Christianity, the apocalyptic, and the economy

The world-wide economy is in terrible shape.  Charles Hugh Smith provides a glimpse of the situation in four chart of four different economies:  (1) A Healthy Economy; (2)  A Speculative Economy (bubble); (3) A Hangover Economy (post-bubble); (4) A Default Economy (the tyranny of debt).  A healthy economy has high interest rates, high productivity, low debt (private and government), and high individual net worth and a low debt to equity ratio on real estate.  A default economy has low interest rates, high government debt, next to zero equity in real estate, and zero net worth.  Currently, the majority of people have negative equity and the government debts are piling higher and deeper.  A bad economy is a sign of bad times.  It can be the first birth pang of the apocalyptic: war, famine, and mass death–Doomsday, if you will.

I suppose this post will cause some people to see me as a crack pot, a crank and a doomsayer.  So be it.  But I think that Christians, of all people, should be prepared to face apocalyptic times, partly because our hope does not rest upon on this earth, for we are just sojourners here, but also because our faith was born in apocalyptic times.  Jesus himself predicts  birth pangs (Matt 24.6-8; ESV):

And you will hear of wars and rumors of wars. See that you are not alarmed, for this must take place, but the end is not yet. For nation will rise against nation, and kingdom against kingdom, and there will be famines and earthquakes in various places. All these are but the beginning of the birth pains.

He predicted the destruction of the Jewish Temple in Jerusalem, a devastating war and tribulation such as the world had never seen (see ch. 24 of Matthew’s Gospel).  He said that this would all happen within one generation.  And indeed, within the lifetime of some of hearers, a mere forty years, all of these predictions took place.  The false messiahs had led the Jewish people in rebellions against the Romans until all-out war broke out between the two nations in AD 66.  By AD 70, the Temple was destroyed, millions of Jews were dead, others sold into slavery, and only a remnant remained to pick up the pieces.  The Jewish historian Josephus chronicles the events that fulfilled Jesus’ predictions in his book The Jewish War.  A couple years ago, we visited Rome and saw Titus’ Arch of Triumph celebrating the devastating defeat of the poor Jewish nation who unsuccessfully rebelled against Roman rule.

As a result of their awareness of the coming events, the community of Jesus’ followers in Galilee, Judea and Jerusalem fled.  Jesus had instructed them to do so.  They left, scattering throughout the inhabited world, some to Pella in the Transjordan region, others to Syria, Asia Minor (Turkey), and beyond.

Today, awareness of the precariousness of our current economy seems pretty limited.  I follow a fair number of blogs which discuss investments, and few people, with few exceptions (Monty Pelerin, Marc Faber, Peter Schiff, etc.) seem to be aware that we are headed toward the destruction of our economy as we know it.  It is not business as usual but economic default.  Yet as Charles Hugh Smith explains, situational awareness and collective awareness is dangerously low.  Jesus says:

But concerning that day and hour no one knows, not even the angels of heaven, nor the Son, but the Father only. For as were the days of Noah, so will be the coming of the Son of Man. For as in those days before the flood they were eating and drinking, marrying and giving in marriage, until the day when Noah entered the ark, and they were unaware until the flood came and swept them all away, so will be the coming of the Son of Man. Then two men will be in the field; one will be taken and one left. Two women will be grinding at the mill; one will be taken and one left.  Therefore, stay awake, for you do not know on what day your Lord is coming. But know this, that if the master of the house had known in what part of the night the thief was coming, he would have stayed awake and would not have let his house be broken into. Therefore you also must be ready, for the Son of Man is coming at an hour you do not expect.

English Standard Version. 2001 (Mt 24:36–44)

Jeremiah says that false prophets predict peace when there is no peace.  What came instead was war, death and exile for the people of Israel in Jeremiah’s day.

But Christians, of all people, should be aware and prepared for the worse.  Why?  Because we know that mankind is sinful and incapable of creating heaven on earth.  Sinful and selfish human beings are easily capable of screwing things up.  It’s only a matter of time before our human inventions, systems and economies end in collapse and misery.

Over the last decade I visited Africa many times.  Every single time I returned home to Canada and thanked God that I lived in peaceful, prosperous country in which freedom reigns.  But two events have shaken my tenuous optimism.  The first was 9-11-2001  The second was the economic collapse in 2008.  Now, I read a lot about the state of the economy, partly out of curiosity but mostly because of my employment as a portfolio manager.  Here are my observations and predictions.

(1) The US Federal government is insolvent and will default.  This default will occur in one of two ways.  (i) Honest default:  the US defaults on its debt and it lays off people, reduces social security, welfare, food stamps, etc.; (ii) the US continues to create new fiat money and devalues the currency to the point where no one will accept it anymore.  Honest default will be lesser of two evils, but either scenario is dire for many people.  But the second scenario is hyperinflationary and will rob many people of their savings before ultimately leading to the same conclusion.

(2) The US will implement serious military cuts and will have to pull back from the world.  Pax Americana is about to become a thing of history.  This will lead to the rise of new powers, to increased thuggery and chaos in the world, and to great suffering.  Already, much of the world (e.g., central Africa) is experiencing a period of chaos reminiscent of the Dark Ages.  As the US military might withdraws, that chaos will only increase until some other powers fill the vacuum.

(3) If the US continues down the inflationary route, then expect commodities to continue to rise in price vis-a-vis the US dollar.  Only high interest rates and the end of monetization of debts (a.k.a. quantitative easing) will save the dollar now.  Only this and an honest default by the US government can end the rise of gold and silver.  But it would result in further mortgage defaults and government layoffs and the inability for the government to pay welfare and food stamps.  Either way, people will suffer and there will blood and rioting on the streets.

(4) Financial markets will experience extreme volatility as excess liquidity tries to find a resting place.

So Christians, are we ready for this?  What are we doing to prepare for the apocalyptic events which are coming in our generation?

Gold has intrinsic value

Another blogger makes the claim that gold has no intrinsic value and gives his post the title, “All That Glitters Is Not Gold“.  So I responded:

Gold has great intrinsic value, especially when you compare it things like dollar bills which are printed on paper. So here’s a question. If gold has no intrinsic value, then why don’t we print (i.e., mint) the US dollar on gold instead of paper?

The US dollar will succumb to the law of supply and demand

I have a simple mind and I believe most things actually conform to simple principles.

The law of supply and demand can be stated as simple ratio:  p=d/s where p=price of a commodity; d=demand for the commodity; s=supply of the commodity.  This can be extended to the exchange of two commodities thus:  d1/s1=p=d2/s2, where the supply and demand of the first commodity determines how much of it is necessary (p) to barter for the second commodity.  Money is also a commodity likewise subject to the law of supply and demand.  So if dollars are few, and there is large demand for them, then they will have great buying power and p will be small.  But when there is little demand for dollars or a large supply, then they will have diminished buying power and p will grow.

We had a situation where a large number of dollars was created through credit expansion.  But credit expansion can result in bursting bubbles and credit shrinkage.  In response to the credit deflation called the sub-prime mortgage crisis and its aftermath, Bernanke has created a new supply of dollars in process called QE, quantitative easing–not newly expanded credit, but dollar dollars.  So now we have new money which can’t deflate.  And this has greatly reduced demand for it–because now the Chinese, et al., who have plenty of dollars, are seeking new ways of divesting themselves of dollars.  Not only so, but interest rates are almost zero for holding money in a savings account: which means that there is next to no incentive to holding dollars–this keeps the demand low.  So now US dollar supply is up while the demand for dollars is down.  So guess what? The prices of basic commodities are all up.  This trend will continue, with great volatility in the financial markets, until Bernanke stops creating new money and allows interest rates to rise.