Everyone today is chafing under the increased costs of fuel for their cars (and air travel). Many are jumping to the conclusion that this is all due to “manipulation” by the energy barons and profiteers, etc. Strangely, the current focus on oil can cause us to miss the more salient issues that we all are victims of. There are far more serious concerns facing us than simply our miles per gallon!
(You may also have noticed that the same dismal impact is occurring during our visits to the local baker and grocer. Food—for a large number of reasons—is also an emerging crisis: food riots can be expected, especially in major cities. These trends are a grim harbinger of more serious disasters on our near horizon.)
The Spectre of Inflation
It is the inflation of the money supply itself which directly affects the value of our dollars. Consider carefully these words from Ben Bernanke, the current Chairman of the Board of Governors of the Federal Reserve Bank of the United States, in a speech he made on November 21, 2002 before the National Economists Club in Washington, D.C.:
Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services.
If we examine the value of the U.S. dollar against the Euro, the Swiss Frank, the British Pound, the Canadian Dollar, or New Zealand currencies, we observe same decline in value. If we use the Euro as a simplifying proxy for a basket of these currencies, we discover that the U.S. dollar, over the past seven years, has declined in value by about 13.7% per year! If we could buy our oil with 2001 dollars, it would cost us only about $66 per barrel! (See chart, below.)
The mounting deficits and debts—at all levels: trade, federal, and consumer—now threaten to sink our ship of state entirely. The Treasury continues to scramble for foreign lenders to loan us over $3 billion per day in their desperate attempt to keep our ship afloat.
Global Credit Collapse
Credit is what enables us to build the bridge from the present to the future, and one of the most alarming of the current debacles is the collapse of credit worldwide.
Increasingly, the distinction between liquidity and solvency is academic: there currently is a desperate grasp for liquidity among all the financial institutions throughout the world, and many of the largest institutions are hanging on by their fingernails.
The highly respected Royal Bank of Scotland has advised its clients to brace for a full-fledged crash in both global stock and credit markets over the next several months as inflation paralyzes all of the major central banks.
Dependence on Derivatives
As we observe the continuing escalation of prices, accompanied by the continuing layoffs throughout our economy, it becomes increasingly evident that there are also panics in most corporate boardrooms, especially in the financial sector where there is a desperate scramble for liquidity.
What makes this most disturbing is the widespread dependence in securities whose value derives from the value of other securities.
Both the Federal Reserve and Wall Street together created the largest credit bubble in history with the creation of securitized leveraged debt obligations, which have been sold to insurance companies, hedge funds, pension funds, and retirement portfolios all over the world. These global derivatives are now estimated to exceed $700 trillion!
These complex instruments represent highly leveraged bets on the future direction of interest rates, currencies, debt markets, etc., and have grown so complex and interdependent that they defy analysis even by experts in this field, and lack any standards for regulation or supervision.
The ranking and appraisal of these hybrid “securities” is compounded by fraud and deception among the rating agencies and the specialized insurers.
The three main rating agencies—Fitch, Moody’s, and Standard and Poor—routinely issued dubious, highly inflated ratings on hundreds of billions of dollars of “collateralized debt obligations.”
Corrupt practices amidst the “Triple-A” bond default insurance industry is also being reported as contributing to the impending collapse. The only bull market will be among the ligation attorneys. The games have just begun!
With the evaporation of confidence in the entire financial system(s), steering a path for our personal stewardship for our families will be an increasing challenge over the months ahead. But the financial debacle is not our only challenge...
Perhaps the most serious emerging crisis is our food supply! The widespread natural disasters—as well as the idiotic decisions diverting our productive capacity to the ethanol deceptions—have exacerbated an increasingly stressed (and corrupted) supply system. Food riots are anticipated here in the United States—not comfortably confined to faraway places.
We can also carp about our irresponsible legislatures, the corrupt judges throughout the judiciary, the spiritual bankruptcy of our educational system, the prostitution of our mainline media, etc., but none of these deficiencies are likely to be repaired in time for any practical impact on our near-term preparations or plans.
The dysfunctional charade of our forthcoming national election can best be summarized by the legal phrase, res ipsa locquitur (“the thing speaks for itself.”)1 Personal and religious freedom will also be an increasingly difficult challenge in the years ahead.
The Word of God emphasizes, repeatedly, the value of circumspect preparations for adversity:
A prudent man foreseeth the evil, and hideth himself: but the simple pass on, and are punished.
Proverbs 22:3; 27:12
Immediate Actions
As we have urged in our earlier editions, there are four essential initial steps in what we have dubbed “The Vortex Strategy”:
1. Lower your cost of living. Focus on preparedness for times of crisis. This is tough, but essential, to increase your degree of financial freedom.
2. Get out of debt. Debt is contrary to God’s plan for your life. The borrower is slave to the lender (Prov 22:7). This will be a gift to yourself, and a way to demonstrate to our Lord that you’re serious.
3. Guard your liquidity. This is not a time to maximize earnings: it is a time to preserve your capital. There will be ample opportunities with less risk after the storm passes.
4. Learn the supernatural basis of stewardship. This is the ultimate secret to all personal decisions and preparations. This is not a “12-step program”; it is a lifetime study, and should be your highest priority in addressing the coming storm. Psalm 46 and 91 come to mind.
Although we refrain from making any specific investment recommendations, we will be addressing some of the principal trends and dangers in forthcoming articles and materials. Study your financial alternatives from an international perspective. If you have means to protect, exercise the diligence that is due (Prov 10:4).
One of the most powerful steps a person can take would be to take advantage of our worldwide online “think tank” on the Internet by becoming a member of the Koinonia Institute. In addition to expositional Bible studies.
Notes:
- From the law of torts, a self-evident denial of any defense.
