Home » Last Days » Signs of the Times: Our Economy and Financial System – A Time For Caution?

Signs of the Times: Our Economy and Financial System – A Time For Caution?

There are many things going, and all of them at once. There is confusion and contradiction in the world, on a daily basis we are required to sift through the noise and try to make sense of the world around us. And try as we might, we are quite often quite unsuccessful at it. This is a lengthy post covering a lot of ground quickly. I encourage you to do some of your own research on these topics. You may agree or disagree, but I want you to think about and think through these subjects.

Painting the landscape – It doesn’t take an advanced degree to figure out (that is good because I do not have one) we have financial problems as a nation and that these problems are growing, and quite possibly growing at an escalating rate:

  • In the past five years, the national debt has doubled. In the latest budget deal done by Congress, they just did away with the debt ceiling rather than wrestle with the issues of learning to spend less than we raise in tax revenues, I say less because in addition to spending we have to service the debt by paying interest and, may we see the day, actually pay down the debt.
  • As an agent of monetary and fiscal policy, many believe that the Federal Reserve is out of gas, or bullets or whatever else they can think of throwing out at us as economic stimulus. The feeling is that the Fed has artificially suppressed interest rates below a real rate of inflation to stimulate the economy. This allows businesses to report artificially inflated earnings (fueled by lower than realistically set interest rates) to continue the stock market run up. As Fed Fund rates (what banks charge each other to borrow money) are approaching zero and with the US as a sovereign entity is borrowing money at unrealistically low rates from foreign investors, there is little the Fed can now do to offset a shock to the system (like geopolitical turmoil) and there are enough potential shocks that could stall the US economy. Think a mid-East crisis (pick any one of them), the Ukrainian situation, a major terrorist event on US soil.
  • Looking at a charting of the DJIA for the 1928/29 time frame, it looks as some describe “eerily similar” to that of 2013/14, with the possibility if the timing were to continue to track and trend the ’29 history, some massive market correction in the not too distant future; if you hold to charting theory, which not everyone does or at least admit to. But it is occurring during a period with stock indices at all-time highs.
  • Is our big government spending and our risky policy of stimulating the economy with artificially low-interest rates a financial bubble ready to pop?
  • The US central banking authority may no longer be able to take actions to bolster the domestic economy through monetary policy
  • The federal government seems to have thrown in the towel in trying to control a burgeoning national debt, and the towel has been tossed from both sides of the congressional aisle. And remember the debt levels you hear about, in the $17 trillion range, do not include the unfunded liabilities based on current entitlement programs (like Social Security and Medicare) that have some economists thinking the actual obligations may be 5 times that amount. And that is not the high-end of the range
  • The US economy is no longer the dominant global economy, and shows signs of internal stress fractures
  • There is a little mentioned provision in a bill passed in 2010 (H.R. 2847) that takes effect in July of this year. It in effect requires any bank operating in the US to give records access to the US government or get out of the US banking industry. Compliance with the bill could be so costly as to make global banking institutions willing to shed US customers rather than comply. Some banking institutions are already restricting international activity within the US, are they getting ready? Such moves would reduce the influence of the US dollar in international trade (see the discussion on China next for more on this) and put pressure on the US economy. Such moves would make it harder for Americans to invest outside the US. Sounds quite a bit like currency or capital control, making it easier for the government to control wealth within its’ own borders. A government that knows it is broke would likely look to keep its’ citizens money at home while it planned some form of banking system adjustment to reduce debt burden. Think it never happens. Take a look at what happened in Cyprus in early 2013, and paint that on a much larger canvas
  • China appears positioned to make the 21st century a Chinese one – strong gold reserves that are building daily, a possible desire to dump US debt (the only economy in a position to threaten a possible future Chinese economic hegemony), and a possible willingness to go on the gold standard to become preeminent in international trade; which would have devastating effects on the US economy as the US dollar would lose the position of the currency of choice for international trade. A drop in demand for dollars on the international scene would bring inflation, higher interest rates and economic turmoil. But if China went on the gold standard (meaning that there are hard gold reserves backing up the value of the Yuan, the Chinese currency), international trade would seek to be settled with the currency with the most intrinsic value, one that was backed by gold. Meanwhile, China is our largest trading partner and holds a huge amount of US debt. Dumping that debt (China reduced US debt holdings by about $50 billion in December of last year, but still holds around $1 trillion) would also roil the US financial markets as we sought to replace that debt buying capacity to feed the voracious (and growing) national debt. Yet all this is taking place during periods of time where even the Yuan shows huge fluctuations in value (Late February and early March saw the largest sell off of Yuan in history, attributed to either US fiscal policy tinkering, or Chinese purposeful intervention to weed out currency speculators, depending who you read or talk to). Some claim the Chinese economy is just as fragile as ours and will soon be going through its’ own turmoil, as the Chinese deal with their own peculiar blend of economic and environmental issues. It may be possible that all of China’s moves would allow them to weather the coming storm better than the US, but not necessarily dominate the world economy like the US once did. Volatility, rapid and widely swinging volatility, might be the harbinger of major shifts in how this world operates and who runs it (at least until the Lord’s return).

40 year economic cycle – You may have seen some research regarding a forty-year economic cycle, which will culminate in a period of correction (read that: drop in stock prices) in the near future. Without getting into all the technical analysis surrounding this charting theory, let’s just say there are many credible economic analysts and researchers who hold to this view and many feel we are entering a period of correction, possibly a massive correction. We will stay away from explanations of the Kress Cycle or the Elliott Wave Principle (because I do not understand them either) and other technical, socioeconomic or psychological theories. What would drive the economy to move in a regular, systematic pattern that could be traced to a specific period of time? Essentially it comes down to basic human thoughts and actions. A lot of economic activity is driven by what we believe about the present, and how confident we are about the future.

You start with a period of rising optimism in business (and with life in general) which gets coupled with an easing of intervention into doing the business of business, making growth and wealth creation easier. As things become better and more prosperous, thoughts and actions in the next period or phase start to shift away from external factors like business productivity and profitability into a more inward focus on things like personal interests and family matters. Wealth becomes more concentrated, economic outcomes appear more predictable. Such a sense a security leads to a period of more speculative behavior, more risk taking; people begin to question decisions of the past and trends start to take on an aura of the “bubble”, maybe price levels are getting to a point that seem to some as irrational or excessive.

Eventually a period or phase dawns that sees feelings of unrest and skepticism build; the social fabric of the culture begins to show signs of wear and fraying at the edges. The economy enters a more stagnant period while at the same time people are seeking progress towards more equality in resource distribution and sustainability in resource access (or the good life). At some point, a “reset” button is hit, triggering a new period of growth and prosperity. Think of that reset button as a market correction of some sort, the adjusting of prices and defined wealth; think of these 4 basic stages happening over a period of roughly 40 years, possibly each lasting around a decade.

There you have a layman’s definition of a very technical and complex economic model, which is the American economy, functioning under a slightly esoteric theory, the 40 year economic cycle. A lot has been left out or glossed over in this explanation, but you can see the basic point.

If you go back to 1773, to the very dawn of America as a nation, we would appear to be wrapping up the sixth 40 year cycle (in regards to our economy, and even more specifically, gold and silver prices which can be a large driver of the economy), and if the past is an indicator of the present, we are due for the period of correction (the time-frames usually pegged to a 4 year period, this one from 2013-2017); that point of time when the reset button gets pushed. Given nothing is ever as precise in life as in mathematics, the feeling is that correction needs to occur in the time-frame of 2014 to 2016, with many believing earlier in the period rather than later. In fact many speak of something happening in the next few months.

Can we pin it down? No. Is it guaranteed to happen? No. But cycles have repeated in the past, and it is no secret how fragile or economic base has become, how overstressed our financial and monetary system has grown, how much more difficult it is for America to drive or manage change in world events or maintain policy that other nations are willing to follow (or at least are unable to stop us from implementing). Is the past always an indicator of the future? No. But past 40 year cycle correction periods have yielded some interesting times, especially in light if the currency/fiscal policy of this country:

  • 1773-1776 – the Boston Tea Party, a protest against taxation without representation and a period of warfare for political and economic independence
  • 1813-1816 – Much discussion around formation of a national bank within the US, with some market fluctuations around perceived courses of action and political responses to such activity
  • 1853 – US reduced the weight of silver in coins (1857, US banks stopped payment of debts in silver)
  • 1893 – Collapse in the price of silver when the US government stopped price supports
  • 1933 –Citizens no longer allowed to own gold, which was basically a government confiscation and revaluation, a giant tax on gold-holding citizens in the midst of the worst stock market collapse in history. The government took and didn’t give full value back in the exchange
  • 1973-1976 –Skyrocketing oil prices, the birth of the petrodollar (US dollars held offshore in foreign hands), and an international agreement to manage the float of gold prices against the US dollar.

All of these events had implications on US political and economic policies, and huge impacts on its’ citizenry. Looking at 40 year cycles, you can see why some are very nervous about the next few months and years, especially given the state of our economy, the size of our national debt, the limits of what we can even do with fiscal policy (extension/restriction of credit through interests rates and size of available money supply) to drive economic results, the seeming lack of fear others have for the US on the international scene, the concern of China as the next economic superpower and the fact no one knows what they are really doing with gold reserves, their desire for a gold standard currency, or even just how strong their own economy is.

But if you try to connect the dots you will struggle with a lot of moving parts, a lot of conflicting messages, a government that seems more secretive and intrusive than ever and not a whole lot of reliable information. Depending on who you read and who you believe, everything is going to turn out just fine or implode within a very short period of time. A brief summary:

  • A weak US economy, a burgeoning national debt and no political will to correct the situation by reducing spending
  • An obscure provision in H.R. 2847 that would restrict international banking in the US, force global banking to seek international venues and could result in some form of domestic wealth confiscation possibly starting in the second half of 2014
  • A diminished US role in world affairs, or the ability to impose our will or moves in our best interests on other nations
  • The world’s biggest trading partner, China, hoarding gold and making people think a shift to the gold standard is imminent, which would tie nicely into the provisions of H.R. 2847
  • An economic cycle theory that would say a market correction is due within a few years at best

What to do?

  • Stay calm. You are a child of God and He is still the sovereign ruler of creation. He has not given up control to any of us.
  • Be prudent. Avoid large and costly decisions and expenditures that might overtax your own personal finances if we enter periods of adjustment and possibly scarcity impacting prices.
  • Seek counsel. Speak to your financial advisor (especially if that advisor is a Christian who follows Bible Prophecy) and other trusted sources. But remember, it is quite possible that no one but the Lord Himself truly understands and grasps the full extent of what is happening.
  • Invest wisely. Financial assets (the dollar, stocks and bonds) may not hold value if the debt bubble pops, but real estate would probably be a safer (comparatively speaking) bet to make.
  • Prepare realistically. Make sure you are taking steps to be ready for large and possibly catastrophic changes in our economic and politic structures.
  • Stay tuned. Be aware of current events and trends; keep your eyes, ears and minds open.
  • Pray fervently. We should be before the Lord in prayer at all times. And maybe if we were praying diligently during the good times, the bad times that are coming would not be so hard to bear and get through.

And always remember, Jesus is Coming Soon!