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Will The U.S. Economy Recover This Time?

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As we all know, the massive wave of subprime mortgages that defaulted in 2007 and 2008 caused the biggest financial crisis since the Great Depression. What most people don't yet know, however, is that the "second wave" of mortgage defaults is on the way. A huge mountain of adjustable rate mortgages are scheduled to reset this year, and once those ramped-up mortgage payments have to be made, then once again there are going to be plenty more folks who simply cannot or will not continue paying on those mortgages, most of which will be foreclosed, leaving the banks with tens of thousands of properties which they will eventually be forced to sell, for prices well below what had been considered a fair market price. This in turn will press the market value of all other homes down still further, well below their current value.

But what if six million great new well-paid jobs are created in the next six months, to replace the six million we've lost in the last few years? Wouldn't that allow these owners to hang on? Well yes, it might begin to, but with Obama and most members of Congress having been bagged and captured by the big banks, what are the chances that such jobs will be created?

The answer is, zero.

Even though the U.S. financial system nearly experienced a total meltdown in late 2008, the truth is that most Americans simply have no idea what is happening to the U.S. economy. Most people seem to think that the nasty little recession the banksters got us into is almost over and that very shortly we will be experiencing another period of economic growth and prosperity, just like we always have before.

The reality is that we are being sucked into an economic black hole from which the U.S. economy may well never fully recover. Here are some reasons why:

Our mammoth indebtedness

Collectively, the U.S. government, the state governments, corporate America and American consumers have accumulated the biggest mountain of debt in the history of the world. Our massive debt binge has financed our tremendous growth and prosperity over the last couple of decades, but now the day of reckoning is here. Cash strapped cities are already beginning to crumble:

On top of that, the Federal Housing Administration (FHA) has announced plans to increase the amount of up-front cash paid by new borrowers and to require higher down payments from those with the poorest credit. The FHA currently backs about 30% of all new home loans and about 20% of all new home refinancing loans. Problem is, tighter standards (and falling wages) mean that ever fewer people will be able to qualify for loans. Ever smaller numbers who qualify means that there will be ever fewer buyers for homes. And ever fewer buyers (reduced demand) mean that home prices are going to drop even further than they already have.

Hard to find jobs, much longer periods of unemployment

More than 6 million U.S. workers had been unemployed for 27 weeks or more in December 2009. That was the most since the U.S. government started keeping track in 1948. In fact, it is more than double the 2.6 million U.S. workers who were unemployed for a similar length of time just the year before, in December 2008. The reality is that once Americans lose their jobs, they are finding it ever more difficult to find new ones that pay a salary anywhere near what they previously earned. And why would that be? A few reasons:

a) Most of the jobs they previously had have been sent overseas where low-wage workers now do them at a fraction of the cost to employers,

b) unions have been busted and/or have been prevented from forming,

c) computers and automation are doing ever more of the work,

d) those who still have decently paid employment are voluntarily putting in extra long hours of hard work to make sure that they are not the next ones to be laid off.

e) ever more workers are being given no other choice than part time and temporary employment, through agencies this saves the employer from having to pay/provide benefits.

One million discouraged workers

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Several years after receiving my M.A. in social science (interdisciplinary studies) I was an instructor at S.F. State University for a year, but then went back to designing automated machinery, and then tech writing, in Silicon Valley. I've (more...)

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