America is seeing the end of the home ownership boom that endowed its middle class with property steadily rising in price. For buyers, the price was rising mortgage debt, as bank credit was the major factor in raising property prices - a home is worth however much a bank will lend against it. For non-whites, to be sure, neighborhoods were redlined against racial minorities. By the early 2000s, banks began to make loans to black and Hispanic buyers, but usually at extortionately high interest rates and stiffer debt terms. America's white home buyers now face a fate similar to that which they have long imposed on minorities: Debt-inflated purchase prices for homes so high that they leave buyers strapped by mortgage and compulsory insurance payments, alongside declining public services in their neighborhoods.
When mortgages can't be paid, foreclosures follow. That causes declines in the proportion of Americans that own their own homes. That home ownership rate already had dropped from about 58 percent in 2008 to about 51 percent at the start of 2020. Since the 2008 mortgage-fraud crisis and President Obama's mass foreclosure program that hit minorities and low-income buyers especially hard, a more landlord-ridden economy has emerged as a result of foreclosed properties and companies bought by speculators and vast absentee-owner companies like Blackstone.
Many businesses that closed down did not pay the landlords. Realizing that if they are held responsible for paying full rents that accrued during the shutdown, it would take them over a year to make up the payment, leaving no net earnings for their efforts, the incentive was to close. That was especially the case for restaurants with compulsory limited "distance" seating and other stores obliged to restrict the density of their customers. Many restaurants and other neighborhood stores decided to go out of business. Some 19 percent of mortgage loans had fallen into arrears already by May, along with about 10 percent of retail stores.
The commercial real estate sector owes $2.4 trillion in mortgage debt. About 40 percent of tenants did not pay their rents for March, April and May, from restaurants and storefronts to large national retail markets. A moratorium on evictions put them off until August or September 2020. But in the interim, quarterly state and local property taxes were due in June, which also was when the annual federal income-tax payment was owed for the year 2019, having been postponed from April in the face of the shutdown.
The prospective break in the chain of payments of landlords to their banks may be bailed out by the Federal Reserve, but nobody can come up with a scenario whereby the debts owed by non-elites can be paid out of their own resources, any more than they were rescued from the junk-mortgage frauds that left over-mortgaged homes (mainly for low-income victims) in the wake of Obama's decision to support the banks and mortgage brokers instead of their victims. In fact, it takes a radical scenario to see how state and local debt can be paid as public budgets are thrown into limbo by the virus pandemic.
The fiscal squeeze forces governments to privatize public services and assetsSince 1945, the normal Keynesian response to an economic slowdown has been for governments to run budget deficits to revive the economy and employment. But that can't happen in the wake of the 2020 pandemic. For one thing, tax revenue is falling. Governments can create domestic money, of course, but the U.S. government quickly ran up a $2 trillion deficit by June 2020 simply to support Wall Street's financial and corporate markets, leaving a fiscal squeeze when it came to public spending into the real economy. Many U.S. states and cities have laws obliging them to balance their budgets. So public spending into the real economy (instead of just into the financial and corporate markets) had to be cut back.
U.S. states and localities are facing a huge tax shortfall that is forcing them to cut back basic social services and infrastructure. Sales taxes from restaurants and hotels, income taxes, and property taxes from landlords not receiving rents are mounting from millions to billions. New York City mayor de Blasio has warned that schools, the police and public transportation may have to be cut back unless the city is given $7 billion. The CARES act passed by the Democratic Party in control of the House of Representatives made no attempt to allocate a single dollar to make up the widening fiscal gap. As for the Trump administration, it was unwilling to give money to states voting Democratic in the presidential or governorship elections.
The irony is that just at the time when a pandemic calls for public health care, political pressure for that abruptly stopped. Logically, it might have been expected the virus to have become a major catalyst for single-payer public health care, not least to prevent a wave of personal bankruptcy resulting from high medical bills. But hopes were dashed when the leading torch bearer for socialized medicine, Senator Bernie Sanders, threw his support behind Joe Biden and other opponents for the presidential nomination instead of focusing the primary elections on what the future of the Democratic Party would be. It decided to focus the 2020 U.S. election merely on the personality of which candidate would impose neoliberal policy: Republican Donald Trump, or his opponent running simply on a platform of "I am not Trump."
Both candidates - and indeed, both parties behind them -sought to downsize government and privatize as much of the public sector as possible, leaving administration to financial managers. Past government policy would have restored prosperity by public spending programs to rebuild the roads and bridges, trains and subways that have fallen apart. But the fiscal squeeze caused by the economic shutdown has created pressure to Thatcherize America's crumbling transportation and urban infrastructure - and also to sell off land and public enterprises, basic urban health, schools - and at the national level, the post office. Fiscal budgets are to be balanced by selling off this infrastructure, in lucrative Public-Private Partnerships (PPPs) with financial firms.
The neoliberal rent-extractive plan is for private capital to buy monopoly rights to repair the nation's bridges by turning them into toll bridges, to repair the nation's roads and highways by making the toll roads, to repair sewer systems by privatizing them. Schools, prisons, hospitals and other traditionally public functions are set to become lucrative consulting opportunities on the road to privatization. Even the police are to be privately owned security-guard agencies and managed for profit - on terms that will provide interest and capital gains for the financial sector. It is a New Enclosures movement seeking monopoly rent much as landlords extract land rent.
Having given $10 trillion dollars to support financial and mortgage markets, neoliberals in both the Republican and Democratic parties announced that the government had created so large a budget deficit as a result of bailing out the banking and landlord class that it lacked any more room for money creation for actual social spending programs. Republican Senate leader Mitch McConnell advised states to solve their budget squeeze by raiding their pension funds to pay their bondholders.
For many decades, public employees accepted low wage growth in exchange for pensions. Their patient choice was to defer demands for wage increases in order to secure good pensions for their retirement. But now that they have worked at stagnant wages for many years, the money ostensibly saved for their pensions is to be given to bondholders. Likewise at the federal level, pressure was renewed by both parties to cut back Social Security, Medicare and Medicaid, with Obama's 2010 Simpson-Bowles Commission on Fiscal Responsibility and Reform to reduce the deficit at the expense of retirees and the poor.
In sum, money is being created to fuel the financial sector and its stock and bond markets, not to increase the economy's solvency, employment and living standards. The corona virus did not create this shift, but it catalyzed and accelerated the power grab, not least by pushing public-sector budgets into crisis.
It doesn't have to be this wayEvery successful economy has been a mixed public/private economy with checks on the financial sector's power to indebt society in ways that impoverish it. Always at issue, however, is who will control the government. As American and European industry becomes more debt ridden, will they be oligarchic or democratic?
A socialist government such as China's can keep its industry going simply by simply writing down debts when they can't be paid without forcing a closedown and bankruptcy and loss of assets and employment. The world thus has two options: a basically productive public financial system in China, or a predatory financial system in the United States.
China can recover financially and fiscally from the viral disruption because most debts ultimately are owned to the government-based banking system. Money can be created to finance the material economy, labor and industry, construction and agriculture. When a company is unable to pay its bills and rent, the government doesn't stand by and let it be closed down and sold at a distressed price to a vulture investor.
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