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A Crushing Mountain of Debt

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A Crushing Mountain of Debt

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With another Christmas shopping season ended, many people find themselves entering 2007 with the daunting prospect of digging out from under a pile of consumer debt brought on by frenzied buying. Once again, their December binge has turned into a throbbing January hangover!

Earlier in the season, the U.S. National Retail Federation projected that 2006 holiday sales would hit $457.4 billion, or a 5% increase over 2005—much of that paid with high-interest credit cards.

A survey conducted November 9-12 on behalf of the Consumer Federation of America and Credit Union National Association showed that concern about paying off credit card debt caused by holiday spending rose to 33% in 2006, from 25% in 2005. Worries about meeting monthly payments on all kinds of debt were even higher—43%.

With the U.S. population exceeding 300 million, each American citizen’s share of debt is about $28,680. Since September 29, 2006, the national debt has increased roughly $2 billion per day!

F. William Engdahl, an economist and author, sounds an alarm about the shocking levels of American consumer debt and their implications. A surge in consumption has created the illusion of a recovering economy, he notes, but meanwhile a huge debt burden has mounted.

“Since 1997, the total of home mortgage debt for Americans has risen more than 94% to a colossal $7.4 trillion, a debt of some $120,000 for a family of four.” This is growing far faster than personal income per capita, or larger than the Gross Domestic Product (GDP) of most nations! “Bank loans for real estate purchases have risen since 1997 by 200%, to $2.4 trillion.” To put this mind-boggling debt in perspective, $1 trillion equals $1,000 billion, or $1,000,000,000,000!

Mr. Engdahl states, “The aim has been to inflate a housing speculation market in order to keep the economy rolling. The cost has been staggering new debt levels. Because it was created from record low interest rates, when rates again rise, millions of Americans will suddenly find the burden impossible, especially as unemployment rises. When the housing bubble collapses, a new banking crisis is pre-programmed as well.”

“Families are agreeing to longer debt payments for basics like homes or cars. The length of new car loans now averages 60.7 months, the amount of car debt financed increased to $27,920, and the average new home costs $243,000.” For the first time in history, Americans owe more than they take home in after-tax income.

“We’re in hock for a record $2 trillion of consumer debt. That includes bank loans, car financing and credit-card debt. Real estate-related borrowing adds another $7 trillion…Result: unprecedented levels of consumer debt and personal bankruptcies,” Gerald J. Swanson writes in his 2004 book, America the Broke.

While, the United States isn’t the only nation in the West burdened with debt, no other country closely approaches the size of America’s crushing mountain of debt—at the personal, corporate, municipal, state and federal levels. The outstanding public U.S. debt exceeds $9 trillion! The federal budget had a surplus of $128 billion in 2001, but that slid into a deficit of $412 billion in 2004—the largest annual U.S. shortfall ever. Never in history has a nation or empire been so deeply, perilously drowning in red ink.

From Baby Boom to Bust?

Many economists warn that the U.S. is heading for a disastrous financial train wreck, threatening to derail the entire global economy, dragging down other countries with it. Yet America’s leaders continue to stoke the locomotive’s engine so red hot with deficit spending that its rivets are ready to blow apart!

“That the United States of America can literally go broke is no longer a fantasy but a likelihood—unless we stop the train now speeding us to Armageddon,” Mr. Swanson warns. “If we do not get our financial house in order, and soon, I am convinced our great nation will collapse in a very short time under the weight of its financial obligations.”

Participating in a cross country “Fiscal Wake-Up Tour,” U.S. Comptroller David Walker warns, “America is a great country, but we suffer from two serious afflictions: Short-sightedness and self-centeredness. We have a fiscal cancer growing in the body of this nation that has been diagnosed and is not being treated, and if it’s not treated soon, it will have serious consequences for our children and their children.”

Mr. Walker heads the U.S. Government Accountability Office, which audits various federal agencies and programs. He notes that the nation’s estimated liabilities from Social Security and Medicare exploded from $20 trillion in 2000 to $46 trillion in 2005.

“The United States’ fiscal condition is worse than advertised,” he says. “I am desperately trying to get people to understand the significance of this for our country, our children, our grandchildren. How this is resolved could affect not only our economic security, but our national security. We’re heading to a future where we’ll have to double federal taxes or cut federal spending by 50%.”

Mr. Walker notes that the typical American household’s debt burden is nine times its annual income. This includes “estimates of publicly held debt and government-employee pensions of $9.9 billion; future Social Security benefits of $5.7 billion; and future Medicare benefits of nearly $30 billion. The Medicare estimate has tripled in the past five years thanks to rising health care costs and the 2003 creation of the program’s drug benefit” (Rocky Mountain News).

“Washington politicians are mortgaging our economic future and forcing this generation and the next to ultimately pay a painful financial price,” television commentator and former congressman Joe Scarborough writes in Rome Wasn’t Burnt in a Day.

The Concord Coalition, a non-partisan organization founded in 1992, estimates Social Security, Medicare and Medicaid—combined with net interest payments—“will absorb almost three quarters of government revenue by 2016 from 57 percent in 2005…By 2030, those items will require more revenue as a percentage of gross domestic product than the government currently spends on its entire budget” (Bloomberg).

Mr. Walker warns that a demographic tidal wave threatens to swamp U.S. finances. According to USAToday, “The ‘Greatest Generation’ and its baby-boom children have promised themselves benefits unprecedented in size and scope”—yet have contributed little to financing them.

“When the government set 65 as the retirement age in the 1930s, most people didn’t live that long. But life expectancy for women has increased from 66 to 80 since 1940 and for men from 61 to 75. Meanwhile, the birth rate has dropped from 25 births per 1,000 residents in the 1950s to just 15 today. The lower birth rate ultimately means fewer workers paying taxes to finance Social Security and Medicare benefits for the rapidly growing population of people 65 and over” (ibid.).

The intractable U.S. fiscal dilemma is worsened by the approaching retirement of 77 million “baby boomers” born between 1946 and 1964.

“The first baby boomers will become eligible for Social Security in 2008 and for Medicare in 2011, inflating the costs of those already-expensive programs…

“Over the next 25 years, the number of Americans aged 65 and up is expected to nearly double, and the ratio of workers paying into Social Security and Medicare relative to the number of beneficiaries will fall by roughly one-third.

“Medicare…already costs four times as much as it did in 1970, as a percentage of the gross domestic product. It accounts for 13 percent of federal spending.

“Medicaid…will cost 166 percent of its current price by 2030, compared with a growth of only 72 percent in gross domestic product.”

“Boston University economist Lawrence Kotlikoff has found that eliminating those programs’ deficits would require either an immediate doubling of personal and corporate income taxes, a two-thirds cut in Social Security and Medicare benefits, or some combination of the two” (Seattle Post-Intelligencer).

In an October 22nd Philadelphia Inquirer column titled “Drifting to Future Bankruptcy,” Mr. Kotlikoff wrote that U.S. “policies are driving the country to fiscal, financial and economic ruin. The only question is when the crash will occur and which households and businesses will be in the passenger seats.” A plunge in the national savings rate from 12% of personal income in the 1960s to below 2% now reflects typical U.S. fiscal excesses.

“The baby boomers and the Greatest Generation are delivering an economic disaster to their children. We should be ashamed of ourselves.” In a Fortune magazine article, he observes, “The U.S. government is effectively bankrupt.”

The Beleaguered Dollar

Many economists say that failing to solve the nation’s debt problem will only postpone the inevitable. Speaking at a November dinner hosted by the Concord Coalition, former Federal Reserve Chairman Paul Volcker and former Treasury Secretary Robert Rubin warned that the U.S. government’s inability to shrink its huge budget deficit may soon trigger a “dollar crisis” by frightening central banks, hedge funds and others who have been buying Treasury notes.

“It’s incredible people have gone on so long holding dollars. At some point, you will get a situation where people have had enough,” said Mr. Volcker, who predicts the United States faces a 75% chance of a financial crisis in five years.

Mr. Rubin added, “It seems almost inconceivable that this will continue indefinitely.”

He pointed out that the U.S. government is only five years away from “rapid acceleration” of spending on the nation’s entitlement programs as millions of baby boomers start to retire. Therefore, he said, it is urgent that the government address the budget crisis now.

It is becoming increasingly obvious that the government cannot borrow money fast enough to keep up with its exploding expenses! The U.S. relies heavily on foreign investment to finance its spending. Foreign investors own about half of the $4.3 trillion in outstanding Treasuries. If they were to stop buying dollars—or much worse, start selling dollars—the U.S. economy would grind to a halt—if not collapse!

“Once foreign as well as American bondholders get a real whiff of America’s true financial straits, they will dump their bonds,” Mr. Kotlikoff stated. “They will do so with the knowledge that countries that cannot pay their bills end up defaulting on their debt either explicitly or implicitly by printing money.”

“The U.S. currency has fallen in recent years, in part because of concern America will fail to attract enough capital to finance its borrowing. The Federal Reserve’s dollar index has declined 27 percent since December 2001” (Bloomberg).

The dollar started to drop sharply on currency exchange markets at the end of November 2006, hitting a 20-month low in December against the euro, a 14-year low against the British pound sterling and a three-month low against the Japanese yen. The six-day rout that began on Thanksgiving Day knocked 2.7% off the dollar. Between October and December, the dollar fell 4% against both the euro and the yen.

“What we really should focus on is the fact that the Americans were on holiday, and foreigners decided to sell,” said Axel Merk, manager of the Merk Hard Currency Fund. “Given the extent to which we’re dependent on foreigners to prop up the dollar because of our current account deficit, that’s worrisome. A dollar decline is in nobody’s interest, but it’s highly overdue and will happen at some point.”

China’s announcement during the Thanksgiving holiday that its central bank planned to diversify away from the dollar its $1 trillion in foreign exchange holdings triggered the greenback’s selloff at that time. The Financial Times reported on December 10, 2006, that oil producing countries have reduced their exposure to the dollar to the lowest level in two years, shifting oil income into euros, yen and pounds.

Russia and the Organization of Petroleum Exporting Countries (OPEC) cut their dollar holdings from 67% in the first quarter of 2006 to 65% in the second, but increased their holdings of euros from 20% to 22%. Qatar and Iran cut their dollar holdings by $2.4 billion and $4 billion, respectively. “The revelation…confirms market speculation about a move out of dollars and could put new pressure on the ailing U.S. currency” (ibid.).

It has been reported that a visit to China on December 14-15 by the Bush administration’s economic “A-team”—five Cabinet members headed by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke—was designed to coordinate the dollar’s devaluation to be a slow decline rather than a collapse.

John Williams, an econometrician who tracks the broadest measure of U.S. money supply (M3) after the Federal Reserve stopped reporting it in March 2006, told World Net Daily, “You’re dealing with mass psychology here. The central bankers around the world know they are going [to] take a hit on their dollar holdings. None of the central bankers want to start a dollar panic, but none of the central bankers want to be the last out of the dollar, either.”

Mr. Williams said the M3 is growing at a 9.6% rate and trending higher as opposed to an 8% rate earlier in the year. The Federal Reserve, meanwhile, is in a bind. “Raising rates would kill any chance of avoiding a recession, but in terms of the dollar, we can’t raise rates fast enough when the dollar starts to slip quickly,” he said.

Growing expectations that the U.S. economy is slowing enough for the Federal Reserve to lower interest rates helped drive down the dollar’s value. Higher interest rates tend to strengthen a currency by making investments in it more attractive. Conversely, lower rates devalue a currency.

The U.S. factory sector’s unexpected contraction in November for the first time in more than three years raised fears the economy is headed for a sharp slowdown or hard landing. “This is the first time that we are hearing the recessionary bells ring, and the market is not taking this well,” said Kathy Lien, Forex Capital Markets’ chief strategist.

MarketWatch reports, “The U.S. currency has been under fire…on growing worries that the Federal Reserve will lower its interest rates to spur economic growth, while the European Central Bank and the Bank of England will continue to lift rates to curb inflationary pressures.” Some investors now expect the Federal Reserve to begin aggressively cutting interest rates in the first half of 2007.

“The dollar is losing support,’’ says Naomi Fink, BNP Paribas Securities SA’s chief North American currency strategist in New York. She adds that foreign banks may be deciding that the United States is becoming too risky because the U.S. economy does not look as attractive with sluggish growth ahead.

“Germany said that its unemployment rate dropped unexpectedly to 9.6 percent in November as the number of people out of work fell below 4 million for the first time since October 2002—the latest evidence of a gathering recovery.”

“The euro has risen from below the $1.30 mark…amid expectations that the European Central Bank will continue to raise interest rates, while the Federal Reserve holds, or eventually cuts, rates” (Associated Press).

“Combine faltering U.S. growth with a robust European economy, diverging monetary policy outlooks for the two regions, and maybe you have an explanation for the dollar’s precipitous decline,” says Mark Gilbert, a Bloomberg financial analyst.

He added that this is the first time since the euro’s 1999 introduction that borrowing costs in Europe are heading higher while U.S. rates may be poised to decline. The U.S. dollar has declined more than 30% against the euro in the past five years.

If the Federal Reserve were to lower rates, money could exit U.S. bonds in favor of euro-dominated ones with higher yields. “That would push the dollar even lower, perhaps leading to late-’70s style stagflation,” Mr. Birger says. The issue is even more pressing given the fact the U.S. dollar has been falling for more than a year, decimating returns for foreigners who invest in U.S. bonds.

Maclean’s magazine reports the following: “Stephen Roach, chief economist at Morgan Stanley, is an outspoken critic of U.S. fiscal policy and has long warned that America’s increasing reliance on foreign lending puts it at risk of a major economic shock. A sudden drop in the dollar could trigger, among other things, a stock market crash, a plunge in the real estate market, a deep recession, or all of the above. ‘There’s nothing stable about America’s dependence on the kindness of strangers,’ [Mr. Roach] wrote in a report last summer. ‘The funding of America is an accident waiting to happen.’

“At a recent meeting with fund managers in Boston, Roach said he believes there is a 90% chance the country’s rampant borrowing will eventually lead to a disaster for the economy.”

A Monstrous Curse

How has the United States gotten itself into such a mess that threatens the stability of the entire global economy? Basic laws of finance explained in the Holy Bible have been violated by millions of Americans and their political leaders. As a result, the United States is teetering on the brink of absolute economic catastrophe!

King Solomon in his wisdom wrote, “The rich rules over the poor, and the borrower is servant [or slave] to the lender” (Prov. 22:7; NKJV throughout). By borrowing $2 billion a day from foreigners to finance their spending addiction, Americans are finding themselves beholden and virtually enslaved to other nations, reaping a myriad of troubles. The magnitude of U.S. economic woes defies description.

In Deuteronomy 28, Moses told the Israelites that if they diligently obeyed God and carefully observed His commandments they would receive blessings and be established as the leading nation on earth (vs. 1-2).

However, he warned that, if they disobeyed they would heap devastating curses on themselves (vs. 15). The United States now suffers from overwhelming federal budget and trade deficits under which the nation is buckling and wobbling.

America’s incredibly mounting debt has raised anxiety levels of countries throughout the world to the point the superpower has “become troublesome to all the kingdoms of the earth” (Deut. 28:25). Meanwhile, political leaders are at a loss at what to do. “You shall grope at noonday, as a blind man gropes in darkness; you shall not prosper in your ways; you shall be only oppressed and plundered continually, and no one shall save you…and you shall be only oppressed and crushed continually” (vs. 25, 29, 33).

“And you shall become an astonishment [a thing of horror], a proverb, and a byword among all nations where the Lord will drive you…The alien [foreigner] who is among you shall rise higher and higher above you, and you shall come down lower and lower. He shall lend to you, but you shall not lend to him; he shall be the head, and you shall be the tail. Moreover all these curses shall come upon you and pursue and overtake you, until you are destroyed, because you did not obey the voice of the Lord your God, to keep His commandments and statutes which He commanded you” (vs. 37, 43-45).

Yes, by borrowing prodigious sums of money from foreign investors to fuel its economy, the United States is enslaving itself to those lenders. The Bible shows that the U.S. will ultimately go into abject national slavery when all these curses converge to drop even the mightiest nation on earth to its knees.

The United States has been tremendously blessed with wealth and abundance like no other nation in history. Yet Americans spend literally hundreds of billions of dollars each year during the Christmas season, which is steeped in pagan traditions dating back to Baal worship in ancient Babylon. They are spending outrageous sums of money they do not have on merchandise they do not need!

Notice God’s attitude toward this idolatrous, materialistic practice: “For she did not know that I gave her grain, new wine, and oil, and multiplied her silver and gold—which they prepared for Baal…I will also cause all her mirth to cease, her feast days, her New Moons, her Sabbaths—all her appointed feasts…I will punish her for the days of the Baals to which she burned incense. She decked herself with her earrings and jewelry, and went after her lovers. Then she forgot Me,’ says the Lord” (Hos. 2:8, 11, 13).

By contrast, the outlandish sums spent on exchanging Christmas gifts eclipse what is spent on the worship of the true God who has blessed the nation. By failing to apply God’s tithing and other financial laws, the United States and many other nations are bringing profound economic curses upon themselves.

“Will a man rob God? Yet you have robbed Me. But you say, Wherein have we robbed You? In tithes and offerings. You are cursed with a curse: for you have robbed Me, even this whole nation. Bring you all the tithes into the storehouse, that there may be meat in My house, and prove Me now herewith, says the Lord of hosts, if I will not open you the windows of heaven, and pour you out a blessing, that there shall not be room enough to receive it” (Mal. 3:8-10; KJV).

Most people do not like to be told that their nation is steaming toward disaster like the majestic Titanic, or that cracks are forming in its economy that could burst suddenly like an earthen dam collapsing, unleashing a torrent of destructive water. They prefer to remain blissfully ignorant and oblivious to the danger.

“Now go, write it before them on a tablet, and note it on a scroll, that it may be for time to come, forever and ever: that this is a rebellious people, lying children, children who will not hear the law of the Lord; who say to the seers, ‘Do not see,’ and to the prophets, ‘Do not prophesy to us right things; speak to us smooth things, prophesy deceits’” (Isa. 30:8-10).

“Therefore this iniquity [lawlessness] shall be to you like a breach ready to fall, a bulge in a high wall, whose breaking comes suddenly, in an instant” (vs. 13).

Like a modern Paul Revere who warned fledgling American colonies of an impending British invasion, Peter G. Peterson—co-founder of the Concord Coalition, a prominent investment banker, former U.S. Commerce secretary and prolific author—warns of an impending economic calamity coming on the United States if drastic measures aren’t taken.

In his latest book, Running on Empty: How the Democratic and Republican Parties Are Bankrupting Our Future and What Americans Can Do About It, Mr. Peterson writes, “Buried deep in the financial pages, telltale signs are appearing that suggest America may well be headed for a financial meltdown.”

The Bible reveals that the 10th and final resurrection of the Roman Empire will suddenly emerge upon the world stage as a powerful economic, military, political and religious force of overwhelming might. Tremendous prosperity will result under this future global economic system.

Could a collapse of the U.S. economy plunge the entire world into another Great Depression, leaving a tremendous void that will be filled by this rising European superpower?

Ultimately, all of man’s governments will be suddenly destroyed—crushed and shattered at the spectacular Return of Jesus Christ! Beyond today’s bad news will be a wonderful world tomorrow where God’s financial laws will be enforced. Universal prosperity will abound. Debts will be forgiven. Happiness will prevail. That will occur when Christ establishes the kingdom of God on earth. That day is soon to come!

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