Robert Brenner calls the housing crisis before it occurs.
To restore order, the Federal Reserve brought down interest rates in record-breaking fashion, but there was no response from corporations already overloaded with means of production. Investment continued to decline, forcing up unemployment, reducing demand and placing further downward pressure on prices and profits. An orgy of household borrowing, largely against the collateral represented by private homes, enabled the ‘almighty consumer’ temporarily to save the day. But this binge came at the cost of a new bubble in the housing market, and is likely to have only a brief half-life. Justified by 9/11 and a faltering economy – not to mention the failure of the Fed’s monetary policy – the Bush Administration has invoked the need for both stimulus and security in order to rationalise a return to Reagan’s old formula of imperial adventure, tax cuts for the rich and increases in military spending. But the proposed elimination of the tax on dividends isn’t aimed at raising demand any more than the war on Iraq, and its associated expenditure on armaments, is supposed to increase Americans’ safety. The increased deficit that will result is intended, moreover, à la Reagan, to force cuts in non-military expenditure, especially social services for the poor, and this will act as some counterbalance to whatever stimulus it imparts. Only barely invigorated by government policy, the economy totters towards the precipice. (Brenner, February 2003)