Economic
and Political Crisis
Perilous
Times, A New President, and False Hope
By Dr. Larry Bates
In the recent U.S. Presidential
election, exit polls showed that most people voted for Barack Obama because
of the downturn in 
the
economy and hopes that he will turn things around.
One television news report showed a young woman expressing her support
for Obama and saying “When he is elected, I won’t have to worry about putting
gas in my car or paying my mortgage… I will help him and he (Obama) will help
me.”
Due to the economic
crisis, there has emerged an expectation that government should provide a
bailout for everyone who has a need.
There is a general lack of understanding that ‘government has no money
that it first didn’t take from someone else.’
In fact, it was a British professor, Alfred Fraser Tyler, who stated
over 200 years ago, “a democracy can last as long and until a majority of its
citizens discover they can vote themselves largess (large gifts) from the
public treasury and then they will continue to elect the politician promising
the most, and the end result is a fall of that democracy due to economic ruin
and chaos.” Apparently what we learn
from history is–we don’t learn from history.
When government spends
money, whether for economic bailouts, or stimulus programs or, for social
programs, it can only get the money from three sources: 1.) taxes, 2.) borrowing
money from a lender, or 3.) have the Federal Reserve create or print more of it.
That brings us to our
current predicament. If you raise taxes
during a recession on any class of taxpayers, rich or poor, you run the risk of
exacerbating and prolonging the economic downturn. If you borrow the funds, you are competing
against private individuals and businesses for available capital and you will
again exacerbate or prolong the economic downturn. The only option remaining is for the Federal
Reserve, a private bank (not federal and with doubtful reserves) to create or
print the money. It is a widely known
fact that bad policies produce bad outcomes.
One might add that bad decisions produce bad results. Malinvestments always have to be liquidated,
and malinvestments are liquidated either in the bankruptcy courts or through
massive inflating of the currency. This act of massive money creation always
destroys the purchasing power of the currency, and hits hardest those who are
retired and others on fixed incomes.
Inflation of the currency produces higher prices all across the board.
What Will Happen?
It is almost a foregone
conclusion that the new President and the Democrat controlled Congress will
propose another two to three bailout or stimulus programs. Many of these proposals will resemble those
of former Presidents, Herbert Hoover, a Republican, and Franklin D. Roosevelt,
a Democrat.
Following the stock
market crash of 1929, the Hoover administration tried to spend their way out of
the Great Depression whereby they increased spending by 47 percent between 1929
and 1932. It didn’t work and Hoover was
defeated by FDR in 1932.
Roosevelt continued the
massive federal spending and expansion of the government bureaucracy. Despite all the massive spending for new
programs, fewer Americans had jobs in 1940 than in 1929, and the home ownership
rate recorded by the U.S. Census was only 43.6 percent, the lowest ever
recorded. After the stock market crash
of 1929, it took 25 years for holders of most shares to just break even to
their pre-crash values. Recent history
shows us that Japan has lowered its interest rates to 0 percent and has increased
its money supply 30 percent a year for 12 years without reviving their economy.
What Could Have Been
The Treasury Secretary under President
Herbert Hoover, Andrew Mellon, came into office in 1921 with the goal of reducing
the federal debt from WWI. To do this,
Mellon needed to increase revenue and cut spending. Mellon understood the history of taxation: where
excessively high tax rates exist, the taxpayer would withdraw his capital
from productive business. Mellon argued
that when taxes are reduced, capital will flow into the economy and it will
flourish. In fact, Mellon knew that
by lowering tax rates across the board, he could increase the overall tax
revenue. Mellon’s plan had four main
points: 1.) Cut the top income tax rate from 77 to 25 percent, 2.) Cut taxes
on low incomes, 3.) Reduce or eliminate the Federal Estate Tax, and 4.) Promote
efficiency in 
government.
By 1926, 65 percent of
the income tax revenue came from incomes $300,000 and above when just five
years earlier, less than 20 percent came from incomes above $300,000 even
though their incomes were taxed at 77 percent.
During this same period under Mellon’s plan, the overall tax burden on
those that earned less than $10,000 dropped from $155 million to $32.5 million. Mellon’s plan was working.
The Federal Reserve, in
the 16 months prior to the crash of 1929, increased the money supply by 62
percent and then at the time of the crash, drained the money supply and thus
caused the collapse of the stock market.
This was an early sign that the Federal Reserve was using their control
of the money supply to rob the American middle class of their hard earned
money. Those who had pledged their
farms, homes, cars or businesses to the banks lost it all. There was not enough money in circulation to
pay their debts and many of these assets were bought by the economic elite for
pennies on the dollar.
Assessing Current Conditions
The labor department
reported in November 2008 that the U.S. jobless benefit rate was the highest
since 1983 when the nation was struggling to recover from a long and painful
recession. The two days following the
election of Barack Obama, the stock market dropped almost 1,000 points. General Motors and Ford Motor Company
reported huge losses in the third quarter and further reported that due to
burning through all their cash, the traditional American auto industry, with
sales down 32 percent from a year ago, is very close to collapse. Major retailers reported the steepest declines
in fall sales in over 40 years. JC
Penney, The Gap, and others reported drops in sales of over 10 percent.
As of November, The
National Bureau of Economic Research had not officially declared the U.S.
economy to be in recession. However,
many economic writers and analysts were saying all statistical indicators
signal a recession due to widespread weakness with no signs of recovery. Then, two weeks later the same organization
proclaimed the recession actually started at the end of 2007. Job losses are mounting and spreading across
industries. The 75-year-old American
Institute for Economic Research’s report of November 3, 2008, says of the
expected Democrat bailout plans: “Aside from being motivated by politics as
opposed to economics, the main problem is that it cannot be easily timed or
used with any degree of precision. There
is no convincing evidence the officials will be able to reliably ‘jumpstart’
the economy. What is clear, however, is
that these actions will dramatically increase the budget deficit and are likely
to cause substantial inflation, further eroding the purchasing power of the
dollar.”
The problem is so large
that even the policymakers have yet to grasp the magnitude of the debacle we
face. Home values are still plunging
across the nation, having declined on average by more than 15 percent from
their March 2007 levels. Banks and
brokerage houses have collectively lost hundreds of billions of dollars in the
ongoing hedge fund and derivatives meltdown.
Weary investors were shocked to see that the investment banking units of
most Wall Street firms couldn’t even manage their own assets, let alone those
of their clients. The outmoded
investment models had no understanding of the structural nature of our
debt-based economy and debt-based monetary system and thus were doomed to
failure. We have seen over $8 trillion
of wealth transferred in the last three months of 2008. This is modern day ‘Robin Hood’ economics
that takes wealth from the ignorant and uninformed and transfers wealth to
those who understand the system.
The Game is Rigged
Most politicians, bankers
and Wall Street operatives are promoting a typical Keynesian approach to try
and solve our economic debacle. You see,
John Maynard Keynes, a British economist, is the architect of our current
economic model in the U.S. and around the world. Keynes wrote a book in 1920 entitled The
Economic Consequences of the Peace.
In the book Keynes states, “by a continuing process of inflation,
governments can confiscate, secretly and unobserved, an important part of the wealth
of its citizens. There is no more sure
nor more subtle way to overturn the existing basis of society than to debauch
or destroy the currency. It engages all
the processes of economic law that come down on the side of destruction and
does it in a manner that not one person in a million can diagnose.” ‘One person in a million?’ That’s proof that the game is rigged!
You Don’t Have to Be a Victim
In periods of economic downturn,
economic crisis, or outright economic collapse, wealth is not destroyed; it
is merely 
transferred.
Money is the transfer agent. The
one thing that will determine whether you will be a winner or a loser in the
economic scheme of things is your knowledge about how the monetary system
works. We are admonished in the Scriptures
to get “wisdom and understanding.” John
8:32 tells us, “And ye shall know the truth and the truth
shall make you free.” It’s not
the truth that sets us free; it is our knowledge of the truth. The major truth to understand in the current
economic debacle is that one of two things will happen: 1.) Default and outright
collapse of the U.S. and world economics, or 2.) massive creation of new money
supply and new bank credit. The policymakers’
stance is heavily weighted toward massive inflation of the currency.
Where Do I Put My Money?
The chart below lists
assets in two major categories. I have
listed them in both the Ownership and the Loanership columns in order of
declining liquidity. It is important for
us to understand the need for liquidity, because during times of economic
turmoil, there is always a flight to cash.
That’s cash in your CD’s and Money Market funds and cash in the form of
precious metals.
|
Ownership
|
Loanership
|
|
Gold
|
Federal Reserve
Notes (Cash)
|
|
Silver
|
Money Market
Funds
|
|
Platinum
|
CD’s
|
|
Coins
|
Treasury
Bills |
|
Stocks
|
Annuities
|
|
Real Estate
|
Bonds
|
|
Collectibles
|
Notes
|
The only real estate
purchase that makes sense in this climate is agricultural real estate. Delay purchasing residential real estate as
there will be a further decline in housing prices. In the area of stocks and stock mutual funds
(stock soup), the economic downturn will hurt earnings across the board, and
without earnings, stocks will continue in the doldrums and also trend
downward. Remember, this economic crisis
will be deep and will be prolonged. Move
quickly to avoid economic and political risk.
In A Nutshell
The masses will cry for
economic relief from the government.
Politicians will frantically try and stimulate the economy by throwing
money at the problem—money they don’t have and money that will have to be
printed. The solution or remedy for the
economic woes is the same thing that caused the problem to begin with. The proposed stimulus measures are the
economic equivalent of crack cocaine.
The economy again will get ‘hooked’ on the stimulus and the demands for
even greater stimulus will mushroom.
I believe we have a
minimum of two years and a maximum of five years to get our financial house in
order so we can weather the financial storms and what might be a financial
tsunami.
Learn quickly how the system
works and put your understanding into action. You see, none of what is happening now or will
happen catches God by surprise. He’s
not having an anxiety attack over our current debacle. Press into His wisdom with that intimate relationship
with Yeshua, and in the midst of it all remember that God’s economy is tithes,
alms and offerings. Never lose sight
of God’s economy, even in tough times.
Dr.
Bates is also the author of the book, The New Economic Disorder, which was recently updated. To obtain the
updated version of the book or order their recently released 3-hour DVD briefing entitled Economic and Political Crisis call 1-800-336-7000. For more information visit
www.economictruth.tv.
