Extreme Parasitism of the Capitalist Economy of the US

During the last two months, more than twenty lakh (2 million) American families have been forced to surrender their homes to companies from which they had taken home loans. Many more families are likely to meet the same fate during the next one year. Millions of workers and their families are facing ruination as a result of the unbridled greed of money lending institutions.

Most American people buy their homes by contributing 15-20% of the price out of their savings, with the balance being taken as loan from a financing company, to be repaid over 20 years or more. The house for which the loan is taken is mortgaged to the lending company. Mortgaging means that the lending institution can take possession of the house if the owner fails to pay installments in time, covering interest and principal.

The installment payments for home loans have risen very sharply in recent months, whereas real wages for most American people are today less than what they were five years ago. So they are not able to pay their installments in time. Home loan companies are forcing them to surrender the house.

Total outstanding home loans in America is nearly $ 10,000 billion (Rs 4,10,00,000 crores). Every year new home loans of about $ 600 billion ( Rs 24,60,000 crores) are given out by home loan companies.

The boom in home loans was sparked off when the American state brought down the interest rate to as low as 1%. It was claimed that this would revive economic growth and create more jobs for the American working class and people. In reality, cheap credit did not lead to any significant increase in productive investments in the US economy. American capitalist corporations are more interested in making such investments abroad, such as in China and India. Within the United States, cheap credit has led to an enormous flow of capital into speculation in the stock market and real estate. This led to share prices rising to their highest ever levels, only to come down crashing. It has also led to prices of homes in America rising to unprecedented levels, ending up in what is called the home loan crisis.

When real estate prices rose, an illusion was created among American people that they have become wealthier due to the rise in value of their homes. They were encouraged to spend more money by taking more loans on the basis of the increased value of the homes they would own. They were induced into buying bigger and more expensive homes even though their earnings had not gone up. Home loan companies aggressively promoted loans even to poor, who could not afford them, by offering very low interest rates for the first few years. Some of the home loan companies offered even 100% of purchase value of home as loan, so the buyer was not required to put in any personal money. This tempted many poor Americans to take loans to buy a home. The lending companies did not tell the buyers that after a few years the interest rates on their home loan could sharply increase.

Following the first signs of down turn in asset values, the US Government raised the Bank rate, from 1% to 5% step by step. Cheap money is not available anymore. Home prices stopped rising, and are now falling. Due to sharp increase in interest rate on home loans, number of American people taking new home loans have come down. This has further aggravated the decline in real estate prices. Home owners are discovering that the value of their home is now less than the loan they have taken.

Around $1500 billion (Rs. 60,00,000 crore) of home loans have been made to people who are now struggling to pay increased monthly installments. Many borrowers thought of repaying the entire loan by selling their house but were not able to due to fall of the house price. About 15% of the borrowers have already been forced to surrender their homes to the lending company. These are the poor of America who are homeless now. Lakhs of working people have become poorer by a huge margin within a couple of months. The negative impact on the purchasing power of the people has now raised serious concerns of a recession in the US economy, which means a down turn in GDP because of people not being able to afford to buy as much as they did before. America’s largest retailer, Wal-Mart, admitted recently that its monthly sales have fallen dramatically, as the working class is running out of money.

For the capitalists to expand their profits and wealth, they have to make people buy what they produce. But when wages of workers are stagnant or falling, how do you make them buy more and more? Ask them to take loans and more loans. The result is that the American people are neck-deep in debt.

The home loan crisis shows the extremely parasitic nature of the US economy. Financial resources are concentrated in the hands of a tiny minority of profiteers who speculate with the fate of the working people. Lakhs of working people are being ruined, as a result of the drive of finance capital to reap maximum profits through speculation. The US government does nothing to save any of the working people who have lost their homes. On the contrary, it intervenes to bail out those financial companies that have suffered losses as a result of the home loan crisis.