Homeschool News & Views

Issue 84, August 31, 2008

From Homeschool Helpers

In association with Pass It On Ministries

By Dan L. White

Listen to this article.

The US is facing an imminent economic collapse.

I have heard that for 40 years. People who thought they had an inside understanding of Bible prophecy were sure that somehow the Bible predicted that the US would suffer a massive depression. That depression was always just beginning, and a news item would be cited to show just that.

I heard a sermon back around 1973 where the pastor was discussing some national event and concluded, “This is the beginning of the end.” Generally anybody who makes a prophetic pronouncement that can be checked on is going to be wrong, subject to the laws of probability. But I guess that pastor was kind of right. At any time you could say, “This is the beginning of the end,” and be somewhat correct in that.

All of those prophetic warnings for the past 40 years about the coming economic collapse have been wrong. The US was actually growing in economic power all that time, with cyclical recessions every so many years.

Recessions, or mild economic contractions, occur in cycles. Depressions, or major economic contractions, also have occurred in cycles. A Russian economist studied the free economy of England all the way back to the 1200’s. About twice a century, there was a major economic up-down cycle, reminiscent of the Jubile cycle in the Bible.

That cycle was also seen in the US economy. We’re all familiar with the 1930’s depression that only ended with World War II. The US also experienced depressions in the 1870’s, 1840’s, and 1780’s. The earlier depressions would have had less of an effect on individuals, because the society was less industrialized. Almost everybody lived on farms, and even if you couldn’t sell your produce for much money, you could always eat it yourself. Whereas in the 1930’s, a lot of people who lost their industrial jobs just stood in soup lines.

Major economic adjustments seem to occur when people go to extremes. People who lived through the rough years of the 1930’s tended to be very frugal. As we have gotten farther away from that experience, people have gotten more extravagant in their spending. Recently the US savings rate has been negative. That had not happened since 1932 and 1933. It was negative then because people didn’t have enough money coming in to meet their needs. They were struggling just to stay alive. More recently people have been spending money faster than they make it. They’re struggling to stay up with the Joneses.

That’s extravagant.

Pete Peterson and Warren Buffett are two billionaires from Omaha, Nebraska. Peterson was in the Nixon cabinet and he supports McCain for president, Buffett supports Obama, but they are united in warning that the US must stop its extravagant spending, both on a personal and national level.

Peterson has produced a movie which is now showing in theaters across the country, and will be shown on TV later. That movie is I.O.U.S.A. The point of the movie is that the USA has an IOU to other countries, who are buying US debt. It is a documentary, like Al Gore’s An Inconvenient Truth about global warming, but probably has much more truth than Gore’s film. Al Gore doesn’t really believe that the earth is in imminent danger from human waste, because he has three huge homes himself, wasting more resources than 99% of individuals on earth do.

The film I.O.U.S.A. has interviews with notables such as former Federal Reserve chairmen Greenspan and Volcker and former Treasury secretaries O’Neill and Rubin, all with the same warning. They maintain that the US is endangering its future by overspending, and the debt reckoning may not be far off.

When the US spends more than it produces, foreigners supply that debt, mostly from Asia. As that debt increases, the dollar decreases. Those who hold that debt have to do something with those sinking dollars, to keep from losing their money. Their best alternative is to spend those dollars in the US, to buy American properties, land and businesses.

Warren Buffett is the world’s most successful investor. He is listed by Forbes’ Magazine as the richest man in the world. Buffett said that “the United States is essentially selling off chunks of the country to foreign investors to finance the nation’s overconsumption.” He explained that, “Our trade equation guarantees massive foreign investment in the U.S. When we force-feed $2 billion daily to the rest of the world, they must invest in something here.”

In the current housing crisis, banks have been hurt by subprime mortgages. Those are mortgages which banks made to people who couldn’t afford the overpriced houses they were buying. The two institutions which finance a majority of mortgages in the US, called Fannie Mae and Freddie Mac, are basically insolvent.

Consider that carefully. The two institutions which finance the majority of mortgages in the US are basically insolvent. It is thought that the US Treasury will have to bail them out or take them over.

Only a few banks have gone under so far – ten -- but the FDIC which insures bank deposits is already nearly out of funds.

Again consider that. The institution which insures the bank accounts of Americans from bank failure is already nearly out of funds. They are looking to the US Treasury to bail them out in case of future bank failures, one of which happened Friday.

Unlike all those religious prophets who have been crying catastrophe for decades, this is very real and very big.

The main spokesman for the film I.O.U.S.A. says, “We’ve got a super subprime crisis brewing — namely, the federal government’s finances. The factors that caused the mortgage-based subprime (crisis) to explode exist for the government’s finances. The difference is it’s 25 times — at least — bigger.”

Again consider this very serious statement – that the same factors which caused the mortgage crisis may create a crisis for the whole US financial system. Just as many families took out mortgages for overpriced houses which they couldn’t afford, so the whole nation, personally and politically, is spending money it doesn’t have for things it can’t afford. The mortgage crisis erupted suddenly taking down some of the biggest financial institutions in the country, because they were overleveraged and undercapitalized. The same factors exist for the US as a whole.

Just as those subprime mortgages and their banks imploded because they were overspent, so the whole US financial system may implode, because it is overspent. Bear Stearns went to the US Treasury for bail out. Fannie Mae and Freddie Mac are looking to the treasury for bail out. The FDIC is looking to the treasury for bail out.

And who bails out the US Treasury?

The Chinese.

They use our Wal-Mart money to buy US bonds. A bond is a loan, for a certain period of time and interest. The US is living off Chinese and Asian loans. Just as we are dependent on foreign nations for our oil, because we use so much, so we are dependent on foreign nations for our money, because we spend so much.

What if the Chinese get tired of buying bonds in sinking US dollars?

I.O.U.S.A. tells people to spend less and save more. Al Gore doesn’t really need three extravagant homes, does he? Warren Buffett, the world’s richest man, still lives in the same house in Omaha that he bought years ago for $31,500. Why should he move? That’s all the house he needs.

But getting people to change such behavior is not a simple matter. The human spirit is naturally selfish. Do you really think Al Gore will leave his three large estates and move into one two-bedroom cottage?

Ecc 5:10 WEB

(10) He who loves silver shall not be satisfied with silver; nor he who loves abundance, with increase.

Americans don’t spend based on need. They spend based on greed. They haven’t built bigger houses because they had more kids. They built bigger houses to show off.

Most politicians don’t really look out for the good of the country. They’re just looking to get reelected. The best way to do that is to spend, spend, spend.

Homosexuality is an extreme expression of selfishness. They become addicted to that behavior. Even in the face of a deadly plague, many will not change. HIV continues to spread.

Chronic consumption is an expression of selfishness. People become addicted to that behavior. They will not easily change. Even if they see a movie that convinces them they need to change, most will not change their spending habits. More importantly, politicians will not suddenly become martyrs, sacrificing their political careers to fight government spending.

Therefore it seems that the financial crisis in the US has farther to go, as I.O.U.S.A. warns.

It may well be that the half century economic cycle has turned. When we go through our everyday lives, we don’t see ourselves fitting in with these major cycles. We’re just going to go to work on Monday. But these cycles of human behavior do exist, and they do affect us. The people who are giving the warnings in the film I.O.U.S.A. are not religious doomsday prophets. They are the most respected financial minds in the country. It would seem that the way of wisdom for a family now is to be extremely careful in your spending, while you have something to spend.