Because of Wall Street’s excessive greed, millions of U.S. home owners are now threatened with foreclosure because of predatory loans that were made to lower and middle income families who could neither afford them, nor understand the terms of the their loans. Lenders deliberately deceived homeowners about the terms, and they continued to make these sub-prime loans even after the housing bubble began to burst.  As a result, the housing market is collapsing like a deck of cards, and irresponsible credit practices have spread the crisis across the entire credit system upon which global capital survives—threatening global recession. 

The entire international financial system is based on a system of debt. From the poorest of the poor, to the struggling middle class, and even to the country as a whole—all are buried in debt. Whether one wants to buy a house, a car, an education, or even food, clothes, and gas, debt is just around the corner.

But it didn’t always used to be this way, America wasn’t always buried in a mountain of debt.  However, since the “Regan Revolution” in the 1980’s, there has been a consistent move towards privatization, union-busting, outsourcing, and deregulation of the economy.  As a result, workers in this country have made all the sacrifices, and have lost many of the gains made in previous generations.  Corporations claim that in order to stay competitive globally, such sacrifice is necessary. Yet as workers suffer, corporate profits have risen to levels not seen since the last Gilded Age.

 

Real wages, which are wages adjusted to inflation, are lower than they have been for well over a generation. For example, from 1966 to 2001, the average worker’s income (adjusted to inflation) grew just 11 percent.  For those who have incomes in the 90^th and 99^th percentile, it has been a much different story.  Their incomes adjusted to inflation have risen 58% and 121% respectively.

This is affecting not only a cashier who earns minimum wage at McDonald’s, but college graduates as well. In fact, the only professions whose wages have not decreased are those who are in business and those whose professions require post-graduate degrees.

This means that even though you still need all the necessities that people bought a generation ago, you no longer have the same means to buy them. Therefore, credit cards have come to fill this economic generational gap.  This has changed the middle-class to the debtor class in American society. 

 

In total, Americans have taken $5.2 trillion dollars of debt since 2001.

In fact as of June 2006, Americans took on debt equivalent to 129% of their disposable income.  This is simply unsustainable, and is a testament to the economic hardships faced by ordinary Americans as neo-liberal economic policies have been forced upon them.  Especially, during George W. Bush’s administration, where corporations have been free to carry out financially unsound credit practices in order to maximize profit, which in turn, has led to the latest credit crisis. 

 

Banks are often regulated to give loans at a ratio of 9;1. That is, banks can loan out nine dollars for every one dollar they hold as a deposit.  This is a regulatory measure intended to curtail excessive credit practices that could lead to a financial crisis.  In recent years, banks have found ways to move these loans off their books, enabling them to make new loans.

 

One way of doing this is through moving bank debt, mortgage bonds, and other complex securities into structured investment vehicles, known as SIV’s. Another way is by bundling together mortgage bonds and other debt, and packaging it as a security to sell.  Bankers believed this was a good way of spreading out risk, and banks around the world bought these securities. This then enabled banks to make more loans by escaping the 9;1 ratio.  In reality, it led to irresponsible loans being made with teaser rates being offered to lower and middle income homeowners, who were unaware of the risks if market conditions changed.

 

As a result of these credit practices, the housing bubble burst is not only threatening the housing market, but the whole entire global financial system.  Therefore, a U.S. recession is increasing the likelihood of a global economic downturn. So besides the millions of homeowners in the U.S. that are facing foreclosure on their homes, there will also be layoffs, rising inflation, and negative overall growth in the economy.  For every $100 billion written off by banks, that is $900 billion in loans they are no longer able to invest. This ultimately leads to a massive credit crunch, and major global banks have already taken losses numbering in the tens of billions of dollars.

 

However, the ones that pay the most are those who are already struggling.  They’re the ones who pay for the greed of corporate executives, who the government bails out when they are faced with the realities of the market they often tout as being so perfect. In fact, after these corporations create an economic crisis in their reckless pursuit of profit, they then beg for government intervention and are given bailout packages that number in the billions.  Ironically, these same interests will contest every penny that will go towards alleviating the pain of those who have to suffer because of the bad economic policies of banks, and the failure of government to regulate. 

 

Conservatives often argue that it is the fault of the individual for taking on so much debt, and that they should demonstrate more fiscal responsibility. However, as already mentioned, rising costs, stagnating wages, outsourcing, and other economic hardships have made it nearly impossible for lower income and middle class families to afford even the necessities of life.  More specifically, there are three costs that are bankrupting these groups more than any other: education, healthcare, and military spending.

A college degree is a critical component for success in today’s world, and it is more expensive than ever. The average cost of tuition at a 4-year public college is a staggering $13,589 a year, making it a financial burden that many families can’t afford.  Therefore, taking a substantial amount of debt becomes necessary in order to have access to higher paying jobs.  Also, students coming from higher income families have a much better chance of attending a top-rate school—74 percent of American students at the top 146 U.S. colleges have come from the highest socioeconomic group, compared with just three percent from the lowest.

Run-away health care costs are another contributing factor to the rising inequality and high levels of debt that exist in American society. In fact, health care costs bankrupt more Americans than any other reason. 47 million Americans don’t even have health care, and those that do have it are often not fully covered by the plan they have. Overall, the US has one of the worst health care systems in the industrialized world, even though it spends nearly double the price compared to other nations.

How can this be the state of a health care system in the richest country in the world? And why is education and knowledge viewed in America as being something to be locked away in institutions of higher learning—closed off to those who cannot afford it?  Why deny useful knowledge to those who are poor? Should America not invest in its own future by having a thoroughly educated citizenry? 

One reason these domestic issues are not resolved is because of the vast amount of economic resources that go into the industrial military complex the US has created.  The US currently spends around $700 billion a year on its military. That’s the equivalent of almost every other nation’s military budget combined. That’s including countries like Great Britain, Germany, France, China, and Russia. The war in Iraq alone has so far cost over $500 billion dollars, and is climbing at a rate of around $9 billion to $13 billion a month.  According a recent book by Economist Joseph Stiglitz, the eventual costs of the war will be over thee trillion dollars.

To put this in perspective, if the US had a normal military budget, like any other industrialized state in the world, it could easily pay for both a universal health care and education program with money to spare. It would also have enough money start balancing the budget, and to even repair a bridge or two—preferably before they collapse.

Social programs though do not have the same preference because the American business elite, who dominate both political parties, would rather spend the money on preserving America’s hegemony and economic empire around the world.  This is done mainly through the use of non-violent coercion through bribery, or through economic sanctions and direct use of force. This strategy is more familiarly known as “carrot and stick” diplomacy.

The US has used methods such as these to overthrow more than 50 governments around the world since the end of World War II, often at the request of US business interests. That’s an oppressive figure.

 

Such actions are usually done covertly; although, at times, they have also been done overtly.  The most egregious cases were that of Allende in Chile and Mossadegh in Iran in the 1950’s. In both countries, their American-backed despots, which replaced their previous democratically elected leaders, oppressed and tortured their citizens for decades. In the case of Iran, this action eventually led to the Iranian Revolution in 1979, where the US backed dictator was ousted by his people, and an Islamic Republic was created in its place.

Considering all of these factors, one comes to the ultimate conclusion that the high levels of indebtedness in American society are a product of a disproportional representation of business interests in government. The US political system is biased towards what corporations prefer in both domestic and international issues, leaving the average American with an illusionary form of democracy. In such a system, pursuit of profit will almost always trump the democratic hopes of the population as a whole.

 

This is because political freedom, without corresponding economic freedom, is a diluted sense of freedom.  When a society has shifted most of its wealth and power into the hands of a few, who then exploit the greater population, how can true freedom exist?

 

With an upcoming general election on the way, Americans need to remind their elected officials of the financial burden that they carry.  There is no reason why lower and middle income families have to bury themselves in debt just to have the necessities of life. Health, education, and a decent job with decent pay should be available to all who want it.  These are not unobtainable goals, but they have to be struggled for. Just as the rich have taken from the poor and the middle class, now those classes have to take back what was taken from them. 

 

A new era of regulation, and a restructuring of the tax system is needed to right some these wrongs, and to move the country towards greater equality. Citizens should also have more say in local, state, and federal issues.  Corrupt representatives should not be the only voice of the people—the people need to speak for themselves. However, only when citizens organize, educate, and empower themselves, will any real change occur.

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