I read an interesting book recently: The New Depression: the Breakdown of the Paper Money Economy by
Richard Duncan. To vastly simplify Richard’s argument, it is the supply of
credit more than the supply of money that influences our economy now. Or in laymen
terms: the influence of a physical press printing greenbacks influences our
economy orders of magnitude less than the creation of credit. In 1945 the Total
Credit Market Debt held by creditors was $355 Billion. As of second quarter
2013 it is $57.562 Trillion. (http://www.federalreserve.gov/releases/z1/current/accessible/l1.htm)
A 40 year credit boom has turbo-boosted our economy since the 1980’s. But at
what cost? Our debt (government, business & household) now stands at 4X our
GDP.
There seems
to be consensus that we are on an unsustainable path. Unfortunately that seems
to be where the consensus ends. Some argue for austerity - massive cuts in
spending to reduce the deficit. The difficulty with the austerity solution is
that our government spends 1/3 of every dollar spent. So any significant cut in
federal spending will have a negative impact on the economy. Thus many support
the status quo: keep turbo-charging our economy by creating credit. This is
essentially Richard’s argument. He does not deny the presence of serious
warning signs, but he says we can avoid another Great Depression if we act now.
What should we do? Richard contends
that we should continue turbo-charging our economy by creating credit but
instead of using that credit to fuel short-term consumption we should invest in
long-term profit-making ventures like solar energy. Richard concludes, “What a
tragic mistake it would be to impose austerity and see our world implode, when
so much credit is available at ultra-low costs. All that is required is for us,
as a society, to invest that credit imaginatively. If we do, we can achieve
global economic prosperity beyond the dreams of all earlier generations.”
I’m not an
economist but this conclusion seems to me to be a pipe dream. If I was
struggling to pay my current mortgage, what sense does it make to buy a second
house with an even larger mortgage – simply because the interest rate is ultra-low?
You may hope to turn a profit on the second mortgage and thus be able to pay
off the first mortgage more quickly. But then again you may not. It is all a
very big gamble!
What should
our response as Christians be to the financial mess our country finds itself in?
I think we must begin by practicing good stewardship at home with our own
personal finances (1 Corinthians 4:2, Matthew 25:14-30). America’s over-indebtedness
is not just a federal government problem, over-indebtedness is also a household
problem and a corporation problem.
The second thing Christians should
do is believe in absolute truth and ground that belief in Scripture and history.
Many will say, “We live in a different world now. The economic process is no
longer driven by saving and investment. Today it is driven by borrowing and consumption.
Yes, total credit expanded 50 times in less than 50 years to keep the American
dream alive and to create wealth but credit can continue to push our economy
forward if we don’t stop creating it.” Richard argues along these lines. “The
U.S. government can now borrow money for 10 years at a cost of 2% interest a
year. If it borrows at that rate and invests in projects that yield even 3%, ‘Creditopia’
will survive. If it borrows at that rate and invests on a grand scale in grand
projects, precarious Creditopia could be transformed into a sustainable Utopia
in which the cost of energy falls 90% and life expectancy doubles.”
The trouble with such logic is that
it flies in the face of history and embraces the mirage that you can have your
cake and eat it too. The truth is there “ain’t no such thing as a free lunch.” Personally,
I think interrupting the normal boom and bust cycle of economies by turbo-charging
them with credit over the last 40 years is simply postponing and probably
amplifying the bust. Newton’s third law comes to mind: “for every action there
is an equal and opposite reaction.”
Talk of a “utopia” sounds eerily
similar to what Hitler promised Germany during its tumultuous economic times.
As Christians we must be salt and light, anchoring our culture to the truth. Our
actions have consequences. As anyone who has had a hangnail or a tooth ache knows,
postponing prudent action to avoid pain now will only increase the pain later.
Dear Christian, read the history of the Kingdom of Israel as recorded in the
Bible (1 Samuel – 2 Kings). Notice the action – reaction/consequences
connection throughout those centuries. Galatians 6:7 “Do not be deceived: God cannot be mocked. A man reaps what he sows.” At the
height of an economic boom Solomon made gold shields (1 Kings 10:16-17). But
the boom was built in large part on the “credit” of forced labor. This boom
lasted 40 years (not unlike our current credit boom?) but collapsed when
Solomon’s son refused to recognize the need to pull back the throttle and stop
turbo-charging the economy. The forced laborers revolted, the kingdom was split
in two and 5 years later the very gold shields that Solomon made during times
of excess were taken (1 Kings 14:25ff).
Though most of the signs point to difficult times in our future, we are
Christians and our hope is in Christ and as such our future is radiant and
secure! For the Lord is a Redeemer and His eyes are on His people. At one point
in Israel’s history He even rescued them from hyper-inflation that was so bad
that a donkey’s head was going for $700 in the marketplace (2 Kings 6:24-7:20).
Therefore let us not despair, though the earth give way or we be crushed by
deflation or inflation for the city of God shall not be moved because God is in
her midst! (Psalm 46)
