America – Where is the Bust?

Update on the Economy

By Dene McGriff

America should not be written off.  It has a prophetic role to play.  Its economy is incredibly resilient in spite of the many danger signs.  If you understand prophecy and the nature of the latter day Babylonian Empire, you will realize what an enigma it is.  It is the consumer nation, the military behemoth, Israel’s friend, the good guy and the bully on the block.    It is the dominant nation in the earth and there is no one even close.  But there are certainly cracks in her economic foundation.  Is the much anticipated crash in the U.S. economy about to take place?  This is certainly what the Austrian economists and the folks at the Daily Reckoning expect.  The “chicken littles” continue to claim the economic sky is falling but, really, doesn’t it seem like they have cried “WOLF!” one too many times?  

If you look at the news and listen to the government and other experts, the cheerleaders of the economy tell us that everything is great.  The stock market is in record territory.  Housing may be languishing in parts of the country but the prices certainly haven’t dropped that much.  Unemployment is low.  Corporate earnings are up.  So what’s the big concern?  Things are going pretty well in America and the rest of the world is feeling the benefits of the boom as well. 

As Doug Krieger pointed out in his recent articles,  many Christians also see a decline in America because they just can’t see a role for the United States in the Bible, in spite of the fact, as Doug so well points out, America pretty much fits the description of the end times prophetic Babylon since it grew out of Europe and became the dominant military and economic force in the world.  He dealt with the military very well and I’m going to look a little closer at the economic side.    I would propose that once it occurs, a collapse in the American economy will result in a collapse worldwide, including a final collapse in paper (fiat) currency.   No one knows when this will occur but I suspect it will take a while since America may still have a major prophetic role to play.

Prophetic Timing is Everything

The question is not if this collapse will happen but when and what does it mean to us practically?  I don’t disagree with those who say that there is a shift in the balance of power from the west to the east and given time America’s power would diminish.   Certainly, this is the trend.   An empire cannot be maintained forever.  This is not in conflict with the Bible which tells us that the west will face an army from the east of several hundred million in the final battle of Armageddon.  But before that is the Gog-Magog War – a conflict between the Islamic and Christian western world centered on Israel. 

Just as the Bible prophesied over two thousand years ago, the nations of the earth are aligning right now for a major world conflict that can’t be avoided.  Every day we read in the paper about the build up in Iran and that the Bush administration is set on taking care of the Iran problem before his term is up.  We hear that Syria is massing forces along the Israeli border as Syria insists that the Golan Heights be returned to them sooner rather than later.

The Hamas victory in Gaza has energized radical Islamic forces throughout the region, including Egypt.  Hezbollah showed that they can stand up to the Israeli  army a year ago and they have regrouped, reprovisioned their army and dug in anxiously awaiting the beginning of hostilities – this time with Syria’s open support!  A recent article lays it all out: Syria is ready to go to war with Israel; Iran has missiles that can reach anywhere in Israel; al-Quida has Katusha rockets in Lebanon, and so on.  Meanwhile, the U.S. is insisting Iran dismantle its nuclear program and, as I pointed out in my last article, they have no intention of doing that.  The Bush administration knows it must act now or never and they have no intention of letting Iran get away.  They are now painting it as the source of terrorism, our problems in Iraq, etc., building the case for John Q. Public.

Once war breaks out in the Middle East again, whether between Israel and Syria or with Iran, this will trigger the final build up for a major conflagration  between the west (mainly Israel and the U.S.) and Islamic fundamentalists who are hell bent on our destruction.   This battle is known in the Bible as the Gog-Magog war.   After Israel’s enemies are defeated, it will lead to the treaty of hell and death  between the antichrist and the nation of Israel, two issues we have dealt with extensively on our website.

This could all happen in the next few months.  In fact, the wheels are in motion on both sides (those against Israel and those against Iran) to bring these issues to a head by the end of 2008.  With the price of oil running up toward $80 a barrel, the oil producing nations have unlimited financial resources to make good on their threats.

Will America Fall and be Replaced by Europe?

So here is the big question, will America be a key player or fall by the wayside and become a mere historic after thought?  Will Europe rise to the occasion and stand against Iran and support Israel?   Come on.  Europe wouldn’t take on Saddam Hussein and Iraq.  They need Iranian oil.  The most they will do is a lackluster boycott.   No, obviously there is only one nation that has the will and the way to take on Iran and support Israel.

I wrote a book titled “In Search of Babylon” and in that book there is a chapter on the American military.  We are responsible for half the military expenditures in the world (even more if you consider what we are spending in Iraq and Afghanistan).  Doug did a fantastic job in his recent articles showing the sad state of the European community in terms of getting them to spend anything to modernize their military.  It takes decades of investment in military infrastructure to produce modern military weapons.  It takes the national will to take valuable resources from domestic programs and spend them on military.  No European nation has that will and the European Community as a whole certainly doesn’t.  The idea that Europe could replace America in its current role in the Middle East and project around the world as America currently does is totally ludicrous – even if we had another generation to develop it (which we don’t)!

Okay, granted that America is the all powerful empire today but couldn’t an economic collapse change that over night?  The idea that the United States could collapse economically seems to have some traction.  As closely as I follow the economy, I could almost believe it.  No other country has ever had government debts and liabilities like ours.  No other country in the world has ever been more in debt to other nations like ours.  Again, I dealt with these issues in chapters such as “The Coming Economic Collapse”.   But when that collapse comes it will not be just America but the whole world.  I call it the “Samson Effect”.  The world economy has been based on the dollar and the American consumer economy for so long that when it falls, the whole thing comes crashing down .  Meanwhile, we hear rumors of our demise and they are a little premature.

Let’s examine the facts.  The Chart below shows the percentage of the U.S. GDP (gross domestic product) against the 49 largest countries in the world:

China just passed Germany to become number 3.  From reading the news, one would think that China was about ready to pass us.  Please look at the numbers – 5 percent against over 30 percent!  Does it look a little soon to write the obituary?  But, you may say, it can crash and  burn very quickly.  That is what they have been saying for many years now.  Do you remember when Howard Ruff was predicting the imminent demise of the American economy back in the 70’s?  As much as the naysayer would like to be vindicated, things just don’t seem to move that fast in the real world.  The contrarian's view below comes from John Maudlin’s newsletter, “Outside the Box”.

“First, the U.S. position is not so dire. The United States holds $13.8 trillion in claims against the rest of the world, resulting in a net indebtedness of $2.5 trillion. Relative to GDP, this sum is about 19%, a somewhat lower figure than the typical family mortgage expressed as a percentage of family income. This net debt has been virtually unchanged since 2001.

More important to the dollar and cross border interest rates, U.S. income on its $13.8 trillion of assets exceeded the payments on the $16.3 trillion in U.S. liabilities, something that has happened every year since 1960. Last year, the income on U.S. assets yielded 4.7%, a full percentage point higher than the yield on our liabilities and similar to the differences since 1976 (Chart 4). Therefore, cash flow from U.S. assets more than funded the cash requirements for U.S. liabilities. 

The United States is still the world's marketplace. Even if it were not, domestic inflation and interest rates will continue to be determined within the confines of the U.S. monetary and growth models, as is documented in macroeconomics. Both these models are pointing in the direction of weaker U.S. growth, and by implication a spillover is expected to impact the rest of the world. The United States is the world's largest debtor, but U.S. investment flows remain in favor of the United States, indicating that the U.S. is still master of its own economic future.”  (7/16/07 article by Van R. Hoisington Lacy H. Hunt, Ph.D. from JohnMauldin@InvestorsInsight.com.)

So America is still the dominant force in the world.  Currently, there isn’t even a close second!  This has never happened in the history of the world.  The world has become completely dependent on American markets.  We are the consumer nation of the world!  The world bases everything on the dollar (although we see some shift beginning to the Euro).  Even still, the nations of the world loan us money so we can buy their goods.  There is a temporary wealth effect going on.  Everyone seems to be getting wealthy from all of this free trade. 

Led by the US Federal Reserve, the central banks of the world have been creating more and more money out of thin air.  I explain just how they do it in an article.  The more money that comes into the system, the more they can create.  This causes increases in production and consumption.  It really works for a while at least.  But every now and then, there needs to be a correction.  That’s the function of a recession – to correct imbalances in the economy.  But the meddling Fed didn’t allow for this correction to run its course and intervened in 2001 by lowering interest rates and pumping fresh dollars into the system resulting in a quick recovery which resulted in easy money, easy credit and the housing and commodity bubbles.

The Great Depression was a big correction because of European debt and American over production.  We have seen lesser recessions/corrections around the world – in Asia, Latin America, more recently in Japan, Korea, Thailand, etc.  But what is happening right now is a worldwide imbalance that comes from creating too much money and not allowing for trade imbalances to correct themselves.  We have artificially blocked any correction.  The scary part is that the longer corrections are postponed, the greater and more severe it will be in the end.  The imbalances today are not just our problem but a worldwide problem.   Countries have increased production to meet our demand and we have printed money and sold bonds to cover the debt.  The United States has conveniently stopped reporting the amount of M3 (money) in circulation.  Why?  Because the printing presses are going 24-7.  In order for money to have value, it must remain somewhat scarce.  At the extremes, we have seen money go to zero value – in Kaiser Wilhelm’s Germany of the 1920’s, in Argentina, Mexico, Bolivia, etc., and currently in Zimbabwe.

HARARE, Zimbabwe, April 25 — How bad is inflation in Zimbabwe? Well, consider this: at a supermarket near the center of this tatterdemalion capital, toilet paper costs $417.

No, not per roll. Four hundred seventeen Zimbabwean dollars is the value of a single two-ply sheet. A roll costs $145,750 — in American currency, about 69 cents.

The price of toilet paper, like everything else here, soars almost daily, spawning jokes about an impending better use for Zimbabwe's $500 bill, now the smallest in circulation.

What about all of the bubbles, whether real estate, dot coms, the stock market or commodities?  Why are prices going through the roof all over the world?  The creation of money in America has spurred every country in the world to follow suit.  Let’s look at housing.

This map shows the price of the housing stock of a territory, in purchasing power parity. This means that prices shown take into account the variation in what can be bought for US$1 in different territories. The most expensive housing per person in the world is in Europe, where a home is now usually no longer just somewhere to live, but is also an investment.

The cheapest housing stock is found in the African regions and Southern Asia, despite taking into account that money goes further in these territories.

Even with the higher costs of housing in richer territories, the average household is smaller in these places.

London is not a city for the British.  It is now the most expensive city in the world and only those (mainly foreigners) with world class incomes can afford to live there.  A small flat could run a million dollars.

But the problem isn’t just real estate.  Paintings are going for unheard of prices.  Is the painting really worth ten times the price in ten years?  No, there is a lot of excess money floating around ready to blow up the value of any asset.  Stock markets continue to soar – in spite of the falling dollar, the subprime mortgage debacle, deficits, etc.  The problem is, there is just too much money in circulation and it is going to be spent somewhere.

This little money printing game actually works for a while.  It spurs job growth, production, and consumption.  But eventually prices continue to rise until they are out of people’s reach.  Interest rates increase.  Money supply shrinks and prices plummet.  Meanwhile manufacturing has invested and geared up for the demand.  Prosperity seems to abound as it did in the U.S. in the 1920’s and as it appears now as the stock market soars to new records every week.  During the Great Depression or more recently in Japan this resulted in the stock market and real estate losing three quarters of its value.  

The money supply in the U.S. and world is growing at a rate of two and a half to three times the economy.  Inevitably, this leads to balloons – increase in all asset prices, inflation (currently running about 3 percent).  But eventually, increasing the amount of money in circulation decreases the real value of everything.  Speaking of Howard Ruff, he has a guest article in today’s (July 18) Daily Reckoning in which he describes the problem I’ve been talking about.

“The process of currency destruction has been accelerating, with advances punctuated by retreats, since the '30s. Throughout history, this has been the case over and over again ever since the birth of paper money. The critical moment in this era came when Nixon "closed the gold window" (no longer allowing dollars to be exchanged for gold or silver) at the Federal Reserve. This move finally admitted America's irresponsible reality and permanently detached the paper dollars from gold or silver, and the money printers were off to the races. Then Uncle Sam hammered the last nail into the coffin in 1965 by no longer making 90 percent silver coins.

“In the last ten years, the Fed has manufactured trillions of dollars out of nothing at the fastest pace in history by far, and it's now accelerating. The Fed has then loaned the dollars into circulation, or given them to politicians to spend. Since then, Congress has been spending like a drunken sailor. (The difference between Congress and a drunken sailor? A drunken sailor spends his own money!) This money expansion now dwarfs the monetary explosion which led to that historic metals bull market in the '70s. Gold and silver have been rising recently in response, driving gold from $252 to $560, and silver from $4 to more than $15.50.

“It's hard for me to exaggerate or overstate what is happening. Economists call this monetary-expansion process "inflation." It really should be called "dilution," that is, dilution of the money supply, and consequently its value. Inevitably, this sooner or later causes rising consumer prices, which laymen, and the media, and even Wall Street, will still mistakenly call "inflation." Calling rising prices "inflation" is like calling falling trees "hurricanes!" Or as Jim Dines says, "it's like calling wet sidewalks rain.”  (Howard Ruff, The Daily Reckoning, 7/18/07)

So good old Howard may not have been wrong after all – just off 30 or so years in his timing.  The lesson here is that the seeds are sown and when the whole house of cards begins to fall, it won’t be just America.  It will be the whole world.  But it also says something about the resilience of America.  No other country has been so big, so productive, so wealthy, so much in debt – yet the whole world is based on the dollar not to say there are not moves away from the dollar.  The dollar has lost 40 percent of its value against the Euro in the past few years.  The dollar has likewise fallen against all other currencies.  Certainly we can see cracks in the economy.  OPEC countries such as Kuwait want to switch from dollars to Euros. 

The dollar is getting weaker because the American debt load has risen to such historic proportions.   You have to hand it to America.  No other nation in the world has ever been able to handle such debt without major readjustments.   Not only has our national debt (government deficits) ` risen to $8.5 trillion, our true liabilities (including things such as Social Security, Medicare, etc. – the “unfunded liabilities”) has risen to $76 trillion!  One of the biggest hidden taxes of all is inflation and we have seen the value of the dollar fall by 70 percent in the past 30 years.  No wonder we can’t get ahead and both spouses need to work!  Not only that, the government lies (or at least has changed its methodology in reporting inflation).  They report inflation of 3 percent but if we used the methodology of the Reagan era, it would be closer to 10 percent per year.  But wait, aren’t we told that the economy is strong?  Right, if you consider that 90 percent of our growth since 2002 has been in consumer spending and building homes (fueled by credit card debt and mortgage debt).  Or how strong is the economy that goes into debt to other countries by $2 billion a day because we buy more than we sell to the rest of the world!  And the richest country in the world can’t afford health care for over 40 million citizens?  And the fact that oil is going through the roof and we have to import most of it (from less than stable areas of the world such as Venezuela, Nigeria and the Middle East).  Still Detroit produces cars that get less mileage than a Model T!  That’s progress!

In spite of our deficits and the weakness of the dollar, a weird symbiotic relationship continues.  We consume and the nations of the world continue to loan us money to keep consuming.  It’s obviously not going to be a very good deal for them if we continue to pay them with devalued currency.  You see, this is extremely complicated and everything is interrelated. Take the issue of interest rates.  We keep them low and spur borrowing.  But if foreign lenders think they may be getting devalued dollars in payment, they are going to insist on increasing rates on things such as Treasury Bonds if they are going to keep loaning us money.  This phenomena has already begun to drive up real estate loan rates even though the Federal Reserve is trying to hold the line with lower rates to keep stimulating the economy as much as possible.  They know that if the rates begin to increase, people will stop buying, house payments will be reset higher and the housing bust will become worse.  In an economy that is 70 percent consumption, you have to keep feeding the beast or it will die.

This is certainly not a very good picture for America.  The handwriting is on the wall and anyone who wants to read it doesn’t have to be a rocket scientist to understand.  If we’re honest, we know we can’t keep playing this game.  If you tried to do what US government does, you would be bankrupt, right?  The only surprise is that we have gotten by with it for so long.  Now we come back to the timing issue.  It may well take years more before this all unravels.  Meanwhile, America seems to find enough money to keep up the illusion of prosperity, the conspicuous consumption one would expect from the worlds Consumer nation (Revelation 18) and we somehow manage to protect our economic and political interests around the world.  Yes, I was a history major and from history we should know that no empire is sustainable over the long haul.  But Rome’s empire lasted a thousand years and we have only been at it a little over 200.  So we are holding on a little longer because as the little horn of Daniel’s prophecy, we have a prophetic role to plan in the Middle East and with Israel.  Yes, we are arrogant.  Yes, we are overbearing.  And yes, we have a sense of destiny (warped as it has become).  Even our President realizes this as he rushes to make sure we get closer to Armageddon and the fulfillment of prophecy.  It is ironic that the Presidents of Iran and the U.S. both feel they are fulfilling a prophetic role – and perhaps they are players in the final act on earth’s stage.

In spite of the fact that the seeds of destruction are there, it does not diminish the fact that America is the dominant military, the dominant economy and the only superpower in the Middle East, the only friend of Israel.  And once the prophetic clock starts to tick with the signing of the treaty with Israel, we only have seven years left!  And a charged, militant America, fresh from a Middle East victory (that happens to include a bunch of oil) and you haven’t seen anything yet as Babylon the Great begins her march of conquest!

What Next?

This is happening in front of our eyes.  We all see it, but Christians especially come to the wrong conclusion.  The majority of predispensational Christians (big word for those who believe the church will rapture and the Jews will be here to wrap up the last act – the final seven years), as Doug Krieger said so well in his last article, that this is final proof that America will drift off into obscurity, or that the result of the rapture will be the loss of millions of fine, moral Americans who will leave key positions in business and government, leaving chaos behind as they disappear from sight.  These escapist minded Christians will be completely unprepared for the economic chaos and persecution which will follow.  Meanwhile, the antichrist will appear on stage (and antichrist doesn’t mean “against” Christ but “Christ substitute” – one who claims to be the Christ).  What happened the Sunday after 9/11?  The churches filled with people and what else?  Why American flags of course as the disaster stirred the patriotic fervor of the heartland!  It is an apostate church wed to the State, the patriotic church that would bring the kingdom of God to the earth that will galvanize the Christian community.  This is the Laodicean church filled with lukewarm Christians who would rather protect their suburban McMansion, their three car garage, 401k, the good life they have come to love and expect.

I am told by pastors that Christians have no interest in prophecy these days.  It is too negative.  They just want to take care of hearth and home, to keep the marriage together, to get the kids to their soccer game on time and keep them away from drugs and gangs.  They want the church to take care of them, teach morals to their kids and keep their spirits up week to week with an inspiring worship group and a good message.  Too bad, you’re not going to get much help from your pastors and leaders because they really aren’t interested in prophecy either (or else they would preach it).  And if you ask them about it, they will probably reassure you that there is nothing to worry about.

I’m not saying this to be negative.  It is just human nature to believe what you have been taught.  The common teaching in fundamental Seminary and Bible School in the past hundred years has mainly been the “dispensational teaching” which concludes that the church will be caught up (raptured) into some heavenly holding pattern so don’t worry.  The opposite conclusion is historically held by the Catholic Church, liberal denominations and more recently by some charismatic groups that believe the church is to bring the kingdom to the earth.  Both will be easily deceived by the patriotic church.  Both groups will be clueless because they have false expectations and didn’t understand prophecy.  Still others believe we have been in the “end times” since 70 AD and that all prophecy has already been fulfilled.  All three groups are clueless candidates for deception.

Once people are taught something (especially Christians because they really trust the experts – the clergy), they tend to believe it.   So once they hear a doctrine or teaching, few will question it even though their reading of the Bible may seem contradictory.  (A good example of this is the rapture teaching.  Read Matthew 24 and it seems very clear that Christ returns and the saints meet Him in the air).  The clergy and laity tend to be brain washed.  The theories that the dispensationalists hold to were developed in the 19^th early 20^th Centuries -  based on their best understanding of geopolitics at the time.  Rather than question them and reevaluate them over time, they just keep teaching the same old thing from one generation to the next.  Europe is no longer traipsing across the globe running their colonies.  Instead, a little country across the ocean (which once was colonized by three of them) has risen and dominates not only Europe but the whole world.  But human nature supports the status quo.  Most people, even the supposedly open-minded, don’t have open minds at all.

So does anyone see it?  We have searched the literature and gone to every prophetic site we can find on the web and no one in mainline Christianity gets it.   They just don’t get it.  There are a few voices crying in the wilderness (many of whom we link to), saying “yo”, what about America?  Are you sure it is irrelevant as nearly all the mainliners contend (good for nothing more than destruction)?  I like to reference the last chapter in Daniel where the Lord tells him to seal up the book until the end and then reveal it when the time is right.  How could you possibly make sense out of something as specific as Bible prophecy until the time was right and the countries were lining up perfectly as they are now?  If you looked at the world 200 years ago, Napolean was thought to be the antichrist and France was romping all over Europe and before that Spain, and after England.  You can see how easy it is to completely miss the mark.

The Bible is God’s instruction book to man.  He tells us why He made us.  He gave us a new life, purpose and a plan of action.  He tells us what He is going to do.  It is up to us to learn to listen to His voice, open our hearts to His Word and let it speak to us.  Just as we needed revelation to enter into a relationship with Him, we need a continuing revelation to understand what He says.  And that doesn’t necessarily come from the “learned clergy”.  Most are biased and completely closed to what we are saying and we speak with more the fifty years experience.  The hallmark, the main characteristic, of the “last days” is that people will be deceived.  And why will they be deceived?  For many, it will be because they took the word of experts they thought they could trust.  Meanwhile, they got caught up with the cares of life, the explanations of the propaganda networks (news networks).  Listen to the analysts on CNBC and all you hear is that the “fundamentals are good, the market is up, housing is going to level off and recover, the future for America is bullish.”  You go to church and get the same positive message.   People who are deceived never get outside of the box to hear what God has to say.  Jesus says, “my sheep hear my voice.”  (John 10:27)  They recognize it.  They know it.  He uses the written Word to reveal new things.  A quarter to a third of the Bible is last days' prophecy.  He wants to reveal things to you.  Now is the time.  You have a “need to know.”

Besides learning to hear “His still small voice”, which is the most important, God will also tell you what to do.  Do you make any changes in your lifestyle, debt load, housing, priorities, fellowship with other believers?  I don’t know the answers nor would be so presumptive to tell you.   The Bible says, “we work out our own salvation with fear and trembling.” (Philippians 2:12).  Be aware of anyone who starts telling you what to do.

If we are going to survive as a glorious testimony, as a corporate body of believers, we need each other.  We need to be connected – not necessarily organizationally but organically – share our lives, our dreams, our trust and our love.  We make things way too complicated.  The church is just us – imperfect people saved by His grace, people with a vision, a purpose and a commitment to the Lord and one another.  There is safety in numbers.  Pray that God will lead you to the right people.  Our message is positive.  Our future is glorious!

And they overcame him by the blood of the Lamb and by the word of their testimony, and they did not love their lives to the death. (Rev. 12:11)