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The Roots of the Housing Crisis

Foreclosures of homes are the big pain of the day. Millions of families who once proudly boasted that they had reached a level of earnings that allowed them to buy a house are now squirming as lending institutions threaten foreclosure. What happened?

The good old days came and departed. Families, mainly middle class, who could make ends meet, saw inflation eating away their income. The breadwinners in many families found themselves jobless as American companies closed down their facilities to get their work done in countries where cheap and child labor were available. So, homeowners had to borrow money to keep their heads above water. The lenders, of course, wanted to know how the borrower could guarantee that he or she would be in a position to pay what was required. The borrowers put up their homes as security.

But, alas, the homeowners, squeezed by inflation and economic decline, a combination that economists call “stagflation,” could not meet their mortgage obligations. Foreclosures have become the order of the day.

Meanwhile, the official figures on the state of the economy coming out of the administration report that all is well. The Gross Domestic Product shows growth. But a close examination of the way in which the GDP is determined and was once correct is now outdated and inherently faulty. The formula is GDP = S-I+E, in which S stands for sales, I for imports and E for exports. The great error in this formula that refers to Sales by American companies assumes that the work done to fulfill the order is carried out in the U.S. That was once true. It is no longer true in the age of outsourcing.

One final factor causing inflation: we live in an age dominated by MA — Mergers and Acquisitions. Almost daily come the reports of two corporate giants merging to form a super-giant. The old saying was “competition is the life of trade.” Concentration of corporate ownership in ever fewer hands displaces true competition for monopolies, oligopolies and cartels.

Is there a remedy? Yes. But not so long as the owners of the economy are also the owners of the government.

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