National Bank of Canada raises odds on U.S. recession

It should be no surprise, really. As the gap between rich and poor has grown, and housing prices have continued to escalate, it can only be a matter of time before houses simply get too expensive. I keep pointing to San Francisco, where I understand the median price for a home is $800,000 and the annual income needed to qualify for a mortgage is $170,000 — well into upper class territory. Of course, San Francisco is an expensive market. But $9 per hour jobs won’t pay rent even in Indianapolis.

According to a story in the National Post, the National Bank of Canada has raised its estimate of the odds of a U.S. recession to 40%, “in the wake of further evidence this past week that the U.S. housing market is going from boom to bust, including a much-steeper-than-expected drop in home sales and a surge in the inventory of unsold homes on the market.” Home prices are important because many consumers finance their spending using the equity they’ve accumulated in their homes — lower prices even for homes not on the market mean less money to spend.

In another story, “Home Depot Inc. is stepping up its share repurchases as Wall Street grows more cautious on home-goods companies in light of higher energy costs and weakening U.S. home sales.”

The trouble I have with all this is that my father forecast a housing bust 40 years ago. It didn’t happen. And even to the extent that there have been pauses in the upward marches of prices, they have been short-lived. In the mid-1970s, we rented a two-bedroom flat on Laurel Hill, in San Francisco for $275 per month. It’s getting hard to find a storage space for that, now. Even the Loma Prieta earthquake in 1989 failed to dampen prices for long.

That said, Michael Zweig writes in the July-August issue of the Monthly Review that the working class makes up 62% of the U.S. labor force. These are “white-collar bank tellers, call-center workers, and cashiers; blue-collar machinists, construction workers, and assembly-line workers; pink-collar secretaries, nurses, and home-health-care workers.” They do not control “the pace or content of their work” and have no “supervisory control over the work lives of others.” With low and unstable incomes, many of them have little prospect of ever being able to afford a home.

The case for a continued rise in housing prices requires that we understand just exactly whom these houses will be sold to. I don’t have that answer; the evidence I see is that there will be fewer and fewer such people.

This raises some soul-searching questions. Americans are being confronted with evidence–whether they choose to recognize it or not–that they cannot be “the shining city on the hill,” entitled to dominate the rest of the world. And at home, they increasingly cannot even afford the classic “American dream” of home ownership. We are building a new class of serfs in a weakening economic base that cannot sustain imperial adventures.

People sometimes react violently when their worldviews are fundamentally challenged. And the U.S. has the largest stockpiles of weapons of mass destruction–including nuclear weapons–of any nation in the world.

The world is indeed a more dangerous place. But not because of terrorism.

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