American dream in tatters

The first fall in US household wealth in five years reveals the growing impact of a financial and economic crisis that will be felt by every person on the planet. World prices for oil – now over $100 dollars for a barrel of crude, gold nearing $1000 an ounce, food driven skywards by demand for biofuel, and many other basic commodities are spiralling, whilst the warning signs of recession, including declining retail sales are appearing everywhere.

Many US consumers, already burdened with debt, are being ruined. High-powered salespeople first seduced them with low rates of interest - soon to be replaced by punitive, impossibly high mortgage repayments – thus pushing many over the edge. The US Mortgage Bankers Association said yesterday that the "mortgage delinquency rate hit its highest since 1985 in the final three months of 2007. While the rate of failing loans swelled across most mortgages, it was led by a growing wave of sub prime borrowers unable to make payments". In addition, the number of workers claiming unemployment benefit has remained at its highest in nearly two and a half years.

The property sponge is now being squeezed out, and the world’s financial, stock and commodity markets are in turmoil. New outlets must be found to house the inflationary growth of credit fed by the central banks’ desperate attempts to reduce the impact of recession by injections of liquidity and reducing base interest rates. Despite the actions of impotent governments the cost of credit is increasing. The managers of accumulated oceans of currency in sovereign wealth funds are scouring the planet for profitable enterprises into which they can sink some loot.

As repossessions mount, and demand for housing and all associated goods and services are falling, house prices are tumbling. In America, just as in the UK and in many other countries, private property – both housing and commercial, absorbed the inflationary expansion of credit and debt that made globalisation possible. This fantasy finance – Marx called it fictitious capital – paid for the American dream. It kick-started the growth of transnational corporations that subcontracted unsustainable production to Latin America, China and India to provide cheap commodities, corporate profits and the legacy – climate change. The worst of all possible future consequences are laid bare in The Road, Cormac McCarthy’s dystopian nightmare of the few remaining inhabitants of a dying planet.

It doesn’t have to be like this. Another world is possible.

At the top, refugees from the nightmarish world of fantasy finance have been pitching up as advisers to New Labour. Gordon Brown’s office has welcomed flawed expats from Goldman Sachs, one of the world’s biggest investment houses. Now their advice and the scandals they bring with them are weakening the government’s grip. Good news.

From the bottom, and across the world, broadening social movements like the Transition Town initiative are exploring different ways of living, ways which are not dependent on fossil fuels. For such experiments to become truly effective however, it will be necessary to remove the profit incentive that motivates the extraction of oil, gas and coal. And that means bringing the corporations into social ownership.

Gerry Gold
Economics editor