The Crash of 2008 ( Part One)

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The Crash of 2008 (Part One)

We are in the mist of an almost unprecedented financial crash. Though others have preceded it throughout history (including the Tulip Bubble in Holland, the 19^th – century Panics in America, and the Great Depression), this one seems about to dwarf all others. The enormous amounts of money involved, the global scope of the crisis, and the numbers of people and companies already affected, or likely to be so, surpass anything we have seen before.

In this article and one to follow, I propose to look briefly at the causes and possible consequences of this disaster, and then to suggest some ways to cope with the troubles that are beginning to befall us.

Causes

Any event as vast as this one must have multiple, and complex, causes. Not being an expert, I can only list a few of the more obvious ones:

- Greed, arrogance, and fraud in the business, and especially, banking sector.

The collapse of Enron some years ago alerted us to the widespread use of dishonest accounting procedures in many of America’s greatest corporations. Now we are finding out just how endemic this corruption has been. Balance sheets have been rendered meaningless by inflated numbers and “notional values” that hide massive exposure to unbacked obligations. Not only so, but CEOs and CFOs have led their firms into crooked policies of various sorts, including drawing upon pension funds to finance operations.

Meanwhile, financial whiz kids have developed investment “instruments” that resemble a Ponzi scheme or a casino more than a rational strategy to steward other people’s money and make a decent profit for oneself. Greed and pride have created the derivatives monster that threatens to devour us.

On the train a couple of weeks ago, I sat next to a lady whose son-in-law works for a hedge firm. This young man describes his colleagues in the field as “incredibly arrogant.” The son of another friend of mine has a boss who made one billion dollars last year; his own income exceeds a million dollars.

According to some analysts, there is evidence that the precious metals markets are manipulated, with the full knowledge of those who are supposed to prevent such abuses. Only time will tell if that charge is true.

- Government intervention in markets

Beginning with the Clinton administration, the U.S. Government put enormous pressure upon banks to extend loans to people with poor credit, thus sowing the seeds of the devastating melt-down in sub-prime mortgages. The semi-governmental behemoths, Freddie Mac and Fannie Mae, were given advantages that effectively skewed the housing market and contributed greatly to the current crisis, with the encouragement of the government. (We shall not discuss what appear to have been criminal acts by the executives of these highly-regulated companies.)

The Federal Reserve Bank, nominally independent of the U.S. Government but in fact a close partner with the Treasury (as recent events have shown), allowed first the dot.com and then the housing bubbles to expand by creating easy credit and huge increases in the money supply.

In the past year, the Fed and now the Treasury, abetted by Congress, have alternately bailed out failing enterprises and allowed others to collapse, creating uncertainty among investors and great doubts as to the fairness and competence of those making decisions. The 700-billion dollar rescue plan, which the markets declared virtually dead-on-arrival, will haunt us for years to come by multiplying both government debt and intervention into the private sector. More of the same comes from Washington with each successive lurch towards virtual integration of the state and the private sector.

- Corporate and private debt

One common theme runs throughout almost every news analysis of the crisis: Debt. Companies and households cannot pay their debts.

Most people may not know that such reliance upon borrowing is relatively recent in American history, only beginning in the first decades of the 20^th century. People used to save and then use cash; now they spend and rely on credit. We are thus all caught in the web of debt.

“The borrower is the lender’s slave,” says the Bible – a sober fact of which we are now becoming painfully aware.

- Covetousness

Much of this comes from our self-indulgence and covetousness. We are not content with what we have, and put our future in hock to purchase present pleasure.

Consequences

- Economic collapse, accompanied by massive unemployment, seems unavoidable.

- Millions have lost their savings for the future; retirement has become a forgotten dream.

- Government intervention and control have drastically altered the nature of our political and economic system. A Republican President signed the rescue plan, despite his avowed free-market convictions. Actually, he had earlier significantly raised the government’s profile by the prescription-supplement to Medicare, along with the No Child Left Behind legislation for education, not to mention the Patriot Act. The Federal government now has full legal powers to act in peacetime (war not having been formally declared) that exceed even those used by Lincoln, Wilson, and Franklin Roosevelt.

Both presidential candidates have enunciated policies that will increase government participation – and control – in the economy. One of them has proposed measures that many economists believe will kill hopes for recovery and lead to a great reduction in almost everyone’s living standard. His anti-capitalist rhetoric at times has resembled that of the ruler of Venezuela.

Therefore, regardless of which man wins the presidency, we can expect more government intervention in the nation’s economy. Ironically, at a time when nominally “Communist” China has done its best to promote a free market economy, and has thereby lifted hundreds of millions of people out of poverty in just a few short decades, the United States appears to be going the way of proven failure.

One consequence of America’s financial fall has been a rapid loss of worldwide influence. The U.S. military has begun to find expensive weapons programs hard to fund, and will soon be hard pressed to pay its troops. The U.S. dollar may lose its position as the world’s reserve currency. U.S. hegemony is a thing of the past. Humiliation is upon us, big time.

Cure

There is no cure. At least, not for the next five, ten, or twenty years. We are in this for the long haul. The Wall Street Journal opined recently that we are in a secular bear market that could last as long as 14 years.

If you have any money left, I recommend that you follow the advice of Martin Weiss in the Safe Money Report (I have no connections with Weiss, but have found him and his team very accurate over the past decade.).

In the next part of this article, I shall offer suggestions on how to cope with this crisis, and how we may enjoy inner peace in the midst of the storm.

The End of the American Empire

The End of the American Empire

For once I agree with the president of Iran, whose name I still can’t pronounce correctly.

At the United Nations General Assembly yesterday, he declared that America’s “empire” was “near the end of its road.” He cited the difficulties of American involvement in Iraq and Afghanistan, but there are other reasons for our country’s imminent demise as the “world’s only superpower.”

Aside from the growing number of unfriendly governments around us (Venezuela, Cuba, and Bolivia; Russia; Iran; North Korea, to name only a few; China could be added to the list without too much provocation), we face an internal financial calamity of catastrophic proportions.

No matter what the currently-proposed bailout turns out to be, or how happily Wall Street will greet its announcement, it will fail in its purpose. Nothing can stave off the collapse of the huge derivatives market, not to mention the “lesser” crises which have prompted drastic government action.

For more on this, see the blog I posted earlier (http://wrightdoyle.wordpress.com/category/money/) and the long essay, “Tsunami Coming?” I wrote in February, 2007 (http://www.chinainst.org/en/articles/personal-reflections/tsunami-coming.php).

What to do?

There is still time to take some moves to protect your assets. For advice which has been very sound so far, go to the Weiss Safe Money Report. (I have no financial connection to Weiss’s organization; I have only used their recommendations to manage my sister’s funds.)

For deeper peace, turn to the Lord, who alone gave calm our hearts and supply our every need (Psalm 23; Matthew 6:33; Philippians 4:6-7).

EXPELLED: Evolutionary Ignorance

EXPELLED: Evolutionary Ignorance

The other night I saw “EXPELLED,” a documentary by Ben Stein that exposes a serious crisis in American society: The denial of freedom of speech to those who question evolutionism.

“EXPELLED” features interviews with university professors and others who have lost their jobs because they dared to suggest that perhaps Darwinian evolutionary theory does not adequately explain the origin and complexities of life on this planet. Even worse, some of them mentioned the forbidden term “intelligent design” in articles or lectures, thus signing their own career death warrant.

Not one of these people espoused creationism; none of them even suggested that evolutionary theory not be taught in public schools. They only wanted freedom to discuss different points of view.

That, they discovered, will not be allowed by Big Science.

Himself a Jew, Stein was led to consider some curious and rather scary links between belief in Darwinism and the eugenics movement, which led directly to the Holocaust. Though he makes it very clear that holding to Darwinian evolutionism does not automatically lead to killing off undesirables, Stein’s interviews demonstrated the well-known fact that Hitler was a fanatical follower of Darwin, and used Darwinian theory to justify eliminating the insane, deformed, and otherwise “unworthy” people from society. The same was true of Lenin, Stalin, and Mao Zedong, by the way.

Stein also interviewed eminent Darwinists at length. Allowing them to speak for themselves in answer to his questions, he let them show how irrational is their resistance to dialogue and how inaccurate are their characterizations of those who believe in intelligent design.

One common statement is that no reputable scientist could ever question the “fact” of evolution of all life from the simple to complex by random, impersonal processes.

But Stein found a number of people with one or more doctorates in science and/or mathematics who had serious doubts about the scientific basis for evolutionary theory. It seems that real evidence is lacking for the belief (and it is a belief) that all life comes from some original “simple” cell that somehow mutated into the plants and animals populating the globe today.

When pressed really hard, one evolutionist posited the possibility (he had no proof) that it all started with something piggy-backing on crystals. Richard Dawkins, author of The God Delusion, said – sit down and try to be calm –that perhaps life on earth came from a superior race on another planet who had evolved to a higher intelligence and then had “seeded” the Earth with the original life forms. This is science?

As it happens, I ran into the problems with evolutionism a long time ago, so I asked a friend who worked at the prestigious Cold Spring Harbor laboratory. “Of course,” he replied, “all serious scientists know that evolutionary theory lacks sufficient evidence.”

“So,” I queried, “why don’t they tell us the truth?”

“Because the only alternative is creation, and we can’t believe that!”

My curiosity piqued by his admission of the lack of proof for macro-evolution, I have read a number of books and articles over the years. Thus, I was not surprised when I recognized a couple of the people whom Stein interviewed, including William Dembski, who has been called “the Isaac Newton of information science,” and who holds two doctoral degrees, and the eminent German-born Jewish mathematician, David Berlinski.

If you want to follow this up, I recommend the following volumes, written for non-scientists like myself:

Evolution: A Theory in Crisis, by Michael Denton, an evolutionist who is alarmed by recent findings that undercut evolutionary theory.

Darwin’s Black Box, by Michael Behe, who maintains that Darwin simply could not know how “irreducibly complex” even the simplest cell is, making natural selection over long periods of time virtually impossible.

Darwin on Trial, by Phillip Johnson, a professor of law at Berkeley, who used the normal rules of evidence to evaluate the claims of evolutionary theory and found them almost without basis.

Icons of Evolution: Science or Myth? by Jonathan Wells (who also has two doctoral degrees), which examines the most commonly cited instances of development from one species to another and shows that they are all either fraudulent or lacking any foundation in fact.

I haven’t finished William Dembski’s Intelligent Design yet, but it looks pretty good.

Note: Not one of these people argues for young earth creationism.

But you might want to look at Faith, Form, and Time, by Harvard Ph.D. Kurt Patrick Wise. A student of one of the most eminent Darwinists of the 20^th century, Stephen Gould, Wise actually thinks that the Genesis account of a six-day creation makes better sense scientifically than does the evolutionary model.

One caveat about “EXPELLED”: Stein is pretty angry about the suppression of evidence and the silencing of people who dare to challenge the status quo, so this documentary, though very well done, comes across as pretty stark and black and white. But then that’s how the dogmatic evolutionists portray the conflict between evolutionism and intelligent design, so maybe Stein is simply telling it as it is.

Just How Bad Is It?

The young woman who asked that question over supper the other night wants to know whether to quit her job and travel the world. But her friends are telling her that we are in a recession, and some are even saying it’s going to be worse than the Great Depression of the 1930s.

Sadly, I had to reply, “It’s going to be really bad, and – yes – possibly worse than the Depression.” Asked why I was so pessimistic, I went on:

“My brother and I manage our sister’s part of the estate (mine having gone into our mortgage, a used “new” car, our daughter’s college education, and then her wedding). To be responsible, we have had to scour the literature for investments that are relatively safe. That has led us to several newsletters that, over the past decade, have proven to be remarkably accurate. So, while others have lost huge amounts of money, her portfolio has gone from $60,000 to $104,000 in the past few years.

“The newsletters we follow all predicted the sub-prime mortgage meltdown, the credit crunch, the looming bankruptcy of bond insurers, surge in the prices of oil and gold, rising inflation, and much more. They say that the worst is not over, and that we could be facing a collapse of the financial system or, at the very least, “stagflation” – the toxic mix of slow (or no) economic growth and rampant inflation. They believe that the truly mammoth pyramid of derivatives will collapse, and the entire financial bubble created by easy credit under Greenspan and now Bernanke will pop, with disastrous results.”

This did not comfort my friend, who asked, “So what should we do with our money?”

“They recommend various strategies, including (1) get out of the U.S. stock market; (2) invest in some socks based in other countries with better prospects for long-term growth; (3) put money into cash (such as short-term Treasuries); (4) get out of the U.S. dollar and into other currencies (such as the Swiss franc); (5) buy gold and silver – either the physical metals or safe substitutes, like an ETF or certificates that have your name and a serial number, stored in a really safe place; (6) buy stocks in commodities, such as oil, wheat, precious metals. They also have other suggestions, depending on their point of view.”

I promised to send her information via this blog, so here I am, passing on to you what my brother and I have found useful for our sister. I recommend that you look first at the Safe Money Report of Martin Weiss(www.martinweiss.com). Supplement that with the newsletter on currencies from Everbank (www.everbank.com); and fill it out with the newsletter on silver from Jim Cook of Investment Rarities International (Call 1-800-328-1860 and ask for Greg Westgaard; tell him I sent you. He knows me as “George” [my first name, which I use for business]). Ignore the hype in Weiss’ publications. He’s been right on, despite all the exclamation marks.

McAlvany’s Intelligence Advisor (www.mcalvany.com) is not for the faint-hearted, but it’s interesting to know that he was against the invasion of Iraq from the beginning, seeing it as a costly no-win boondoggle. He’s quite critical of the government (as are some of the others I’ve mentioned) and very pessimistic, which turns a lot of people off. But he does give news and analysis on the current economic and geo-political situation, with worst-case-scenarios worthy of the best “doom-and-gloom” prognosticators, except that he always ends with a strong affirmation of Christian faith and a reminder that we have no security in this world apart from God’s promise to take care of his people.

The March 16 New York Times carried two articles of interest: On the front page, a story on how Fed chief Bernanke has apparently thrown the “rule” books out the window in a frantic attempt to prevent a total financial collapse – which should tell us something about the seriousness of the situation -and, on the front page of the business section, a scathing criticism of the Fed’s bailout of Bear Sterns this weekend. Apparently, the writer thinks this sends the wrong message to irresponsible risk-takers, and presages the further decline of the dollar, inflation, and a loss of trust in the U.S. government and the U.S. market.

March 18’s Wall Street Journal used terms like worsening chaos, panic, collapse, etc.

Friends, this is the big one people have been warning us about for years now, made incredibly huge by the explosion of derivatives investments whose “value” now exceeds that of the U.S. economy.

Maybe during these coming months we shall have to re-think our priorities in life, tighten our belts a bit, and renew our commitment to seeking God’s kingdom first.

One thing we know: Psalm 23 has not been taken out of the Bible, and Matthew 6:33 is still true. We don’t have to worry. We just have to trust God and do what seems best for his glory and the good of our neighbors.

Three conversations

I took the train today to New Haven, changing at New York’s Penn Station. Getting off the train, I saw a young man with a cylinder slung across his back and asked what was in it.

“A poster,” he replied.

“Are you going to a scientific conference?”

“Yes, in Cold Spring Harbor,” he answered in a think European accent.

“Where are you from?”

“Poland”

“Oh, I greatly admire the Poles.”

“Why?”

“They have a noble history.”

“What was noble about it?”

“The Polish cavalry rode out bravely to meet the German tanks at the start of World War II.”

“How do you know that?”

“I read a bit here and there in history.”

“What do you do?”

“I lead a small think tank in Charlottesville.”

“What do you ‘think’ about?”

“China.”

“What about China?”

“Religion in China, and especially Christianity.”

“Oh? Is there any Christianity in China? I thought it was all wiped out.”

“Well, they tried, but now the Chinese church is growing fast, especially among intellectuals.”

He stopped in his tracks and fixed me with an incredulous stare.

“I don’t understand how this could be.”

Well, of course I was more than happy to tell him why many educated Chinese are becoming Christians in droves. That just mixed up the pieces of his little mental puzzle, as I described how really bright Chinese were not only looking for answers to questions of meaning, purpose, and social ethics, but also their own private dilemmas and conflicts, and how some of them are open to sharing their mental journey with us, and even seeking our advice sometimes.

“They must pay you really big bucks for that kind of advice,” he said, sincerely.

“Well, no. But they give us their friendship, which is worth more.”

He smiled appreciatively and we parted.

Briefly, the next conversation was on the next train with a young black student at Fordham University, whom I asked about what her classmates were thinking about life these days, and whether they were optimistic about their futures. In the course of our discussion, I asked what religion(s) her friends were favoring, and she said they were mostly atheists.

“How interesting!” I replied. “In China, among students, it’s just the opposite,”  and went on to explain. She was quite surprised, but didn’t pursue the matter. Too many text messages were coming in, I suppose.

The final conversation was with the Hertz d river who picked me up. He told of how his teenage daughter had reported on him for giving her his frank opinion on some matter of contention, and how the police had called him in the next day for “child abuse.” He is distraught by his inability to discipline his two daughters, even verbally. I sympathized with the  difficulties of rearing children these days, inwardly thanking God for my own mostly respectful daughter, but thought I had an opportunity to put in a word for faith.

“Have you thought of taking them to church?” I queried.

“I take them to church every Sunday but it doesn’t seem to do any good.”

Is there a connection between these conversations? I think so. The decreasing decadence of the West, and the turning of Chinese to  Christianity, having “been there and done that.”