The more one reads the various commentaries and opinions of some of the nation’s economists the more one discerns a sense of confusion and perplexity as they try to explain the current U.S. economic crisis brought about by the fall out in the home-mortgage market, and its creeping effect on the global capitalist economy. It is astounding that as the standard of living of millions of Americans is threatened with a rising crisis, top economists seem at a lost. While not claiming to be in the league of the nation’s learned economist, to us the reason for the current economic problems seem rather clear.

Simply put, economics is a cause and effect system, a system led by the economic law of supply and demand. In Economics 101 we see that as the demand for a product rises, so does its price. Where that demand is inelastic, like the demand for bread, then regardless of how much the price for that product rises, the demand will remain constant. However, where the demand for the product is elastic, or fluctuates easily, when demand falls, prices also fall, or alternately if prices rise too high demand will fall.

What happened with the U.S. housing market, a fact that seems to being ignored by most economists, is that artificial means were created to spike the demand for houses. This artificial demand was based on the creation of easy and unrealistic credit. One didn’t need even a high school diploma in economics to realize that this artificial situation would not hold. Sound economics cannot be based on the artificial incentives which result in millions of borrowers, who under real circumstances could not get mortgages, receiving loans on easy, unreal terms. This resulted in an equally unreal demand for houses, pushing up their prices, and setting off a housing construction boom, especially here in South Florida. Naturally, when the real repayment rates for these mortgages matured, reality also set in. Large percentage of these borrowers defaulted, resulting in a classic economic domino effect: foreclosures, a glut of unsold houses, falling house prices, constricting of credit; less disposable income, job losses, and now the possibility of a recession.

Not only did the artificially created demand for houses open up credit windows nationally, but it was also an incentive for banks and investors on the global market, for example banks in Germany and Britain, to invest in this artificially created, sub-prime loan market.

It is extremely difficult to understand that with all the so-called bright financiers, bankers and economists in the capitalist world, how none foresaw that economics is not based on artificially generated premises. One of these economists was reported as saying that the housing market was so good, and driving the economy so positively, that it was assumed that borrowers of adjusted mortgages, earning low wages, would have been able to secure better paying jobs to meet the increased rates. This is utter nonsense. How much worth could be pinned on unskilled, undereducated borrowers getting better paying jobs, when little incentive was being given to them to improve their job skills, and employability?

Now, everyone is waiting for September 18, waiting for the Federal Reserve to cut the interest rate by as high as 1 percent, hoping that this will jump start the credit market. But, this ‘solution’ could create new problems based on excess liquidity in the economy, with inflationary consequences.

Unfortunately, over the past few years America created an artificial housing market, turning lenders into big spenders, and borrowers of last resort. As credit worsens because of bad mortgages, and default on credit cards, banks will have to gradually close their credit windows, strangling the wealth of both consumers and businesses. With lenders racking up huge percentages of bad credit, there are going to be less investors on the global market wanting to invest in the U.S.

I certainly agree with Financial Times economics commentator, Martin Wolf that “The world economy may no longer be able to depend on the willingness of US households to spend more than they earn.” The United States created an artificial economic atmosphere for its residents to consume what they cannot afford, and now the dominoes have begun to fall. Ironically, while this is happening over in another part of the globe, China and East Asia, they kept their economy real for years. They tightened their belts, encouraged savings, and taught their people modern skills. This has resulted on in massive current account surpluses, with savings exceeding investments. These countries are now ready to explode economically on the global economy, while the U.S. seeks a variety of band aides and crutches to enable its weakening economy to survive.