Housing will not let the US economy get up. There's more destruction to come.

The debt boom of 2001-2007 was the most pronounced credit cycle in history during which the personal sector took in as much debt as the previous 40 years combined. Easy credit pumped $3 trillion in to the US economy during this period and fed the housing boom that collapsed when the credit bubble burst. It is the debt in US society that is prolonging the recovery as an earlier piece by Michael Roberts pointed out.

Despite increased profits, the capitalist class is still on a strike of capital. There is too much stuff in society and the productive forces need further destruction; they will not hire under these conditions. The unemployment rate increased in June which has caused further concern. The US working class is still heavily indebted and cannot find a way out by pulling cash out of their homes. This increases debt but the rise in house prices countered that---until the collapse of the credit bubble in 2007. The overcapacity in housing is a huge drag on the US economy that has not been overcome by a massive decline in home construction. According to one real estate analyst for the huge bond-trading firm Pimco, the credit bubble “allowed 5 million renters to become homeowners” and explains, with language that would not be the words of choice for the mass consumption media that “the market is in the protracted process of evicting this group.” *

Despite home sales rising in six of the past nine months after four years of a huge decline in prices, “The supply of total housing stock is beyond what is necessary” says Jonathan Smoke, a housing data analyst. “We’ve gone through a period when we should have been tearing down houses”.  Smoke calculates that the US has 1.6 million more homes than it needs. This should be music to the ears of the homeless perhaps. It's a staggering statement when you think about it and reveals the complete barbarity of capitalism.

This has created a favorable situation for buyers but thee out of ten homes sold now are sold at a loss. But buyers in the main want homes as shelter, they are a place to live. For the moneylender though, the conditions for lending have to be stable and profitable. With debt so high, capitalists won’t hire which increases unemployment which means that capitalists won’t hire etc. It’s a vicious cycle. “Houses aren’t cheap if you can’t get the loan,” says the Pimco analyst. As Michael Robert’s pointed out, “To ‘cleanse’ the economy of this debt is going to take a long time because it rose so much. McKinsey reckons that deleveraging has hardly begun. I would say it cannot be cleared without another significant slump in capitalism in order to get rid of the dead and imaginary capital.”

The collapse in housing means that this recovery will be at the very least a stagnant one as US capitalism moves to return to a profitable situation at the cost of a further 7 million foreclosures, the price we have to pay for the “illusory prosperity” of the housing boom says Doug Ramsey of the investment firm Leuthold Group based in Minneapolis. The credit bubble contributed to the housing boom but it didn’t stop there. Housing plays such a huge role in the economy feeding construction, boosting commodity production from washers and dryers to mowers and garden tools and building materials. “The housing wealth that has now evaporated gave Americans false expectations about economic growth and rising livings standards,” Ramsey concludes.

He is correct. The illusory prosperity was built on illusory capital, fictitious, speculative capital. Credit allowed capitalism to go beyond its limits for a period but, like that elastic band, the system eventually snapped back to the confines of its real parameters. It is still in the process of doing that.

The bond trader described how the “market” was in the process of evicting 5 million people from their homes. He predicts 2 million more than that are needed to return to profitability, what capitalists understand as “normal” life. These conditions are an inherent consequence of the system of production we call capitalism. Capitalism has not always existed. It is not written in stone that this system of production is the only possible form of social organization, of organizing human life.

What one coupon clipper describes as “illusory prosperity” is the natural order of things in an economy in which the necessities of human existence, food, shelter for example, and the means of producing them are in the hands of private individual(s) for their personal gain. After the next recession or slump we will hear the same story from them. It’s greed, it “illusionary prosperity”. It is indeed but the cause of it is not illusionary, it is real, concrete, and can be remedied.

Karl Marx wrote of events like the present crisis a long time ago:

“It is enough to mention the commercial crises that by their periodical return put the existence of the entire bourgeois society on its trial, each time more threateningly. In these crises, a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed. In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity — the epidemic of over-production. Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation, had cut off the supply of every means of subsistence; industry and commerce seem to be destroyed; and why? Because there is too much civilization, too much means of subsistence, too much industry, too much commerce.” **

“beyond what is necessary.” Necessary for profit taking, not the needs of people, we have to drum that in to our heads.

As we read that another 7 million people need to be “evicted” from their homes by the market to return to normality it becomes obvious that Marx was correct about the system that produces what he called this “momentary barbarism”. It’s an ongoing and each time more destructive and violent momentary barbarism. For most people in the world it is a condition of permanent barbarism.

What’s so great about capitalism? Between 1972 and 2007 US productivity grew 90% yet wages during the same period declined 11%. It’s not that the market must “evict” us; we must “evict” the market.

* The Housing Horror Show is Worse Than You Think: Business Week 7-11-11
** Karl Marx: Communist Manifesto