The Economic Crisis

This has been a very difficult post to write, and has taken an enormous amount of time ; much more than I expected, but I wanted to make sure I got all my facts right.

When I began this series I made the following statement:

 

I have come to some basic opinions (always subject to change) about what is going on in the world, and more specifically in our nation. Among these is my belief that we are facing in our nation and in our world f our major crises . . . I believe that we are suffering from:

·         An economic crisis

·         A spiritual crisis

·         A moral crisis

·         An environmental crisis

I have also come to believe that God is at work among His people, preparing us and strategically placing us to minister for Him during these crises.

 

It is now time for us to talk about these four crises, what they mean for our world, and how I believe we should respond to them. As before, we will talk about them one at a time.

 

Almost all of the commentators we have quoted, to a man, have articulated their belief that America is headed for an economic crisis.

 

We know that an economic crisis can and often is, precipitated by another type of crisis. For instance, we were in pretty good shape financially as a nation, prior to the 911 attacks. After that crisis, the ensuing war on terror,(which we could not and cannot avoid fighting) started a spiral of debt that continues to this day, even though there have been additional contributing factors to this massive indebtedness beyond the war on terror.

 

There is another book that I have not previously mentioned that has greatly influenced my thinking about what is going on in our world. Perhaps it has influenced me even more than the others. It is not a Christian book. It is a book about practical economics. The authors do not write from a Christian perspective. They do not say whether or not they even are Christians. What they are are economists; and they seem to know what they are talking about.  At least what they say makes a lot of good sense to me. That book is Aftershock (both the first and second editions) by David Wiedemer, Robert Wiedemer, and Cindy Spitzer. These authors previously wrote a book called America’s Bubble Economy in which they predicted the 2008 financial meltdown. What they have done in their writings is simply to apply good, sound economic theory to the behavior of the American economy and “predicted” what the outcome would be.

 

The Aftershock authors’ basic thesis, as I understand it is this: much of our economy and the movement of markets is based on investor and consumer psychology rather than fundamentals based on the inherent value of the thing invested in or consumed. The psychological driving up and consequent deflating of the value in view is called by these authors a “bubble”, comparing it to the inflating of a bubble until it finally pops.

 

This comes as no particular surprise to those of us who have watched the markets for the last half-century or more. What these authors are disturbed about, and what they are calling us all to brace ourselves for in the days ahead are two rather ominous bubbles that are in the process of inflating to dangerous levels in the present day: the government debt bubble, and the U.S. dollar bubble. When these bubbles pop, these authors contend, it will indeed be the end of the world as we know it in many ways.

 

I encourage you to get a copy of the second edition of Aftershock and the first edition as well if you can find one. I will not attempt to review the book, as this would be outside the scope of our purposes here, yet I think that we could all profit from hearing what these authors have to say.

 

In the first edition, they talk about the possibility (more likely to them, probability) that the U.S. will get to the point, due to our massive debt, that investors will no longer be either interested in or able to buy our treasury bonds, thus drying up a source from which the government can borrow money. This is, of course a big problem since the U.S. borrows about forty percent of its current operating income from this source. The first edition allowed that the nation would most likely have to default on its debt when this happened. That was before the Quantitative Easing program got into full swing. I could not find in the second edition any mention of government debt default. Apparently the authors have changed their mind and feel now the more likely scenario is that the bond buyers will indeed stop buying treasuries (indeed this has already happened to a certain degree.) and the Federal Reserve will simply make up the difference by printing more money to buy the bonds itself, to pay the bills with. This too is already happening to the tune of 85 billion a month. The markets are already in a tizzy about whether the Fed will “taper” this program back to 75 billion in the spring, and this seems to be the prime moving force behind the financial markets at this time.

 

I take away two things from this: first is the size of the debt itself and the difficulty of being able to pay it off.

 

Let’s put 17 trillion dollars (the current size of the national debt) into perspective: a million is a thousand thousand; a billion is a thousand million; a trillion is a thousand billion.

 

Yesterday, I heard on NBC news that some think-tank came up with the statistic that eighty-five families “control” a substantial amount of the world’s wealth, to the tune of about 110 trillion dollars. I think that this is a disingenuous statistic, especially to so many who are waiting for the  “rich” to fork over and save the world from this brewing financial disaster. There is a fundamental difference between “controlling” wealth and owning it. The Walton family (Walmart) is a good example. To say that some members of this family are still involved in the control of the Walmart Corporation belies the fact that the company is a publically traded entity, and that its assets are those of the company and proportionally all of its shareholders. The wealth produced by this company goes toward the paying of its bills including probably billions of dollars paid in salaries and benefits to its employees, and taxes to the communities in which it is located.

 

Forbes magazine recently ran an article about all the known billionaires in the world which I think is a more realistic evaluation of the worth of the world’s richest people. There were 1,426 individuals that had a known net worth of a billion dollars or more. They ranged from several who had around one billion in net worth, to one individual who was worth around 73 billion. What we should note here is that the total combined net worth of all these billionaires (this is in the world, mind you, not just the U.S.) was a mere 5.4 trillion dollars; less than a third of our national debt! There were 442 American citizens in the list with an average net worth of 4.3 billion! This adds up to a mere drop in the bucket of 1.9 trillion. So much for making the “rich” pay “just a little more” in taxes to make our government’s ends meet!

 

What I am seeing is that there is not enough wealth in our country to pay this debt off! And remember, the operating expenses of our government are forty percent higher than its income! To even get to the point that we are paying down the debt, we would  have to get to the point that we could stop borrowing money, and also to the place where we could have some surplus to pay it down. This would require a quantum leap in how we approached taxation and government spending from where we are right now.

 

The second thing is that with all the money printing, we will eventually produce a negative effect on the money supply, and consequently on inflation.

 

I have among my “treasures” a piece of currency that my father brought back with him from Germany when he returned from WW II. It is from the late 1930’s (the Weimar Republic era, pre-Hitler) and is denominated five-hundred-million Marks. When I found this as a child (about ten or eleven years old) I thought I was rich! The parents of my best friend were German immigrants, so we asked his dad what it was worth. His reply was that it was “not worth the match to burn it up”! Imagine our currency getting to this point! We would all become billionaires who would sit around lamenting the fact that a billion just doesn’t buy  what it used to!

 

It is hard for us to imagine in the current day the kind of austerity that will eventually be forced on us by the outcomes of the bursting to the government debt bubble and the dollar bubble. Certainly high inflation, high interest rates, high unemployment are the tip of the iceberg.

 

I also said that I believed that God is at work among His people, preparing us and strategically placing us to minister for Him during these crises.

 

First, I think that He is leading us to become a part of the solution rather than a part of the problem. If we are going to be of assistance to our brethren in Christ, and to the rest of the world it is important that we not lose all of our wealth, and become dependents on the government.

 

Second, we need to become more self sufficient and get into a position where we have something to share.

 

Third, we need to realize who it is that we serve, and that we can depend on Him to supply our every need and the needs of those He will lead us to minister to.

 

Fourth, we need to become a people of prayer.

 

Fifth we need to become involved in our communities and our governments.

 

So what am I doing?

 

For one thing, I have taken a more defensive stance in my investment portfolio. About half of my IRA is now in what are considered defensive positions, that is, things that are expected to rise in difficult financial times.

 

I have followed many of the recommendations given by the late Grant Jeffrey in One Nation Under Attack. He had a lot of what I consider to be good advice in that book, and the fact that he is a Christian and was in tune with the Holy Spirit in his life, means a lot to me when considering his opinions.

 

I have also paid a lot of attention to the Aftershock authors’ advice (which was eerily similar to Jeffrey’s) in their companion volume, The Aftershock Investor, and have also put a small amount of my portfolio (about six percent as of this writing) into their Aftershock mutual fund. And how is that working for me? I regret to say (for the benefit of those of you who have read, or will read Aftershock) that a small, but disturbing amount of my investments have gone to “money heaven” and that the Aftershock authors are beginning now to sound like the “cheerleaders”. When you read their books you will understand my tongue-in-cheek use of those terms. The good news is, I have indeed reduced a lot of my exposure to some more risky stock and bond investments and have rebalanced my stock and bond investments in better ways than they were previously. In the last weeks I have seen some of the more disappointing investments making a comeback.

 

The Aftershock writers constantly make the point that when the last two bubbles burst, and the seeming bull market of the present day turns, it will turn fast and fall hard. There will be no time to make a quick escape before losing one’s shirt. I feel that I have placed myself in a position that takes the best advantage of the current market, and the one that I believe is just around the corner.

 

Another important thing that I am doing, and that I think we all should be at least considering is that I am keeping both of my jobs. This is not a good time to be out of work, much less the time that is coming. Those who have jobs need to hang on to them if at all possible. Most my age either are, or aspire to be, “retired”. We want to kick back and live off our pensions and investments. I have seen it happen to countless folks over the last decade or two, that when their investments tank, they find their way back into the workforce. It is always easier to remain in said workforce than to try to re-enter it. I feel that this will be especially true in the hard times to come. In a previous post, On being our Brother’s Keeper (June 2011) I quoted the first edition of Aftershock as follows:

 

                “In our . . .  society, the people who do have jobs will . . . help support friends and relatives who are unemployed.” (P. 213)

I felt then as I do even now that God is calling us to help our families and our Christian brethren when the hard times befall us. As I go about preparing for what may be ahead, I am increasingly finding others who also feel that god has led them to prepare similarly for impending hard times.

 

Yet another thing that I am doing is to try to be prepared to be more self-sufficient in any difficult time that is coming. I don’t want to start sounding like a doomsday prepper at this point. Most of them that I see aren’t “prepping” for the right things anyway. Perhaps we will elaborate on this sometime in the future. All I want to say just now is that if you let our Lord lead you, I firmly believe that He will show you how to prepare for what is ahead

 

I’d better cut myself off for now. We’ll talk about that Spiritual Crisis next time.

 

Thanks for sharing this moment with me today.