What’s the first rule when building a house of cards? That it will come tumbling down, naturally. How do people forget this when talking about the U.S. economy? Beats me. But look around you and you will see the cards fluttering to the ground right now. Wall Street is in a frenzy and suddenly a recession looks like a possibility. Heap on a healthy dose of Iraq and the looming immigration crackdown and you get a rather nasty situation.
As always, most of the agita revolves around Wall Street. Wall Street is the great wealth generator and destroyer – capable of tanking the economy in a single day. Sure it has driven growth in the 80s, 90s and 00s, but each time it has come crashing down. There is no reason not to expect it will do the same now. While I can rant all day about Wall Street – the insane tendency to over-valuate, the shortsighted emphasis on growing quarterly profits, the stupefying amount it pays out in bonuses – but this is really about something much more fundamental, namely why do we accept gambling on the economy as a practical way of doing business?
A perfect example is the latest scandal, the subprime collapse. What is subprime? In effect, it is lending money to some people who should not be lent money. Recipients were people who did not qualify for the better rates given to safer borrowers. Generally it was a cash cow, but of course the cow gorged itself and the result is one dead cow. Big banks basically took part in predatory lending and then got caught as interest rates rose. So now they are taking a bath and the economy as a whole is suffering – and spreading overseas too. I’ve already seen at least one news story about how a guy was quoted 8% on a mortgage then 13% by the same company a week later – for a normal mortgage. If people have to pay such high costs, then people won’t take out mortgages and houses won’t sell. That’s real bad for the economy.
Now let’s expand it to the big picture. The economy has been fairly humming along for years. Unemployment is low, even if you count the people who have permanently dropped out of the labor market, and the number of new companies being incorporated is at an all-time high. Even high gas prices have not dampened economic growth, which in turn is driving down the deficit. Of course the deficit is a phantom number since it does not include the huge expenditures soon needed to cover the past raids on Social Security and Medicare. But there is another ripple that is fast growing beneath the surface – illegal immigration – and make no mistake, this can take out big chunks of certain industries: hospitality and construction just for starters.
The anti-illegal crowd continues to push its xenophobic crackdown, and Bush has started to listen. For years, government basically looked the other way as industries came to rely on illegal immigrant workers. But now, companies in those same industries are receiving threatening letters from the government instructing them to fire employees that have non-matching social security numbers or face fines up to $10,000 per instance. Waves of fear have spread through industries like the restaurant business, which is booming in every city and desperate for labor. Who will wash the dishes and mop the floors? There is no answer to that question.
So the environment for illegals becomes one of fear and America looks like it is punishing poor people once again – heck we’ve made it our national agenda to screw poor people on things from access to healthcare to student loan cuts to shepherding them in poorly run urban housing to providing the only real outlet through the military, destination Iraq. Why stop now?Meanwhile, we have a bunch of clowns running for president. They speak not of the system but of various causes and “solutions” for our problems. Sorry folks, but first you need to analyze how and why we are where we are. And you can start with the simple question of why we need to construct our houses of cards when we know full well they will come tumbling down.