"It took the US government a year to tell the economy was in a crucial recession; I'm sick and tired of reading, writing and hearing about how bad things are these days: The economy stinks, stocks are tanking, people are losing their jobs in droves"
"Channelling dollars to individuals and communities that need them most will immediately stimulate the economy and save and create jobs because families living on the margins of survival will pour those recovery dollars immediately back into the economy through spending on commodities"
The U.S. economy is unravelling at a pace not seen in decades. The more than 650,000 jobs lost last month has contributed to a growing concern that the unemployment rate could rise to 10 percent or higher before the economy rebounds. At the centre of the economy's instability is a foreclosure crisis that has claimed 3.5 million homes in the last year alone, and threatens the loss of an additional 8 to 10 million homes to foreclosure over the next five years.
The loss of wealth associated with the collapse of the housing market is staggering. More than $5 trillion in housing equity has virtually evaporated since the foreclosure crisis began. Major stock indexes have also been cut in half, further contributing to decreased consumer confidence, substantially reduced spending, lower productivity, rising unemployment and additional foreclosures. The magnitude of the economic decline has led many observes to conclude that the current crisis is an "equal opportunity financial nightmare." But , reality paints a different picture.
While few have been able to escape the financial pain completely, African American, Latinos, Native Americans and many Asian sub populations are bearing the brunt of this national epidemic. Today, as the national unemployment rate is at 8.1 percent, African Americans and Latinos are mired in double-digit job losses--the unemployment rate exceeds 13 percent for African Americans, is just under 11 percent for Latinos, and is a little over 7 percent for non-Hispanic whites. For young black males, the rate is 25 percent and climbing.
Before the current crisis, African Americans and Latinos held on average a mere $10 and $12 of net worth respectively for every $100 held by the typical non Hispanic white household. The disproportionate impact of the foreclosure crisis on African American and Latinos expands further the racial and ethnic wealth gap. African Americans and Latinos were the racial and disproportionate targets for the unfair, deceptive, and reckless lending practices that triggered the foreclosure collapse and imploded the credit markets. The situation is so dire within the African American community that United for a Fair Economy, a Boston based policy group, estimates that African Americans could experience the greatest loss of wealth since Reconstruction.
To date, federal intervention has focused almost exclusively on propping up the credit markets. While ensuring the health of the credit system is essential, ignoring the plight of struggling homeowners has proven to be a costly and ineffective remedy. In total, the federal government has provided $9.7 trillion in investments and loans to ailing financial institutions. This amount is equivalent to almost 90 percent of all mortgage debt outstanding. Yet only 11 percent of outstanding home loans are delinquent or in foreclosure.
Meanwhile, the financial system remains in critical condition and may require several hundred billion dollars of additional life support. The Obama administration recently launched the most comprehensive program to date to stem foreclosures, but more borrower-focused assistance is needed. The administration has also enacted a major economic recovery program to preserve or create 3 to 4 million jobs. Although impressive n scale and scope, that nearly $800 billion package of stimulus spending Will not fully repair the severely damaged economy that has been inherited by the new administration.
There is growing consensus that a second round of stimulus will be needed. The administration and Congress should consider targeting spending in a manner that prioritises communities that have the highest levels of unemployment, the greatest concentrations of foreclosures and historically under funded, inferior or poorly maintained infrastructure.
Channelling dollars to individuals and communities that need them most will immediately stimulate the economy and save and create jobs because families living on the margins of survival will pour those recovery dollars immediately back into the economy through spending on food, medicine, clothing, child care, energy, transportation and other necessities.
Prioritising areas hardest hit by the foreclosure crisis would more directly help stabilize the housing markets and steady falling home prices that continue to infect financial institutions. Finally, investing in areas most in need of infrastructure improvements would provide fertile ground for shovel ready projects in communities long neglected. This prioritisation of economic recovery spending would not only jump start the economy, it would aid the most financially vulnerable populations, stabilize communities, and reward all Americans by providing a more direct route to economic recovery.
Of course, there are those who will feel now is not the time to focus on wealth and income disparities and further onetime tax rebates to struggling middle-income families generally would be more equitable in the current crisis. But broad based stimulus checks will not have the same economic leverage effect as channelling those same dollars to the families and communities that need them the most.