The Subprime Crisis

Rich households in America have been leaving both middle and poorer income groups behind.

Add a comment

The subprime crisis is directly linked to the fact that rich households in America have been leaving both middle and poorer income groups behind.

Poverty grew in the USA and receded in Greece, France and Spain. ( http://www.oecd.org/document/36/0,3343,en_2649_33933_41460917_1_1_1_1,00.html )

Granted, unsound practices born from deregulation of the financial market aggravated the effect of increased poverty.
The subprime crisis, in other words, is the fact that there weren’t enough customers capable of buying and keeping their real estate purchase.

Rather than developing their population, maintaining their infrastructure, or manage sustainable their natural resource, the USA gave more to its rich and less to its poor.

I say that the subprime crisis is directly linked to war spending because very large amounts of public funds were diverted from productive investments.

Money was spent in war instead of peace but 97% of capital counts on peace and stability for its return.
The market did not grow enough to satisfy the largest portion of the invested capital.  

In addition, the UN  « Bureau international du travail » (BIT), Juan Somavia said that by the end of 2009 the financial crisis could increase the global number of unemployed by 20 Millions to, 210 millions, a record.  These IMF and UN figures could worsen depending on the impact of the present financial crisis on the “real economy”.   BIT head says a long, global severe social crisis is developing and calls for rapid coordinated governmental action with an planned effort focused on social issues and the real economy.

Juan Somavia explains that the number of people working for less than $1 per day could grow by 40 millions while the number of those working for less than $2 per day could increase by 100 millions in 2009 compared to 2007

Only less exporting countries show suffer less from the economic downturn. Especially vulnerable sectors are construction, finance, services and tourism.

This crisis is an opportunity, says Juan Somavia , to balance an unsustainable and too unequal globalization.   The financial sector and banking has to go back to its primary function which is to lend money for growth.

Somavia is referring to a global conference on economy and finance called by French president Sarkozy, presently also president of the European Union, and European Commission Jose Manuel Baroso, which both of them have tried to convince President George Bush to hold during meetings this week end.  Europe will continue contacts on the subject during the European –Asian (ASEM) forum this week in Beijing, China.

A first G8 on the financial crisis could be held late November. France wanted a G13, Gordon Brown thought of a G20, as it had been the case during the 1997-1998  financial crisis in Asia.

A restricted team format of two per country, one political one economic, was adopted.

(source : http://www.lefigaro.fr/economie/2008/10/20/04001-20081020ARTFIG00260-sarkozy-impose-a-bush-un-sommet-mondial-de-la-finance-.php )

Here below is a OCDE report

 

http://www.oecd.org/document/36/0,3343,en_2649_33933_41460917_1_1_1_1,00.html

Watch the videos: 

=> Rising inequality and poverty (video feature)
=> Interview with Mark Pearson on key findings (in English)
=> Entretien avec Martine Durand sur les résultats-clés (en français)

 

News release and press material | Country notes

Messages, figures and data

Multilingual summaries | How to Obtain this Publication




Growing Unequal? brings together a range of analyses on the distribution of economic resources in OECD countries. The evidence on income distribution and poverty covers, for the first time, all 30 OECD countries in the mid-2000s, while information on trends extending back to the mid-1980s is provided for around two-thirds of the countries.

The report also describes inequalities in a range of domains (such as household wealth, consumption patterns, in-kind public services) that are typically excluded from conventional discussion about the distribution of economic resources among individuals and households. Precisely how much inequality there is in a society is not determined randomly, nor is it beyond the power of governments to change, so long as they take note of the sort of up-to-date evidence included in this report.

===================================================

http://www.oecd.org/dataoecd/47/2/41528678.pdf

COUNTRY NOTE: UNITED STATES


The United States is the country with the highest inequality level and poverty rate across the OECD, Mexico and Turkey excepted. Since 2000, income inequality has increased rapidly, continuing a long-term trend that goes back to the 1970s.


 Figure 1. Income inequality and poverty continue to increase, especially since 2000

Source: Growing Unequal? , OECD 2008. Income is disposable household income adjusted for household size. OECDUSA0.240.260.280.300.320.340.360.380.40Mid-70sMid-80s1990sMid-90s2000sMid-2000Gini coefficient of income inequalityDevelopment of income inequalityUSA (bar)OECD (diamond)02468101214161820Mid-70sMid-80s1990sMid-90s2000sMid-2000Poverty rate (% of persons living with less than 50% of median income)

  • Development of income poverty - Rich households in America have been leaving both middle and poorer income groups behind. This has happened in many countries, but nowhere has this trend been so stark as in the United States. The average income of the richest 10% is US$93,000 US$ in purchasing power parities, the highest level in the OECD. However, the poorest 10% of the US citizens have an income of US$5,800 US$ per year – about 20% lower than the average for OECD countries.
  • The distribution of earnings widened by 20% since the mid-1980s which is more than in most other OECD countries. This is the main reason for widening inequality in America.
  • Redistribution of income by government plays a relatively minor role in the United States. Only in Korea is the effect smaller. This is partly because the level of spending on social benefits such as unemployment benefits and family benefits is low – equivalent to just 9% of household incomes, while the OECD average is 22%. The effectiveness of taxes and transfers in reducing inequality has fallen still further in the past 10 years.
  • Child poverty – that is, children in a household with less than half the median income – has fallen since 1985, from 25% to 20% but poverty rates among the elderly increased from 20 to 23%. Both of these trends are in the opposite direction to those of the other countries in the OECD.
  •  Social mobility is lower in the United States than in other countries like Denmark, Sweden and Australia. Children of poor parents are less likely to become rich than children of rich parents.
  •  Wealth is distributed much more unequally than income: the top 1% control some 25-33% of total net worth and the top 10% hold 71%. For comparison, the top 10% have 28% of total income.

 


Comments