since Black workers rely the most on these jobs to achieve a better lifestyle. The Bush administration, along with some Democrat misleaders, is trying to blame China for the loss of U.S. factory jobs. But it is the big U.S. corporations, who move their production to wherever they can find cheap labor, who are to blame.

Latinos – many of whom work in low wage jobs without health benefits – have the most uninsured, with almost one-third (32.4%) not having health insurance, as compared to only 10% of whites. Fewer jobs are offering health insurance benefits; while others have raised the workers’ contributions so high that insurance is no longer affordable. Other workers who had jobs with health insurance have been laid off, and have had to take temporary or low-paying jobs without benefits.

These Census reports actually understate the suffering of the working class and oppressed nationalities. The poverty rate hides the true extent of poverty, since a family of three had to earn less that $14,500 to be counted as ‘poor.’ But to meet basic needs, a family of three needs at least $25,000 to get by. The fall in income is also understated, as the fall in income per person was 1.8%, much larger than the reported fall in household income. Finally, the number of people without health insurance only counts those who had no health insurance for the entire year. Three out of four people who lose their health insurance do so for less than a year, and would not be included. Thus, the number without health insurance at any one time is much more than the 15% of the total population, or almost 45 million people, reported.

Meanwhile, Forbes magazine just released its list of the 400 richest individuals. Their wealth rose 10% over the last year, to nearly $1 trillion dollars, or an average of $2.5 billion dollars each! At the same time, the number of millionaires increased 14%, and is at a twenty-year high! This just continues the trend of the rich getting richer while most of the rest of us slide back. The gap between the rich and the poor doubled between 1979 and 2000, with the richest 1% of the population having more after-tax income than the bottom 40%. Huge gains in executive pay, like the $140 million paid to the New York Stock Exchange’s Grasso, and tax cuts for the wealthy – thanks to Reagan and George W. Bush – contributed to the rise of the rich.

#SanJoseCA #Analysis #AfricanAmerican #ChicanoLatino #crisisOfCapitalism #IncomeDisparity #povertyRate