By Wilfred Hahn
All the king’s horses and all the king’s men couldn’t put Humpty Dumpty together again.” That’s the last line of the well-known nursery rhyme. We doubt that the world’s economic/financial systems will ever be put together … in other words, established upon a stable footing. That can never be the case as long as mankind continues to choose to harness greed and fractional-reserve banking as the foundational theories for progress and prosperity.
It is crucial to realize the huge tsunami-like developments that are sweeping the entire world, not just the seismic upheavals of financial systems. The globe-spanning reverberations have been quick and pervasive. First, a “globalization bubble” unfolded—one popularly thought to never end— then followed by the biggest and most rapid bust of world financial and real estate wealth since the 1930s (in fact, even worse). Next, the most invasive and coordinated intervention of governments ever seen (collectively around the world) has occurred. Most latterly, a flagrant manipulation of money has unfolded on a coordinated basis around the world. (Graph on the front page provides an indication.) None of this was expected by the world’s policymakers nor societies at large. It all happened rapidly … like a sudden trap. What next? We expect the waves to continue and in surprising ways. These are treacherous times where people are being herded from one disaster to another. Just how can the average household either anticipate or navigate through such see-saw conditions? In our view, it is an early sign of the times … the global period trouble and anxiety where faith runs cold (Matthew 24:12).
Forecasts these days are not worth much since there are quite a few scenarios to consider. But suffice it to say that the world will again look very different 3 years from now (perhaps sooner). It would not be surprising that massive inflation problems will have emerged by then. It only follows, given the blatant debasing of money being perpetrated as we speak. Again, the majority of people will likely again be caught in the net. In recent times, many have run to what they perceive are safe investments — government treasury bonds and money markets funds, for example. These investments are now massively overpriced, especially so considering that inflation will again heat up in future years. It therefore would not be surprising if long-term bond funds might lose 25% of their value and more by that time. Time will tell.
That said, the king’s men have been working very hard lately. Humpty Dumpty will again be propped up … whether with massive drug stimulants and/or bailer twine and duct tape. When that will be accomplished is difficult to say. But, you can be sure it will prove to be another surprise. Why? Because no one is expecting anything to improve. Pessimism and confidence measures are at their most extreme. Hardly an economist can be found that doesn’t believe a long, long economic recession is upon the world. Of course, little did they know that the US recession had already started more than a year ago. Then, very few were willing to contemplate the possibility of disaster such as actually occurred. For the time being, the world economy still appears to be in free-fall stage (looking in the rearview mirror). But, before falling prey to groupthink, consider the interventions that have occurred around the world to date.
Remember to expect the unexpected … namely, what the majority do not anticipate. Every major country has been rushing to jump-start business and consumer spending; to coax investors to buy and banks to lend. Interest rates have been slashed to near all-time lows … virtually zero in some cases. US short-term rates qualify in that latter category. In England, the central bank has reduced rates to the lowest level since 1694. In Japan, short-term interest rates are at 0.15%. Huge government spending programs have been announced virtually around the world from China to Canada to Brazil. Just as we go to press, the Obama US stimulus program tallying $819 billion is being pushed through senate. A lot of money will be spent by governments over the next few years. And, we have yet to count the cost of financial bail-outs, all of this tabulating to trillions and trillion of dollars.
It is indeed very possible that economic troubles can yet worsen before things get better. Yet, at the same time, financial conditions are now beginning to free up, offering huge speculative opportunities. As we often point out, the flipside to large and growing debt levels is that someone must be lending and have assets to lend to begin with. Commercial systems are binary as they must have a buyer for every seller; a lender for every borrower. The loss of one person may a gain to another. While it is true that capital is being destroyed during this recent financial crisis, in large part, wealth is really only being transferred to different hands and converted into different forms. Wealth has been accumulating into fewer, richer hands. Therefore, there is much idle money at waiting to take advantage of the low prices and emerging opportunities.
Looking ahead, what would be unexpected? At some point, all of the heightened stimulus spending by governments is bound to bring the comatose patient back to sputtering life, if only for a while. That would indeed come as a surprise to most people. However, we do not make any such predictions without at least two qualifiers. Firstly, short-term predictions are hazardous. While trends may indeed unfold as one might expect, the timing can be very different … considerably faster or slower than thought. There are too many complicating factors to consider. While professional investors must try to anticipate such interim developments, they will carefully consider the risks.
For North America and other nations it will likely prove to be a false dawn. Longer-term, a different outlook is in view. America and other high-income countries will again sink under the weight of much higher burdens (debt, unfunded pensions taxes, interest rates … etc.) than exist now. Consider that America entered into the current crisis in a weaker condition than in the 1930s. Says, George Soros, the intrepid mega-investor, “[...] the problems facing the administration of President Barack Obama are even greater than those that confronted Franklin D. Roosevelt. Total credit outstanding was 160 percent of gross domestic product in 1929 and rose to 260 percent in 1932; we entered the crash of 2008 at 365 percent and the ratio is bound to rise to 500 percent” (Financial Times, January 29, 2009). Other parts of the world will emerge more strongly following present economic dislocations. It’s part of the endtime transition to “multipolarism,” a concept described in this issue’s Feature Article, Endtime Shoe.
Just how do recent trends fit on the cosmic time line? Bible prophecy does not provide the required detail on short-term developments. We are forced to speculate which we do not want to do. But here are some guideposts to consider: As already mentioned, the world eventually will end up in a state of multipolarism where globalism and humanism are resplendent under 10 kings. At some point, world conditions will again appear prosperous, global policymakers likely exulting over their success of having successfully engineered a recovery. This prosperity is sufficient to enrich the kings and sea captains of the world as foretold in Revelation 18. This later commercial edifice will likely stand on legs even more wobbly than the last global boom. The final economic collapse of this dispensation—complete and eternal—occurs in the latter half of the future Tribulation period. As fearsome as the current economic crisis may seem, it will compare as a small tempest to that future time of destruction.
One lesson of the last few years is a modern-day rendition of an Old Testament teaching: Man’s idols all must topple. It is a characteristic of all idols. In the end they come up empty. Surely, many of mankind’s idols have toppled recently. The very largest of companies thought to be indestructible engines of profit and stability have required bail-outs. The largest US bank failure occurred—Washington Mutual Inc. with $307 billion in assets. The largest insurance company needed to be rescued—American International Group. The world’s one-time largest car company, General Motors, was technically bankrupt, requiring bail-out financing from governments. One of the largest and most trusted investment funds ended up utterly worthless due to the Ponzi-scheme swindle of Bernie Madoff. $50 billion disappeared into thin air.
God laughs at mankind’s attempts to build and set-up their own idols. He chuckles that these idols have to be propped up. “A man too poor to present such an offering selects wood that will not rot. He looks for a skilled craftsman to set up an idol that will not topple” (Isaiah 40:20). “The craftsman encourages the goldsmith, and he who smooths with the hammer spurs on him who strikes the anvil. He says of the welding, ‘It is good.’ He nails down the idol so it will not topple” (Isaiah 41:7).
In the same way it is today revealed that the world’s venerated global systems of commerce—invested with the hope of humanism and future peace—are held up by the prop of man’s confidence. This Babylonian idol must be nailed down by human hands so that it will not topple. Try as its worshippers might, the propped-up idols will ultimately again fall. It is a lesson to take to heart.
Eternal Value Review - February 2009