A Good Crisis Wasted
The spring robins are out and warbling. Around the world, policymakers and
politicians are congratulating themselves on a crisis well averted.
Last month, US Treasury Secretary Timothy Geithner was already prattling: “[…]
major policy intervention (including Emergency Economy Stabilization Act — EESA)
was, in the end, successful in achieving the vital but narrow objective of
preventing a systemic financial meltdown.”1
“We continue to expect economic activity to bottom out, then to turn up later
this year;” opined Ben Bernanke of the Federal Reserve.2
He is also forecasting that the worst is behind. Internationally, the same
sentiment prevailed. "We are, as far as growth is concerned, around the
inflection point in the cycle." said Jean-Claude Trichet, President of the
European Central Bank.
For good measure, President Obama, too, is constructive recently saying,
"When you look at the economy right now, I think it's safe to say we have
stepped back from the brink, that there is some calm that didn't exist before."
(Reuters, May 26, 2009) This is the same Obama that has also been telling China that their investments in the US treasury
bonds are safe. Another fact to remember is that none of the above-quoted
soothers, saw the crisis coming in the first place..
All of this newfound euphoria should have been well anticipated, though the
short-timing of such swings are hazardous at best. Stock markets around the
world have soared massively from their early March lows … some emerging markets
and oil prices nearly doubling from their lows. The question that begs now: Is
it a false dawn or the start of a long-term recovery?
There are a few problems with the rosy perspective now being adopted. For one,
it doesn’t fully align with economic and financial realities over the
longer-term, nor the cosmological timeline.
If the Global Financial Crisis (GFC) is really already receding into history,
the humanists and global reconstructionists will have wasted a good crisis … in
fact, one of the biggest in almost a century. According to the Rahm Doctrine
(named after Emanuel Rahm, the profane Chief of Staff of the Obama
Administration who was quoted as
saying “Never let a good crisis to waste”) it is times of crisis that can be
counted on to break inertia and force irreversible change. In this view, if the
GFC is indeed over, then it has been an unsuccessful one.
There has been a lot of talk about reforming regulations, new global initiatives
and so on. However, to date none of it has yet been enacted as new policy.
Without a continuing crisis, these proposed changes will likely be abandoned
just as occurred following the Asian Crisis of 1997-1999. Early financial
recoveries quickly dissipated the sincerity of previous commitments.
There is little chance that the ramifications of the GFC are over. As mentioned,
the real question centers now on the prospects for false dawns … how many,
whether long or short … etc. Through all of these highs and lows — no matter yet
how grim or euphoric — we still maintain that the financial system will not be
allowed to collapse. Taking a prophetic perspective, we can know that the future
10-king alliance and Antichrist will not be able to effectively rule nor
establish their prophesied financial interventions without the benefit of such a
Actually, the very essence of this argument is on clear display right now. This
is the very card that financial executives are playing to extract billions and
trillions from the pockets of ordinary citizens. Effectively, they are saying
this: “You can’t recover without us. If you don’t rescue the financial industry
first, there is no future.” This has been the winning slogan of all the
lobbyists crawling around Washington D.C.
during the past 18 months.
The Extent of False Dawns
All major crises have false dawns … at least one or more. Whatever the nature of
the “false dawns” that are yet to be expected, we can say without reservation
that the GFC and its implications for the Western world, specifically
America, are far from over. To quote, Ronald
Reagan, “You ain’t seen nothing yet.”
That is the easiest of conclusions to draw. The most difficult answer concerns
queries about the nature and specific manifestation of the next stages of the
GFC’s fall-out. There is more than one scenario to consider. I wish I could
provide an answer that had 100% certainty. However, given the complexity of the
many global crosscurrents, the wild-card policy actions, massive wealth skews,
fear and greed … etc., it simply is not possible.
Of two things you can be sure: There is a massive amount of capital that is
likewise waiting for a sure answer. Whichever way it sloshes, there are bound to
big waves and troughs. Lately, there has emerged a wave of money from the
bunkers, which is now running scared that it may be missing out on potential
gains. The time for that strategy is already probably near over … and too late
for now. But then again, desperate times can lead to desperate actions.
The other certainty is that the vast majority of people (ordinary households, in
other words) will continue to be caught unawares and bewildered. The average
citizen is being herded from one disaster to another. It reminds of the Bible
prophecy to Israel
describing the experience of the future “day of the Lord.” “It will be as though
a man fled from a lion only to meet a bear, as though he entered his house and
rested his hand on the wall only to have a snake bite him.” (Amos 5:19)
An aspect of this is playing out right now. No sooner do people think that they
are safely invested in government bonds, than these bite them in the hand. (Bond
markets literally melted down in recent weeks.) No sooner have they fled from
the bear of falling stock markets, a lion is chasing manic people back in.
Can we at least try to get a better fix on the future? Consider this perspective
excerpted from our upcoming book, Global Financial Apocalypse Prophesied:
Preserving True Riches in an Age of Deception and Trouble.
“What will happen next? Will there be another bubble? Can there be a sustainable
economic recovery? The correct answers here are related to two other questions
that we must first ask. They will confirm the likely prognosis.
Firstly, will policymakers choose to continue to try to outrun consequences of
past mistakes or will they face up to them? The answer is eminently clear by
now. Governments and central banks around the world have chosen to try escape
the results of past folly. In so doing, they are now setting up the conditions
for a much greater economic collapse in the future. However, this need not
necessarily happen right away. First, a major recovery period may occur — at
least in some parts of the world — before this eventuality again looms.
To date, many countries are aggressively raising national debt levels by
boosting government spending and bailing out various industries, above all
companies in the financial sector. For example, Britain, itself home to the second
largest financial center in the world, has now breeched government debt levels
greater than 100% of GDP (annual gross domestic product of the economy) and is
risking a downgrading of its credit rating. Incredibly, this former world empire
has finally come to this shameful point. It is now recklessly pursuing
inflationary monetary policies.
government at the time of this writing had already committed to over $12
trillion in expenditures, bail-outs and contingent guarantees in its effort to
forestall further financial collapse. This is an almost unfathomably large
amount, equating to almost $40,000 for every man, woman and child in America.
According to estimates, this is 10 times the intervention of any other post-war
recession period. Such policy responses can surely not lead to sustainable
prosperity. It leads to even higher debt … ever higher burdens for future
Without a doubt, policymakers — both in
and around the world — are choosing to outrun their problems with monetary
manipulation. That must lead us to conclude that any economic and financial
recoveries must be considered temporary and will certainly not be sustainable.
The options chosen are monetary manipulation, deception and cronyism. It will
lead to even greater impoverishment for America and certain other nations
relative to the rest of the world.”
This overview clearly alerts readers to future realities. Let’s next discuss a
current issue that continues to act as “ball & chain” to North American
households and starkly illustrates the trap into which much of the middle class…
indeed the entire nation … has fallen.
Deep Destruction and Desperation
The biggest “cement shoes” for the financial system and a factor that still
suppresses economic growth these years later, is sinking real estate values.
This remains the primary real asset that collaterizes the asset side of the
balance sheet for the entire financial system. Residential and commercial real
estate values continue to fall. That means that the balance sheets of financial
institutions will continue to be under pressure. If house prices do not soon
stop falling, you can be sure that there will be another round of government
The S&P/Case-Shiller U.S. National Home Price Index – which covers all
census divisions – recorded a 19.1% decline in the 1st quarter of 2009 versus
the 1st quarter of 2008, the largest decline in the series 21-year history. (See
graph below.) To date, from its recorded peak level of July 2006, the median
house price has declined 32%. Futures markets as well as some forecasters
anticipate further housing price declines (for a total of 40% to 50% and more
from the previous high).
It goes without saying that this is a disastrous slump,
having represented “ground zero" of the GFC from the beginning. It is already
over 5 years ago that we wrote our first warning of an impending real estate
bust and its potential impact upon America (and Israel) (A Warning That Hits
Home – May 2004). Whether or not real estate values fall further, the true
reality of this disaster to date is not yet fully acknowledged. A quick review
of the facts reveals a possibly mortal blow to America
… to its very core foundation, the family and home.
A record 12% of homeowners with a mortgage are behind on their payments or in
foreclosure as the housing crisis now spreads to prime mortgage borrowers.
According to the Mortgage Bankers Association (who, by the way, have no
incentive to exaggerate this statistic) do not expect this wave to crest until
the end of next year, nearer 15% of all mortgages. (2/3 of all homeowners have a
These statistics, stunning as they are, still do not provide a sense of true
scope of the crushing reality of falling real estate prices. Consider these
facts: Residential mortgages total $10.6 trillion in the
The total value of all homes peaked at $21.7 trillion in 2006, and has now
fallen to an estimated level of $15 trillion. To illustrate, should house prices
fall further as some expect, overall housing value will sink further … say to
$12-$13 trillion. That would mean that the average home equity portion would
fall to 12% - 18% (the other 88% to 82% being debt). This the implications of
such a situation would likely be so disastrous, no wonder many commentators use
apocalyptic language describing it.
But, even this is not yet the worst of it. Remember that one-third of all
households do not have a mortgage. That implies in this scenario that the
average home with a mortgage would be worth only 75% of the mortgage
outstanding! As long as housing prices continue to deflate, the financial system
is not yet in the clear by a country mile. Of course, policymakers are aware of
this scenario and are desperately wanting to engineer an upside trend.
However, we still have yet to broach the worst situation of all. A study by the
Center for Economic Policy Research surveyed the wealth effect of the GFC for
older American households.4 It included the effects of the
declines in real estate values as well as financial markets to the end of 2008.
The results are chilling as they reveal the potential for severe desperation.
Many people between the ages of 45 and 64 have not yet paid off their houses. In
fact, though perhaps owning their residences for more than two decades, a large
number of households do not have positive net equity in their homes. Imagine:
“Nearly 30% of the households headed by someone between the ages of 45 and 54
will need to bring money to their closing (to cover their mortgage and
transactions costs) if they were to sell their home. Technically, they have
negative equity in their home. For people between the ages of 55 and 64 the
percentage is 15%.” The authors of this report state that the median household
between the ages of 55 and 64 experienced a drop in wealth of 50% since 2004.
Consider that these estimates do not include the effects of price declines in
real estate and financial assets since the end of 2008. Quoting further from the
study, “The baby boom generation for the most part has insufficient time
remaining before retirement to accumulate substantial savings. Therefore, they
will be largely dependent on social insurance programs to support them in
The most worrisome aspect of the massive declines in household net worth is that
it has impacted the middle class disproportionately and comes at a time that
many baby boomers are approaching retirement years. As such, the disaster that
has befallen American households couldn’t have come at a worse moment
domestically. Also geopolitically.
A Demographic Bomb On Top
Viewing the high debt levels in America and other nations, some people may well
ask: “Debt levels have been high before in America’s history, and yet in these
instances the nation has recovered to even higher levels of prosperity. Can’t
this happen again?”
No, this is not likely this time. High debt levels indeed occurred in the early
1930s and then again in the late 1940s. However, the prognosis in these cases
was entirely different, as the causality was not the same. The 1940’s debt
obligations were the result of a world war. As such, it was government debt that
soared (to over 100% of GDP), in turn driving real spending in the production
economy. This was then followed by a post-war population boom, helping to boost
In a very short period of time, government debt levels fell to low levels as new
households saved, raised families, paid their houses off and invested. Household
debt throughout this entire period remained relatively low.
In the early 1930s, high debt-to-GDP levels also occurred. However, at the
start, the main cause of this rise was not government debt, but rather in the
private sector (businesses and households). Then as the economy collapsed in the
1930s, government debt soared. Here the denominator (the economy) shrunk as debt
continued to rise after the onset of economic crisis. To think that today’s debt
levels in the U.S. are far
higher than at any other time, already even before an economic depression, is a
sobering realization. And now, we
have slowing population growth and a “baby boom” cohort that will soon retire.
There can be no doubt: The legacy of the current GFC will be radically higher
government debt levels. As mentioned, non-financial debt-to-GDP was already at
an all-time high before the crisis period began. Indeed, this itself was an
important enabler and catalyst to the crisis in the first place. But as the
choice has been to outrun problems, the U.S. government
is now plunging into even more debt. It would not be an outrageous forecast that
government debt will triple relative to GDP over the next 7 years to 10 years.
Quoting Frederich Hayek, a well-known Austrian School economist, “[…] to combat
the depression by a forced credit expansion is to attempt to cure the evil by
the very means which brought it about; because we are suffering from a
misdirection of production, we want to create further misdirection — a procedure
which can only lead to a much more severe crisis as soon as the credit expansion
comes to an end.”
In a desperate attempt to restart the previous asset price manias, to again
inflate up stock markets and real estate so to forestall the devastation of the
net worth suffered by the average middle-class family, the solution is more
debt. It is a response similar to that of a drug addict. Progressively, an
addict requires ever increasing doses to maintain a similar level of euphoria,
until finally the veins do collapse.
While globalists might think the current crisis wasted, this need not be true
for Christians. We should not abandon the chastenings of the GFC so quickly. Our
riches are elsewhere.
1. Timothy F. Geithner, U.S. Secretary of the Treasury. Statement to the Senate
Banking Committee, May 20, 2009.
2. Chairman Ben S. Bernanke, The economic outlook:Testimony Before the Joint
Economic Committee, U.S. Congress, Washington, D.C., May 5, 2009.
3. Jean-Claude Trichet, President of the European Central Bank, Wall Street
Journal, May 11, 2009.
4. David Rosnick and Dean Baker, The Wealth of the Baby Boom Cohorts After the
Collapse of the Housing Bubble, Center of Economic and Policy Research (CEPR),
5. Friedrich Hayek, "Monetary Theory and the Trade Cycle", London,1933.
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About the Author:
Wilfred J. Hahn
is a global economist/strategist.
Formerly a top-ranked global analyst, research director for a major Wall Street
investment bank, and chairman of
country’s largest global investment operation, his writings focus on the endtime
roles of money, economics and globalization. He has been quoted around the world
and his writings reproduced in numerous other publications and languages.
His 2002 book The Endtime Money Snare: How to live free accurately
anticipated and prepared its readers for the Global Financial Crisis.
His newest book, Global Financial Apocalypse Prophesied:
Preserving true riches in an age of deception and trouble,
looks further into the future and will be in bookstores September 2009.