There is an unsolvable problem at the heart of our financial system. The outcome of this problem is inevitable. The joblessness, increasing debt and recession that we see now is only the first stage of a crisis that is certain to come soon.
Everything about our way of life is about to change.
Many people believe that today is as bad as it will get and that things will not get worse. The truth is that this is just the start of what is about to unfold. We will all be witnesses to the real consequences of this coming collapse in our towns, in our cities, in our schools, in our places of work; it will also encroach significantly into each of our private lives.
That this outcome can be considered a certainty is so because the current financial system is underpinned and driven by one thing; unending greed.
In all of recorded history no country has ever recovered from the financial position that we are in today. America, Britain and Western Europe find themselves in positions that no nation-states have ever managed to survive from. The situation we are in today has only in history ever had one outcome; financial collapse.
A tidal wave of debt is about to flatten our countries. Our public finances are in an enormous mess, any reasonable person can see that. Despite the efforts of governments to cut the debt, to increase taxes, to launch austerity budgets, all in an attempt to manage and control spiraling expenditure and debt, none of this has made any difference. In fact the opposite is true.
The public debt in North America and in Western Europe during this recent period of cuts and austerity have continued to rise exponentially and now is at truly astronomical levels. Ominously, the interest rates on our debts are also rising.
Add into this public debt time bomb our personal and private debts and the picture starts to look truly terrifying. Compared to the size of our individual economies Britain and America are now two of the most heavily indebted countries on earth. Britain’s total debt is five times the amount its whole economy is worth. That is almost twice the amount of debt Greece currently has. America’s total debt is currently stands at 18.2 trillion dollars.
Britain and America are not like Greece though because they haven’t collapsed, yet.
But that isn’t the end of the story. For Britain, when you factor in all of her unfunded obligations, such as public sector pensions and the like, Britain’s total debt comes to 900% of its economy. Britain owes nine times what its economy is worth.
When you factor in Americas unfunded liabilities, the picture becomes more than bleak. America’s total debt with obligations doesn’t amount to 18 trillion dollars, nearer 60 trillion dollars is a more realistic figure.
No country in history has ever survived a debt twice its annual economy.
Ultimately a country can pay back what it owes, or it can’t. Britain can’t. American certainly can’t. Whichever way you look at this it is just about different shades of disaster. America and Britain are broke and have been for a very long time and soon this is going to come home to roost.
Why is today different?
Why is today so different? Why do our governments simply not continue to do what they have always done, borrow more and more money to fund their obligations to pay off their creditors? After all it’s something that our countries have been doing for a very long time.
The answer is that circumstances beyond their control will mean that this cannot happen.
The massive government lending we are now so used to has only really taken off in the last 30 years and this is due mainly to low interest rates. Interest rates for the past thirty years have been falling on government borrowing.
For example, thirty years ago America or Britain would be charged approximately 15% on any loans they made. Today that interest rate figure has fallen to 2%. This fall in interest rates has meant that it has become increasingly easy and cheaper for governments to lend money during the last 30 years.
To put it in perspective, the 2% on borrowing governments can expect is not the same rates of interest you or I would enjoy. Currently if we were to take out a loan the interest rates we could expect would be generally 7% as a minimum. Governments have been allowed to borrow huge amounts of money at critically low rates of interest.
Debt has been getting cheaper and cheaper which has allowed our governments to lend more and more money.
However when interest rates on our national debt start to normalize ,which will be the trend over the next ten years, this means that our governments will have to pay out huge amounts of additional money just to service these massive debts. This therefore means that governments will be forced to take drastic measures to meet these ever increasing obligations.
So long as interest rates remain at their current low levels, America and Britain can service their debt. But as interest rates start to rise America and Britain will have to find more and more money to service those debts and ultimately if interest rates rise above normal levels it will inevitably lead to a catastrophic collapse.
There is no other outcome.
This is why Greece is in the situation it is in now. Greece’s interest rates on its debt have risen to normal levels, and they simply cannot service their debt because of it. Greek society has imploded directly as a consequence of this. In a collapsed economic climate like Greece just keeping your family safe and provided for is enough of a challenge.
This is all as a result of rising interest rates. Greece will not be the last developed country to learn this harsh lesson. Others will be following in its wake and soon.
Sooner or later interest rates will rise. They may rise overnight due to an extraordinary crisis, or they may rise a little bit at a time over a period of years, squeezing and suffocating the life out of our economies and the people living within its grip.
One of two things though will likely occur soon to trigger this certain crisis. Either foreign lenders will realize the inherent weaknesses of our economy and start to demand higher interest rates on the loans they give us or they will stop lending us money altogether. When that day comes, and it will, things will get very difficult, very quickly.
What does this mean for you personally?
When interest rates rise and the collapse begins the first flashpoint will be the banking system. Many of our biggest banks hold much of our debt in the form of bonds. When interest rates start to rise much of the balance sheets of these “too big to fail” banks will be wiped out. As the press gets hold of this information and makes it public people will panic, and rush to the banks to withdraw their money. All cash will be sucked out of circulation.
There will be a run on the banks.
This time though, unlike in previous examples such as 2008 and before, our governments will not have the money available to bail out the banks. All savings will be wiped out. All pensions will be wiped out. There will be nationwide panic.
The next sector dragged over the edge will be the housing market because most mortgages are linked to interest rates. As interest rates rise homeowners will be financially crushed. Higher mortgage payments will be met with lower housing property values meaning substantial negative equity. Many homeowners and families will go under as a consequence of this.
This will result in the fraying of social order. When there is an economic collapse an inevitable result of this is the breakdown of the norms of social order. Greece is only a small, limited microcosm of this. The real thing will be much worse and much uglier.
Order turned into chaos.
History provides us with some painful examples of what may come from such a crash. Argentina was once one of the richest most affluent countries in the world, until they allowed their borrowing to spiral out of control. They went from a position of security and wealth in the 1920s to one at the end of the 20th century that was very different. By 2001, after prolonged austerity measures, after tax increases, after many business closures and government streamlining the Argentinian government completely collapsed.
Banks stopped giving out cash, employers had nothing to pay employees with and liquidity was completely lost. Society in Argentina crumbled. This was all because of spiraling debt and increased interest rates and was sparked because foreign investors fled the country and foreign lenders then would not lend Argentina any money.
They could not service their debts. This is where Greece is today and where America and Britain will be soon. Things got so bad in Argentina that normal, previously happy people ended up roaming the streets slaughtering any animals they could find just to use as food for their families. The conditions for most normal, hardworking people remains poor.
The Global Picture
Every nation on this earth is indebted far beyond their abilities to pay back that debt. This applies equally to rich, developed economies and extremely poor ones. Each and every one of these economies is subject to the whims of fluctuating interest rates on the debts they owe.
When interests rise through lack of confidence or through crisis, there will be a crash of unimaginable proportions. The world will be left managing a worldwide economic climate much worse than the one ravaged by war in the 1940s or the climate left in the wake of any of the worst stock market crashes. These are mere microcosms of what is to come on a global scale.
And then in amongst this chaos, suffering and hopelessness will come one man with the intellectual genius to see a way out of this crisis and the charisma and charm to carry his plan through. The world will love and worship him for it.
Whether as Christians we will witness the beginnings of this crisis or will be removed before its beginning, ultimately only time will tell. One thing is for certain though, this collapse will come. I would bet my house on it.
“It also forced all people, great and small, rich and poor, free and slave, to receive a mark on their right hands or on their foreheads” (Revelation 13:16)