The Causes for Us Economic Crisis

Topics: Subprime mortgage crisis, Mortgage, Subprime lending Pages: 4 (1335 words) Published: April 2, 2012
The United States economy is currently experiencing the worst crisis since the Great Depression back in the decade that was preceding World War II. The crisis started off from the home mortgage market, especially the market for so-called “subprime” mortgages, and has already spread beyond subprime to prime mortgages, commercial real estate, corporate junk bonds, and other forms of debt. This paper critically illustrates the factors that account for the crisis, who was affected by this crisis, and how it was spread to the rest of the world. 1.The collapse of the rate of profit

The rate of profit generally means the ratio of money that people were getting back on their investments. Let that be houses, businesses, or even just a job that people invested money into to attain what they had. From 1950 to the mid-1970s, the rate of profit in the U.S. economy declined nearly 50 percent, from approximately 22 to approximately 12 percent. (see figure 1) According to a theory that Marxist once stated, a significant decline like this in the rate of profit would be the main cause of the “twin evils” of higher unemployment and higher inflation, which would also mean lower real wages. This caused businesses to reduce their investments, which resulted in slower economy growth and even higher rates of unemployment.

2.Attempt to restore the rate of profit
As the rate of profit was declining, companies felt the urge to increase their rate of profit, and their strategy was to make workers work harder and faster on the job. This was known as the “speedup” of workers, this speedup of the workers increased the value that were produced by the workers and therefore assisted in increasing the rate of profit. This caused the workers to compete with one another for the job because when the company was in a bad situation, their first reaction was to “downsize” which required the remaining workers to do the work of all the laid-off workers. As this was happening, wages and benefits...

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