The Pooring of America
The Economic Outlook
Forces set in motion thirty years ago are destroying the American economy and will eventually bring down the whole world with it. This does not take away from the fact that America has been the world economic leader for the past sixty years. It does not take away from the fact that America still represents a third of the entire world economy and that the dollar is the global standard currency. But changes are in the wind. America has lost its lead as the greatest producer exporting nation the world has ever known to the greatest consumer importing nation. We will examine the effects of that decline and the end of it all.
America no longer has the competitive advantage in a global economy. As long as skilled, educated workers in Asia are willing to work for 1/20th of what an American would make, there is no way to compete. If we think the Chinese are just a bunch of coolies laboring in the fields living in the 19th century, we are totally ignorant of the facts. Factories in Asia are state-of-the-art compared to the antiquated factories in America’s rust belt. The Chinese have invested, even over-invested in production while our factories languish. The city of Bangalore produces more engineers than the state of California. The software for DVDs was developed in Bangalore – not in the Silicon Valley. Experts see both India and China and possibly Russia and Brazil surpassing America in the next 30 years. Times are changing but we are not. America is on the decline!
When the government spends more than it takes in through taxes, it must borrow to cover deficits. When the United States buys more imports than it exports, foreign governments purchase U.S. Treasury bonds. Both the government and trade deficits require that the principle and interest be repaid. The government experts say debt is not a problem. Why? There is a policy to devalue the dollar so you never pay off debts with the current dollar value. If we buy a million dollars of product and pay it off with a million deflated dollars worth half as much, the goods really only cost a half a million. That is also why budget deficits are of little concern and economists point out that relative to the total economy, deficits are not changing that much. This is the price the American empire has exacted from vassal states. Sell goods to America. Use profits to give the money back so we can buy more and then pay the loans off years down the road with deflated dollars.
What does this mean to average Americans? It means that the government is counting on inflation. The government is counting on paying off debts with dollars that are worth a lot less. This is good for the government which can count on a seemingly endless supply of fresh cash, but bad for the average American who sees his dollar worth lose value every year.
The money supply (the amount of dollars in circulation) is increasing at the rate of 20 percent a year. The more money you create, the less things are worth. The question is, do your wages keep up with the price you pay for things? Our experience and statistics would say, “no.” This planned inflation is the most subtle tax you will ever pay. The excess of money and credit causes your house, stocks and other assets to continually increase in value giving you the illusion that you are better off. But are you really? Of course not! That house in LA that cost $5,000 new in the 50’s may sell for a half million today, but that is the “price” – not the “value”. The value is the same but the dollars are worth that much less today. That “price” is mostly “debt” and eventually, these loans have to be paid back! There is no free lunch. Americans have been lured into a debt trap and they can’t get out. A credit expansion must be followed by a credit contraction. An expansion in money supply must be followed by a contraction in money supply making credit hard to get and interest rates high. All debt must eventually be balanced: paid off or discharged through bankruptcy!
Inflation eats away at your paycheck, retirement and savings. It causes everything you buy to cost more. The headline of the Business Section of the Sacramento Bee read “Pay Outpaced by Inflation” (1/19/2005) – not just this year but for the past three years in a row. Savings are less than zero. The only thing that has kept the GDP from being negative is debt – credit card and equity taken out of homes. But does this make sense? What makes a man or a nation wealthy should not be spending, but producing. Consumption without production is making America weaker by the year. If the nation were an individual or a corporation, it would have gone bankrupt long ago. What on earth are we thinking?
An AP article titled “Growing Deficit Hobbles Economy” discusses our economic health:
“Like a person packing on pounds, the United States keeps adding to its flabby budget deficits, endangering the nation's economic health and the pocketbooks of ordinary Americans. Here's the worry: Persistent deficits will lead to higher borrowing costs for consumers and companies, slowing economic activity. As Uncle Sam seeks to borrow ever more to finance those deficits, rates on Treasury securities would rise to entice investors. That would push up other interest rates, such as home mortgages, many auto loans, some home equity lines of credit and some credit cards.”
In "Doomsday for the Greenback" Mike Whitney writes on the dollar,
"The greenback is the greatest swindle in human history; a worthless scrap of paper buried beneath a mountain of debt. It is only through the skillful mix of politics, diplomacy, and brute force that the grand deception is maintained. As America’s fortunes grow more tenuous, the probability of attacks on the dollar will increase exponentially. Even now, nations are conspiring to knock the dollar from its towering summit and introduce a more equitable system."
But people want inflation as Bill Bonner says in the Daily Reckoning.
“Debtors want a little inflation to lighten their burdens and put a wind to their backs. Creditors want inflation to swell their asset values. Politicians want to be re-elected. Businessmen want customers with money to throw around. Is there anyone who doesn’t appreciate a little inflation?...
“Easy money only works by defrauding people into thinking they have more money than they really do. Easy come; easy go. They get it; they spend it. Before you know it, you have a boom. But people soon adjust their expectations. Prices rise to catch up to new money…
“No pure paper money system has ever lasted. People can never resist the temptation to make the money easier and easier…until it is so wobbly and woozy it falls on its face…
Bonner goes on to discuss the Greenspan legacy of debt.
“Outstanding home-mortgage debt has jumped from $1.8 trillion to $8.2 trillion. Total consumer debt went from $2.7 trillion to $11 trillion. Household debt has quadrupled. And government debt, too, exploded. The feds owed less than $2 trillion in the second Reagan administration, a figure that had been almost constant for the previous 40 years. But under my direction, the red ink has overflowed like the Nile in flood - to over $7 trillion.
“During the two terms of George W. Bush alone, the feds have borrowed more money from foreign governments and banks than all other American administrations put together, from 1776 to 2000. And more debt will be added in the eight Bush years than in the previous two hundred. The trade deficit, too, more than tripled since (Greenspan has) been at the Fed, from 150.7 to 756.8 billion, and will reach $830 billion in 2006. When I came to power, the United States was still a creditor. Now, it is a debtor, with more than $11 trillion worth of U.S. assets in foreign hands, a more than 500% increase since 1987.
Stephen Roach of Morgan Stanley, based on the Feds own statistics, reports on home equity extraction:
"According to Federal Reserve estimates, equity extraction by U.S. households topped $600 billion in 2005 - more than enough to compensate for the shortfall of earned labor income. Comforted by this asset-based injection of purchasing power, consumers had little compunction in stretching traditional income-based constraints to the max. The personal saving rate fell deeper into negative territory that at any point since 1933, and outstanding household sector indebtedness - as well as debt service burdens - hit new record highs." (January 26, 2006)
This all sounds pretty gloomy but in spite of the nay sayers, the American dream seems to have come true. The economy appears to be healthy and growing. We are told that inflation is low, manufacturing is up, unemployment is low and Americans spend like there is no tomorrow. The economy doesn’t seem to be phased by record trade deficits, record personal debt, negative savings and huge government deficits. Growth has been spurred by hundreds of billions in equity taken out of the housing piggy bank. But can this go on indefinitely? Is there no end in sight? What will our future be like and what will it mean to each of us personally?
In the first part of this series, we looked at government reporting in an article titled “Lies, Damned Lies and Statistics” and saw that economic reporting is a statistical illusion – slight of hand at best and a falsehood at worst. The second part dealt with the Money Illusion, the way money is created out of whole cloth. The third part discusses the macro economic trends – the hole that America has dug for itself over the past 33 years. If you read that section carefully, we built an iron clad case for the fact that the American economy is going to crash and crash hard. We built a case that no other country in the history of the world could survive the double deficits (government and trade) but America seems to be doing so. Can we expect double digit inflation in our house prices forever? Can the government keep printing more and more money? Can we continue to let the world keep pouring in their extra dollars so we can keep buying their goods? This is way too good to be true!
Trickle Down Economics
In the years ahead, America will become known for its fabulously wealthy elites – the lucky few who are tied into the global economy who run their global business. These elites and those who serve them will prosper as never before. They will build fabulous mansions, drive hundred thousand dollar cars, go on expensive vacations, buy second and third homes, yachts and turbojets. They will have servants and send their children to expensive private schools and colleges. They will live like the pampered elite that they are. If you are a modern day gladiator (sports superstar) or one of the few court singers or jesters, you may make it into their club. If you are a power broker or politician, you may get to play. If you are highly educated, entrepreneurial and ruthless (e.g. Bill Gates, the Waltons of Wal-Mart), you may join the elite.
But what about the rest? The great majority will slide into the poverty of third world status. Wages will fall in line with foreign competitors or companies will bankrupt trying to maintain their worker’s standard of living. Millions of unemployed and underemployed will be scratching for a living, taking whatever job is available. Some of the masses will catch the crumbs that fall off the elite’s tables. After all, they have to buy stuff. Others will become warriors of the empire – fighting the war on terror, keeping the world safe for democracy and the global business.
Globalization is great for the elites but not for the average American worker, The CEO’s have huge compensation packages (hundreds of times more than the average worker) and those tied to the global economy will continue to bring in more. As ”60 Minutes” showed a few weeks ago, these wealthy elites will build ever larger mansions so that their average home that was once 4,000 square feet will now be in the 10,000 to 20,000 square foot range and larger – opulence the average American can barely imagine.
Let’s look at three companies that typify changes coming in the 21st Century: General Motors, Wal-Mart and Google. They used to say that “as GM goes, so goes America” and that saying appears to still be true. General Motors is on the brink of bankruptcy. Its bonds are junk status. Founded in 1908, it employees 325,000 workers in over 30 countries around the world. Yet, its sales are down. It lost $4.8 billion in the fourth quarter of 2005 alone. It is producing large gas guzzling cars people don’t want and is in a state of organizational chaos. Its unfunded pension fund liabilities exceed $24 billion.
“But GM, of course, is no ordinary company. With sales of $193 billion, it stands as an icon of fading American industrial might. Size and symbolism dictate that its fate has sweeping implications. After all, GM's payroll pumps $8.7 billion a year into its assembly workers' pockets. Directly or indirectly, it supports nearly 900,000 jobs -- everyone from auto-parts workers to advertising writers, car salespeople, and office-supply vendors. When GM shut down for 54 days during a 1998 labor action, it knocked a full percentage point off the U.S. economic growth rate that quarter. So what's bad for General Motors is still, undeniably, bad for America.” (Why GM’s Plans Don’t Work)
The average GM factory worker makes $36.50 an hour and there is an average of $1,600 per car in health and other benefits. How can GM possibly compete with foreign car manufacturers who pay less than a dollar an hour for labor and provide no benefits?
Now we come to the lower middle class company of the future – Wal-Mart! This is consuming American’s dream company dedicated to bringing cheap products to Joe Six Pack. The average Wal-Mart worker makes $17,000 a year and health and pension benefits are limited. This is your future! Are you ready to be a Wal-Mart greeter? Wal-Mart is the most profitable and largest employer in the world. It has 1.6 million workers in 1800 stores around the world. It is China’s biggest buyer. Wal-Mart grew at the expense of mom and pop retail outlets across the nation (and now the whole world!) Who can compete with her? Workers may not get rich working for Wal-Mart, but the five of the top ten billionaires in America are Waltons worth $18 billion each for total Walton family wealth of $90 billion!
Now we come to the elite company of the future – Google. Its net worth is just under $300 billion and exceeds Time Warner as the largest media company in the world in dollar terms. That is a lot of money to trickle down but there aren’t any factories – nothing being made – just information flying around the world. Welcome to the elite company of the future! Google doesn’t have branches all over and hundreds of thousands of employees. It only has 4,200 employees. The elites make the money. The billionaire founders, Larry Page, 33 and Sergey Brin, 32, are worth about $6 billion each.
The modern platform company can get by with a lot fewer employees. Even successful companies like Microsoft with 63,000 employees worldwide and 40,000 in the U.S. with $12.5 billion in net revenue. They hire as many contract workers as possible to keep from having to pay benefits and outsource wherever possible. These companies make a few at the top very wealthy. Microsoft founder Bill Gates is the richest man in America with $48 billion and co-founder Paul Allen number three with a paltry $20 billion!
Meanwhile, the average American has been losing rather than gaining jobs and income. The graph below shows the number of jobs created by the presidents since Eisenhower. Notice the job creation of G. W. Bush at the bottom. In the previous chapter, a graph showed the loss of manufacturing jobs compared to small gains in service, health care, construction, etc. These jobs are gone and gone forever – never to return! A global economy means just that. Jobs will flow to those who can produce the same product for less. It is as simple as that. We will become competitive with China, for example, when our plants are as modern as theirs and our workers are willing to work for the same wage as their workers. The jobs that are being lost are high paying factory jobs. The jobs being created are low paying service industry jobs. America has lost over two million manufacturing jobs since Bush took office and even though the unemployment figures look good on the surface (at 5%), we know they are much higher because people get discouraged and drop out. According to the AFL/CIO, the number of people unemployed and underemployed has grown by 28 percent since 2001. As you can see below, the much touted “recovery” since 2001 is the worst jobless recover since WWII.
So what can we expect? The average American work harder but fall further behind. Middle class America, those not part of the global elite, will slip into the lower classes. Because they can’t make it, they will fall deeper in debt. Once their home and credit cards are maxed out, many will lose what little they have. The fall is inevitable because there is nothing inherently more valuable about an hour of an American technician or office worker’s time than there is an Indian’s. There is nothing inherently more valuable about an American factory worker’s hour than an hour of a Chinese factory worker. Why should we earn more? Why should we be richer? Is the job any different? What is the American advantage? There is none. The average cost of an hour’s labor in the U.S. is $20.73. In China it is between 13.5 and 65 cents depending on the source. There is NOTHING that can be done to reverse the trend. In a global market, the most one can hope for is that there will be a reversion to the mean – in other words a great leveling. We are consuming. China is investing in production and infrastructure. The fact is they will pass us up. It is just a matter of time.
The problem with the “post-industrial platform company” is that it is free to move about and find the cheapest labor. GM may transfer their “know how” to China by building plants, but once built, the advantage is clearly with the Chinese. America can’t compete. The elites will profit, but the average jobs are gone forever. Recently, GM announced that it is eliminating 30,000 jobs and Ford 20,000 (this is just the beginning). This is a total of 50,000 jobs for just two companies. But one manufacturing job produces five to ten other ancillary jobs in related industries and in support of those workers (the grocery stores, restaurants, Wal*Marts, K-Marts, MacDonalds, Burger King, etc.). In many areas of the country, housing related jobs have accounted for half the new jobs created. We are already seeing a serious slowdown in housing and real estate. The fall out from the collapsed housing market will reverberate through the economy because people will have no more equity to spend.
America has gone from the greatest producer nation at the end of WWII to the greatest debtor nation. A nation cannot be built on credit and consumption alone. Ah, but some say, we are the “thinkers”, the innovators. Yet, this morning’s Sacramento Bee reported that only 31 percent of college graduates were considered ‘proficient’ in prose – reading and understanding information in short texts. (December 26, 2005) Who is turning out the PhDs? Asia! A son of a friend of mine went to UC Berkeley to study engineering. He was the ONLY non-Asian in his class and that was at an American university!
Americans have been tricked into thinking that their house is a “piggy bank” full of money whenever they need it, an asset that will never lose but always increase in value. The chart below shows that for the past five years, Americans have been able to keep their head above water by spending the equity on their house. But houses are not really increasing in value – just in price and the two are very different. Houses have been increasing in price because the Fed has been adding 20 percent to the money supply every year. An asset bubble results from low interest rates which lead to easy money and easy credit.
As interest rates rise, money will become scarce and the debt load will become unbearable. Half of the recent loans have been of the creative variety – interest only and ARMS. Not only will that money no longer be available, but people will see their house payments increase dramatically. Others bought houses for investment, hoping to flip them and make a quick profit. Many bought second homes. But when they get into negative equity, watch the foreclosures build!
Salaries and wages have been flat or declining since 1970. Savings are in the negative numbers. There is nothing left to fall back on. Core manufacturing jobs are gone for good. People are desperately working to try and keep up. The old saying that the average American household is about two pay checks from being homeless is even more true today. Faced with adjustable rate and interest only mortgages and little home equity homeowners are at great risk as interest rates rise. People continue to pay bills with credit cards digging the hole even deeper. The average American is just a few steps from the streets as he reaches the end of his financial rope.
The poor are not only getting poorer and the middle class is falling into a new lower class. But the rich are truly getting richer, especially with all of Bush’s tax cuts.
“But the rich are making real progress - all the numbers show it. They're buying $300 flip-flops and $3 million beach condos. They can do it...because their own sources of revenue are less threatened by Asian competition. They are judges and lawyers... managers... hacks and bureaucrats... entrepreneurs... psychologists and political fixers... They are the people the average man will come to hate. But they are the ones who benefit from the New World. They are able to keep up with the international class of rich people, while their slower countrymen fall behind. It doesn't seem to matter where they live; their work is protected from low-priced competition...and their financial assets become more valuable. The companies they own (at least theoretically) can hold down labor costs and become more profitable. Their land and houses rise in price. So they bid against each other for prestige and bragging rights - for seats in fancy restaurants...for designer flip-flops...for exclusive beach houses...expensive sports cars and ugly modern art. Luxuries are soaring in price...while Wal-Mart continues to offer the lumpen Everyday Low Prices...” (Daily Reckoning, 11/27/05)
In a chapter titled, The Changing Face of America, I go into great detail concerning the changing tax laws and how the rich are getting richer. During the Eisenhower era the wealthy were taxed at 90 percent and even during Kennedy at 70 percent. You will notice in the pie chart above that as of 2001, 5 percent of the population controlled 57 percent of the wealth and the gap keeps increasing.
The Signs of the Times
The world has a way of throwing a curve ball whenever you are least expecting it. In the past few weeks, we have seen oil spike $10 a barrel just because of fears about Iran. What if Iran were attacked? What if there is a terrorist attack on Saudi oil fields, more unrest in Nigeria, saber rattling in Venezuela, another tsunami in Indonesia, a supervolcano explosion in Yellowstone, a coup in Russia, an attack by Israel on Syria, another terrorist attack in America or if America begins another war on another front?
Oil could shoot to $150 a barrel, gas to over $5 a gallon. Interest rates would shoot up even higher. Housing prices would fall even more. Millions of jobs could be lost over night. What is the likelihood that one of these things will happen? It is almost a surety that something will happen! Even if nothing does, the growing U.S. debt – government, business and personal – not to mention trade deficits, will eventually bring her crashing to her knees. How much longer will the nations of the world support our spending binge?
We are not alone in the world. Resources such as oil, platinum, copper, palladium, silver, etc. are limited. China, India and other nations are competing with us for the world’s resources. Even if there were no catastrophe, world demand for oil will outstrip supply starting this year – 2006! We are at the limit in terms of oil supply and refining capacity.
We may be short on oil but we are awash in dollars. There is a world wide glut of money and credit. If the response of America and other countries is to continue to print currency and there is no reason to think they won’t, the end result will be hyperinflation and deflation and the eventual ruin of the world economic system. Just because America has defied expectations for so long, doesn’t mean it is not on a collision course and will eventually crash and burn. There has never been a successful paper currency in the history of the world. The temptation to crank up the printing presses is just too great for central banks and governments. And the weakest link is America – the only nation in the world that owes the other nations $11 trillion, an amount equal to our annual GDP! We are counting on paying it off with ever cheaper inflated dollars, but where does it all end? World wide financial ruin!
America still appears to be the dominant force in the world – currently the only superpower, a third of the world economy, with military presence in more than 200 countries, the dollar the standard of world trade and with half of the world’s military expenditures, etc. (Please see my book on line titled “In Search of Babylon”) America has the ideal enemy in terrorists. They are so ubiquitous. They are every where so America can hunt them down in your back yard or the far corners of the world.
America with bases in Iraq, Saudi Arabia, Kuwait, is surrounded by radical Islamic countries with Iran threatening to build nuclear weapons. You have Israel and the United States poised to do something about it. The “last days” begin with the Gog-Magog War (please see Doug Krieger’s book “Antichrist and the Gog-Magog War) a war prophesied thousands of years ago – basically the Islamic countries in the Middle East blowing up in Israel’s face. Then you have a seven year build up to the final great Battle of Armageddon in which the kings of the east come up against Israel and the antichrist with a 200,000,000 man army (Revelation 9:16). Who else could mount an army that large but China? So we see two prophetic battles brewing: one being Islam versus Christianity and the other: the east versus the west. In the middle of all of these, we see the world financial system in tatters (Revelation 5:6, the third horseman of the apocalypse) followed by the “mark of the beast” (Revelation 13:13-18) in which all buying and selling is limited to those who have the “mark”. One can only speculate that by the midpoint of the Tribulation when the antichrist imposes the “mark” that some catastrophic events will cause the entire financial system to fail leading to a fully electronic system using some kind of implanted chip which each person needs to be able to buy or sell anything!
So what can we expect according to the Bible?
“And you will hear of wars and rumors of wars. See that you are not troubled; for all these things must come to pass, but the end is not yet. For nation will rise against nation, and kingdom against kingdom. And there will be famines, pestilences, and earthquakes in various places. All these are the beginning of sorrows.” (Matthew 24:6-8)
Does this sound familiar? In Greek, “wars” means “ethnic conflicts”. What have we seen the past 20 years or so? Lots of ethnic conflicts – in the Middle East and in Europe (Bosnia, Yugoslavia, Chechnya, etc. – all about Muslims vs. Christians and orthodox) We have plenty of famine in Africa – pestilence (bird flu), earthquakes, tsunamis, etc. This is the beginning of sorrows, followed by a religious war (known as the Gog-Magog War) between Islam, Israel and apostate ‘Christian’ “Babylon”, followed by economic chaos, the “mark of the beast” and the final great war between the east and the west known as Armageddon. Events are lined up right now like they never have been before in history: war in the Middle East, more wars, economic chaos, followed by the mark of the beast, the great tribulation, the battle of Armageddon and the return of Jesus Christ.
What Does this Mean to Me?
As a practical matter, this means that if you are in the elite like I once was – a corporate officer of a Fortune 100 company, you can sit there and make a growing six or seven digit salary and think you don’t have to worry. But it is easy to forget, that a salary is only as good as the job lasting and the higher you get in an organization, the less room there is to move up. No one is exempt from occupational disaster. If you are just an average person living on a salary, you will feel the squeeze. Your wages won’t keep up and unless you are really careful, you will find yourself living on credit and falling deeper and deeper into debt.
You read the government reports and how things are doing great and jobs are being created and unemployment is low, but it doesn’t quite ring true. You are thankful when grapes are on sale for only $2.49 a pound and bananas at only $1.29, a loaf of bread for $5 and a gallon of milk only $6. You see everything going up in price and you scratch your head as you read the government’s “core inflation” figures – they don’t make much sense to those of us in the real world. Since our government, business and individuals insist on going ever deeper into debt, the Fed will continue to print more money which will just cause more inflation. Everything will become more expensive and it will seem like you are making more and your house is increasing in value, but it is all an illusion – a deception.
Since we can no longer compete in a global market, and we will continue to lose higher paying jobs, and the middle and low end jobs will be downsized, outsourced or cut back. You will find yourself doing the job of two people instead of one, working later, harder and taking fewer vacations. Or you may be like the lady who was being interviewed on TV recently who said, “They say there are a lot of jobs – yeah, I have three and my husband has two.”
You will probably not notice at first, but the number of homeless will increase as people lose their homes and jobs. Soup kitchens will do a booming business. Homeless shelters will overflow and families will implode on one another to share expenses. But like the frog in the heating water, the change will come so gradually, that you probably won’t notice that much.
A little terrorist event here or there and people will clamor for more law enforcement and will be glad to be searched as they go in and out of malls and at check points along the highway. They won’t complain if their phone is tapped or the government sifts through their email or tracks their library records. A few people may disappear now and then, but these are extraordinary times and people will accept more vigilance for security.
If America takes on Iraq or Syria, there may be a renewed push for the draft, but that may not even be necessary if young people can’t get jobs. There may be universal service (not necessarily military) but many will be thankful for the paycheck and an opportunity to advance the march of freedom, democracy and capitalism throughout the world (I was going to say “truth, justice and the American way” but that really dates me). The propaganda machine will work 24/7 to make folks feel good about their sacrifice for God and country (oh yes, and business)
America has no savings – just mountains of debt. We have no fall back position. We have never seen such an explosion of credit and debt in the history of the world and no one knows what the adjustment will look like. Many are expecting a “soft landing”. I wouldn’t count on it. The size of the adjustment is always proportionate to how out of kilter the economy has become. We know the government is cutting back on entitlement programs (unemployment, welfare, food stamps, etc.). Where is the “safety net”? We will find barracks and work camps – families separated as they are herded into shelters. Any who complain or criticize the government will quietly disappear.
We are talking about a snow ball effect. Robert Precter, a noted economist, gives a technical explanation. High levels of debt become unsustainable when the rate of economic growth falls below the interest rate. Creditors refuse to loan more money. When the burden is too great for the economy, the trend reverses, lending is reduced, and spending and production cause business to cut back, spending less, laying people off. There is a cascade of debt liquidation – restructuring, default or bankruptcy. Asset prices fall and people lose money in the markets, housing, etc. Less credit is available, less investment, less production and the mix is self-reinforcing. This occurred twice in American history (once in 1835 and again in 1929). Precter concludes, “If my outlook is correct, the deflationary crash that lies ahead will be even bigger than the two largest such episodes of the past 200 years.” (Robert Precter, Conquer the Crash, p.92)
We will see the wealthy become fabulously wealthy and we will see the middle class stumble and fall just as the proud British did a century ago. We will see the complete melt down of the world financial system and the rise of an evil empire, but don’t worry. All is happening according to plan.
Is There an Answer to This Mess?
In order to understand what is going on in the world today, we need to ask ourselves a question. Is anyone in control of this whole mess or are we just careening through history without a plan? Is there intelligent design or perhaps, unintelligent design? If there was in our beginning, surely there is in our end as well. Is there a plan that was laid out in the beginning or is all history random? The question of the ages remains: is there a God who cares about the affairs of man?
If you have read any of the other articles on www.the-tribulation-network.com, you will realize that we believe not only that God is in control but that the events that we see transpiring today were prophesied literally thousands of years ago. In order to understand events we need to understand the significance of two nations: Israel and a mysterious prophetic country that will be dominant in the last days called “Babylon”. For more detail, please see my book on line titled “In Search of Babylon.”
After nearly 2,000 years Jews returned to their land and reestablished their little nation of Israel just as prophesied in the Bible at the time of Moses four thousands years ago.
1” When all these blessings and curses I have set before you come upon you and you take them to heart wherever the LORD your God disperses you among the nations, 2 and when you and your children return to the LORD your God and obey him with all your heart and with all your soul according to everything I command you today, 3 then the LORD your God will restore your fortunes [a] and have compassion on you and gather you again from all the nations where he scattered you”. (Deuteronomy 30:1-3)
These promises are repeated time and again throughout the Old and New Testaments. It is truly a miracle that the tiny nation of Israel has survived three major wars and a growing on-going intifada. It is surround by a half billion Muslims who would just as soon see her destroyed. It appears that Israel has only one true friend in the world – the United States of America which seems determined to protect her and possible make a formal defense pact with her. Biblical scholars have agreed over the years that the person who signs that Defense Treaty with Israel is none other than the antichrist (Daniel 9:27. See classic work titled The Coming Prince by Sir Robert Anderson; also John Woolvard, Dwight Pentecost, etc)
At the same time Israel became a nation and a young country was emerging as the leader of the world – the United States of America. As Israel grew and matured as a nation, America grew as the undisputed leader of the world in political, military or economic terms. Again, many details are discussed in the book In Search of Babylon but right now, we want to focus on just one aspect of America – its commercial nature. Before we get to America’s economic future, we need to ask, is America even found in Bible prophecy?
Historically, the idea that America is mentioned in Scripture was not even seen as a possibility by main stream fundamental Christianity. So the typical position of the old line fundamental Christian leader is that America has to be swept off the scene so the real players, mainly Europe, can come to the fore. Preachers like Dave Wilkerson feel America’s decline will be a judgment for her sin. But most such as Hal Lindsey see America as an aberration that needs to be wiped off the map –supernaturally destroyed or wiped out by a nuclear strike – mainly because it just doesn’t fit their “end times” view. This oversight may prove to be a fatal mistake for today’s Laodicean (lukewarm) super church.
The other view is that America is the great “Savior nation” to bring the kingdom of God to the earth. This is increasingly held by the “religious right” and the Republican administration which sees America as God’s instrument to bring peace, freedom, democracy and free trade resulting in a healthy and happy global community where everyone lives happily ever after. Without going into complete detail as I did in the book “In Search of Babylon,” where we look at America as a great Christian nation with a ‘manifest destiny’ to bring Christ, capitalism and democracy to the world; the dominance of America as the military power on the earth, but even more so its dominance as a commercial power.
The Bible talks about the emergence of a great nation in the last days that is the power base for the antichrist. The antichrist uses the military and economic power of that nation to do several things. First, it aligns with Israel in what is known as the Gog-Magog War to defeat Islamic foes. (Please see the excellent work by Doug Krieger on the Gog-Magog War) Second, the antichrist makes a defense treaty with Israel (Daniel 9:27) which it later breaks (again please see Doug Krieger’s excellent work on the covenant in a multi-part series). Third, the antichrist carries the battle to other countries. (Daniel 11:36-44, Revelation 6:4, 13:7-10). Fourth, he breaks his covenant with Israel (Daniel 9:27, Revelation 11:7, 13:7, etc.) and makes war with the Israel and the true Church – the saints. In Revelation 17, 18 and 19, we see the judgment of that great nation – Babylon the Great in her three aspects: apostate Christian, the great consumer nation and the military/political power of the world. But let’s focus on Revelation 18 which describes a great consumer nation that all the nations of the earth trade with by sea – a nation that buys whatever they produce, a nation that makes all the nations wealthy. For detail please see Chapter 14.
Revelation 18 describes a consumer nation that all of the nations grow wealthy by trading with her that survives until the end. By the end, we mean after all of the great events spelled out in the Book of Revelation (Chapter 2 ) at the end of the Great Tribulation when the last great entity to be judged is this mysterious “Babylon the Great. Ask yourself as you read the passage below from Revelation 18. What country could they possibly be talking about?
9 “The kings of the earth who committed fornication and lived luxuriously with her will weep and lament for her, when they see the smoke of her burning, 10 standing at a distance for fear of her torment, saying, ‘Alas, alas, that great city Babylon, that mighty city! For in one hour your judgment has come.’
11 “And the merchants of the earth will weep and mourn over her, for no one buys their merchandise anymore: 12 merchandise of gold and silver, precious stones and pearls, fine linen and purple, silk and scarlet, every kind of citron wood, every kind of object of ivory, every kind of object of most precious wood, bronze, iron, and marble; 13 and cinnamon and incense, fragrant oil and frankincense, wine and oil, fine flour and wheat, cattle and sheep, horses and chariots, and bodies and souls of men. 14 The fruit that your soul longed for has gone from you, and all the things which are rich and splendid have gone from you, and you shall find them no more at all. 15 The merchants of these things, who became rich by her, will stand at a distance for fear of her torment, weeping and wailing, 16 and saying, ‘Alas, alas, that great city that was clothed in fine linen, purple, and scarlet, and adorned with gold and precious stones and pearls! 17 For in one hour such great riches came to nothing.’ Every shipmaster, all who travel by ship, sailors, and as many as trade on the sea, stood at a distance 18 and cried out when they saw the smoke of her burning, saying, ‘What is like this great city?’
19 “They threw dust on their heads and cried out, weeping and wailing, and saying, ‘Alas, alas, that great city, in which all who had ships on the sea became rich by her wealth! For in one hour she is made desolate.’ (Revelation 18:9-19)
Isn’t this the most incredible description you have ever read? At the very end, we see that great nation destroyed in one hour and all the merchants of the earth and all the sea captains that delivered goods to her, stand afar off and weep. Frank Logsdon, pastor of Moody Bible Church wrote a book titled “The USA in Bible Prophecy” in which he laid out the case over 30 years ago that America is prophetic Babylon. Using descriptions of Babylon in Jeremiah 50 and 51 and Revelation 18, the passages describe a nation that has never been conquered, once a jewel in the Lord’s hand, a nation that dwells in the midst of the oceans, a melting pot, a wealthy, materialistic nation, one that traded with all nations by sea making the merchants very wealthy. Yet, it is destroyed in the space of one hour. This quick destruction of Babylon occurs in beginning in Revelation 16:17 when the seventh bowl of destruction (part of the judgment of God on the earth) is being poured out. The passage is elaborated on in the next three chapters (17, 18 and 19) detailing the judgment of Babylon in her three aspects: religious, commercial and political/military. This destruction does not occur until the very end, which leads one to the conclusion that America will survive until its final prophetic end. So in spite of my arguments throughout that America is in decline, we must conclude that America makes it until the end and remains in tact as the great consumer nation of the earth. But does that mean that the average American will flourish? Not quite. Revelation 18 describes what could only be called the type of goods that the elite would purchase – “cargoes of gold and silver and precious stones and pearls and fine linen and purple and silk and scarlet and every article of ivory and every article made from very costly wood and bronze and iron and marble and cinnamon and spice…all things that were luxurious and splendid...” (Revelation 18:12-15) These are hardly the items that Joe “six pack” would consume, but they are those of the elites. These are luxury items.
Prophecy is the Key to Understanding
Remember as a kid when you used to go to the end of the book to find out how the story ends? Well, God has given us a wonderful Book – the Bible spells out what is going to happen in the end. These prophesies written over thousands of years have essentially one theme. Jews will be scattered and in the last days will come back to the land of Israel. This will arouse the anger of most of the nations but they will have one friend who will protect them. The Scriptures indicates that there is a prophetic nation with an empire that is characterized as a “Christian” nation where the church has linked with the state in alliance (Revelation 17). The woman who is described as a harlot (reference back to Revelation 2:18-29) represents a fallen form of Christianity. In chapter 18, as we have seen she is a great commercial empire, and in chapter 19 a tremendous military super power. The antichrist himself rules this nation and signs the pact with Israel.
There is only one nation on earth with the Christian zeal, where religion is big business and big politics. Christians are trying to elect politicians and get judges appointed to support their moral and religious agenda. There is only one nation that conducts its foreign policy with a sense of destiny and calling. There is only one nation on earth that accounts for half of the entire world’s military spending and a third of the economy. There is only one nation on earth that has the entire world not only using their currency as the standard currency, but that receives over 80 percent of the world’s savings, a magnet for all the money of the world to flow back into that country so that it can buy more and more of their products. There is only one consumer nation that devours forty percent of the world’s product, a nation with only 5 percent of the world’s population. There is only one nation that is not only Israel’s friend but that has the clout to defend her. That nation can only be the United States of America!
Now, we come to the conundrum when it comes to America’s economic future. The five percent of the “doomers” who say the American economy will crash have a good point. The US can’t continue to gobble up the world’s resources indefinitely and pay for them with devalued dollars. One would think other countries would not continue to support the dollar by buying bonds and other assets indefinitely to support our trade and budget deficits. But they are desperate to keep us buying their stuff. There is something supernatural here keeping America going. We buy their goods and they turn around and lend us money so we can buy more. Perhaps their greed has blinded them to the real situation. One of the most important things to see is that although – by all outward measurements, America should crash and burn, it won’t until the very end.
If America is prophetic Babylon – that apostate Christian, commercial giant, military super power and friend of Israel, the seat of the antichrist himself – there is a prophetic imperative – a role to play in the last days prophetic stage – perhaps one of the most important roles. Again please see my chapter on prophetic timing. Surely, this great nation is judged and destroyed in the space of one hour, but it doesn’t happen until the end of the seven year period commonly called “the tribulation.” The elites continue until the end. They consume the luxury goods until the end.
But meanwhile, there will be economic upheavals which will ultimately lead to the destruction of the world’s economic system. Out of control “fiat money” – paper printed by central banks across the world – will fail. This will lead to the “mark of the Beast” which everyone must have or else they can’t buy or sell (perhaps a national ID/credit device embedded in your skin – hand or forehead, to prevent theft). We can see the makings of that total collapse today, but it won’t happen for a while. The complete destruction of the world financial system will occur and the great hero, worshipped by the world’s inhabitants – the antichrist himself will come to the rescue with a solution! There will be no need for gold, silver or paper – just little credits and debits embedded in the hand or forehead. There will be no more fraud and the system will be under the complete control of the antichrist. What a miracle worker!
Then I saw another beast, coming out of the earth. He had two horns like a lamb, but he spoke like a dragon. He exercised all the authority of the first beast on his behalf, and made the earth and its inhabitants worship the first beast, whose fatal wound had been healed. And he performed great and miraculous signs, even causing fire to come down from heaven to earth in full view of men. Because of the signs he was given power to do on behalf of the first beast, he deceived the inhabitants of the earth. He ordered them to set up an image in honor of the beast who was wounded by the sword and yet lived. He was given power to give breath to the image of the first beast, so that it could speak and cause all who refused to worship the image to be killed. He also forced everyone, small and great, rich and poor, free and slave, to receive a mark on his right hand or on his forehead, so that no one could buy or sell unless he had the mark, which is the name of the beast or the number of his name.
This calls for wisdom. If anyone has insight, let him calculate the number of the beast, for it is man's number. His number is 666. (Revelation 13:11-18)
As you can see, the solution has a “hook” in it. Here is someone raised from the dead, able to do signs and wonders who first requires worship and allegiance. Then everyone must receive the mark of the beast in order to buy and sell. And at the end of the book (Revelation 19:20) the beast and those who took the mark are thrown into the lake of fire.
So just to quickly recap. America is certainly in a precarious financial position and will eventually be responsible for the collapse of the world economic system. Once the dollar standard ends, the whole system will fall. This is just one piece of the puzzle. Israel and the treaty with the antichrist are another part. But the pieces are coming together and the stakes are eternal. We are not talking about religion here but relationship and you were made to have a relationship with God. We each have a choice to make – to choose the God of this world or to choose God’s way through Jesus Christ. For this to make sense, we need divine revelation and this link will tell you how to get it.