Foreclosure Crisis Has Exposed the Defect in the Structure

The foreclosure crisis has exposed the defect in the structure and the system. The unregulated market framework did not work out and if Obama wants effective action and the end of the recession this root cause has to be tackled.
The reverse gear action of going back to the unregulated market days is the main cause for the troubles America is facing today. It has frozen wages and made the unions lose bargaining power causing the common man to be plagued with foreclosures. The tax system is being exposed to work only for the benefit of the wealthy.

Since the time of the Great Depression all the recessions has been the handiwork of the Federal Reserve. The latter was goaded either by inflation or fear of it. A recession is generally defined by the drop of GDP in two running quarters. It showed up the success of the Feds in slowing the economy. This is a cyclical phenomenon. But a recession is structural. The National Bureau of Economic Research that pins down the recession with a date does not use the yardstick of the rise and fall of GDP. It quoted a peak in “payroll employment” happening in December 2007 to mark a turning point of the economy.

Hitherto employment had been taken to be a lagging pointer. In terms of the cycle, employment figures do not mark recessions. Neither do they concern the policy makers. In its statement NBER marked December 2007 to be the onset of recession – it being something not done before. But it was the right thing to do. The problem relates to the structure. This has led to policy makers to start worrying about employment.

This change of measuring by NBER meant that the cyclical decline was not being referred to relating to production and financial movements but to the structural fall in basic total demand as is shown by the numbers on the payroll. Payroll employment calculates how much workers can purchase and thus predicts the consumption trend of the forthcoming days.

The nature of the present recession called for the change in the measuring yardstick. The Feds did not resort to this because too much average demand was resulting in inflation. In fact the reverse was taking place – too little demand was leading to deflation. This kind of structural ‘recession’ has not been experienced by USA since the 30’s.

Unemployment has been given recognition as a problem. Against this background the talk of ‘green shoots’ is reduced to so much nonsense.

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