Oct 3, 2011

Out of Bullets: What Next?

Wilfred HahnBy Wilfred J. Hahn
Eternal Value Review

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Economists and policymakers around the world are again confronted with another round of wobbles in financial systems. The Global Financial Crisis (GFC) continues, though it has been morphing into different forms.

Said Antigone in the Greek tragedy written by Sophocles, “No one loves the messenger who brings bad news.” But, admittedly, at this stage, no one today could possibly deny that the path of global developments over the past 30 to 40 years has been wrong-headed. It has come to the sorry state that we see today.

The GFC is not over … not by a country mile. Lately, the “ground zero” of this crisis has moved to the sovereign debt sector. Massive increases in country debt - this, for the most part, being the result of deliberate policy decisions to bail-out consumers, banks, states, mortgage insurers … etc.

As an example, the most extreme of these casualties was the country of Ireland. Only four years ago, it sported one of the lowest debt-to-GDP (Gross Domestic Product) ratios of all OECD nations (approximately 15%); today it is among the worst. Why? It foolishly bailed out its reckless banking system, subjecting its citizens to impossible debts after much profits were siphoned off in previous years.

Now, the sovereign debt contagion has spread to many other nations. The investor fear that these problems have generated has been remarkable. For example, while some bond markets have collapsed (for example, consider Greece, where a 1-year bond yielded over 90% … yes 90%!) others have soared. To illustrate, U.S. 10 year interest rate levels at one point recently fell to half of 6 months earlier (below 1.8%). The opinions of professional economists and money managers have been failing … and flailing. Their shifts in sentiment have been extreme and without foundation.

The possibility of some very severe scenarios confronts the world at this time. A dissolution of the common euro system shared by the 17 European nations; a new global economic recession; the possibility of a depression in the U.S. (actually, depression-like conditions are already here); a hard economic landing in China and elsewhere; are among the developments that working together could create extremely difficult financial conditions globally. Calamities of this scale will foment volatile and dangerous geopolitical conditions. Desperate times breed desperate measures and “strong-arm” tactics. At this point, we could not speculate as to what new organization of powers would emerge.

Some analysts are now openly speculating as to the “social” and ‘geopolitical” implications of the current crises.

Surprisingly, even research from UBS, one of the world's largest money managers, strikes a very gloomy pose: Quoting a recent report:

“Monetary union break-ups in history are nearly always accompanied by extremes of civil disorder or civil war […] the historical parallels are unappealing. […] Past instances of monetary union break-ups have tended to produce one of two results. Either there was a more authoritarian government response to contain or repress the social disorder (a scenario that tended to require a change from democratic to authoritarian or military government), or alternatively, the social disorder worked with existing fault lines in society to divide the country, spilling over into civil war.”
What can we conclude? For a start, it is helpful to first realize that there are no real shortages in the world…neither of resources, nor of food … or any other general substance on earth. Most certainly there is no shortage of wealth, nor a shortage of money. While all modern-day money is almost completely fiat - and therefore, technically, never in short supply - monetary reserves in most Western nations are in heavy excess. The problems have more to do with the “distribution” of these things. For one, wealth - whether held in fictitious or real forms - is being hoarded today.

Readers may not realize that extreme wealth skews and high indebtedness are in fact prophesied as being endtime conditions (See James 5:1-6). Very definitely, such unequal distributions have occurred before throughout history in various places and times. What is different today is that these phenomena are world-wide conditions.

Interestingly, some serious think-pieces are emerging that are considering “debt forgiveness” or “debt taxation” as the solution. The Boston Consulting Group recently produced a report entitled Back to Mesopotamia? The Looming Threat of Debt Restructuring. In order to return world debt levels to what they regard as a manageable level of 180% of GDP, they estimate that approximately $8 trillion of debt would need to be forgiven or taxed in the Eurozone, with another $11.5 trillion in the U.S. This parallels some thoughts in our recent 3-part article series which examines the concept of Levitical debt forgiveness, and also reviews earlier connections to Mesopotamia. (The articles can be accessed here, here and here.)

Just what is the solution? The reality to see is that policy makers are bankrupt of ideas as to how to rectify current problems. Recent meetings of the G20 and the IMF (International Monetary Foundation) have come up with empty pronouncements and lots of hand-wringing.

Taking a Biblical world view, the spirit we clearly see spanning the globe today is that of the materialistic pagan. The supposed “happiness” that humanity has been collectively seeking through materialistic satiation has rather sadly been undermined by the very same, but unbridled, pursuit.

The influences of human greed, lack of love (i.e. pure motivations behind economic actions), self interest, and the pursuit of “false gods” have been the culprits.

We are living in unprecedented times, in which the “raw emotions” of materialistic people and the desperate strong arm tactics” of the world’s policymakers can lead to some very extreme outcomes. The span of outcomes range from a broad collapse of financial economies to new, and perhaps sudden, power structures.

Related Links
World Markets Roiled by New Greek Default Fears - Voice of America
Who's really behind Wall Street protests? - WND.com (Aaron Klein)
Europe debt crisis: Greece teeters on brink of bankruptcy - Christian Science Monitor
Selling Heats up on Wall Street; Dow Slides 200 - FOX News
Bracing For A New Global Economic Crisis - South Centre