The coming economic crash caused by world debt
By Don Koenig with 2011 update
2011 update - I actually wrote this article in 2000 and I have been updating the debt figures and also inserting new information along the way but it is now 2011 and what I said about what would be coming has now partly taken place but it is far from over (It will get worse). Since this article is read by thousands each month I think I owe my readers a update on the economic crises. The original article follows this update.
Debt is at a point in Europe where there will either be a full fledged debt write down that will bring a full fledged depression or where governments just prints more money for bailouts of the banks causing hyperinflation. Which one happens is hard to say, it may be out of our control and it makes little difference anyway. Either path will bring the worst living standards in modern times to most of the developed world.
There is no easy answer to the problem because many people and nations have been living beyond their means for many decades amassing debt and entitlements that cannot be sustained with aging populations. So now the chickens have come home to roust. The credit line of many nations are maxed out and the young cannot support all the entitlements that the baby boomer generation demands.
In the U.S. we cannot keep living like we have twice the income that we really have. Just trying to throw more money at the problem like our government has been doing will just make matters worse in the long run because this nation cannot afford to take on more debt. Passing the costs of this downturn to some future generation is simply not possible. No future generation can possibly pay this huge rapidly increasing debt and soon nobody will be stupid enough to continue to finance our increasingly risky debt at abnormally low interest rates.
The more risk of default or currency devaluation the more we are going to be charged in interest to finance our debt. We may be able to pay $20 trillion dollars of debt at 3 percent interest with some pain but at 6 percent interest or above for any extended period of time it will cause total economic collapse.
If the spending beyond our means for decades has not been enough, many people in our nation were and still are gambling with your investments. They take your money and use it as security to leverage investments worth thirty times that amount. In 2008 the bubbles burst and many that were gambling lost. Some financial institutions got bailed out and some still did not learn their lesson, they are still gambling.Other big corporations and financial institutions could not pay their debts because of the severe downturn. So they either went bankrupt or were declared too-big-to-fail by the government and government bailed them out and took on their debt hoping that someday the paper and the corporations that they took over will regain their value.
Things got so bad that since 2008 that most will not lend anymore on commercial ventures, instead they are either still gambling on markets or they are sitting on their money. Nobody want to lend for economic development because they are afraid that they will never get paid back. Many others businesses that could expand will not because they are afraid of higher costs in the future through government taxation and regulation. That is one reason for the high unemployment.
Another reason for the high unemployment is that the government cannot institute a policy to buy American or they risk a trade war with other nations in the global economy that are also living beyond their means. The trade war probably is coming anyway because unemployed people of nations will demand that their government do something to protect their jobs and all thier government can do to keep jobs at home is to allow protectionism.
That happened in the 1930's and it made a bad recession into a decade long world depression. That now seems to be our future and along with the deflation depression or hyperinflationary depression that is bound to come, it will allow the rise of populist demigods who will convince people that they have the answers. In other words, we are now repeating the same mistakes of the 30's that led to the nationalist socialistic movements and the start of World War II. It will not be different this time except the stakes for the world will be much higher.
If I have a sure message to people who are listening, it is this - Learn to live on an income that is less than half of what you were living on in your good times. Within less then a decade your income will be far less and/or it will buy far less goods and services. Also prepare for big government trying to manage and run every aspect of peoples lives. Certain people are going to think the only way to handle this is through forced government control and then rationing. Do not be surprised if there is civil breakdown and even Balkanization's when the people get fed up. It has already started in some nations. It is going to get much worse than most anyone imagines.Try to network with mature astute conservative Christians who understand these issues. It is going to be a tough time for everyone and those who stand alone will have little support. More spending beyond our means is not going to solve a problem that was caused by spending beyond our means. It will only make things worse in the future. The coming decade for the U.S. and the hard choices it makes will determine if it even survives as a nation. God be with you all.
Original article on the coming economic crash caused by world (figures and a few comments updated)
Almost every nation of the world has such severe debt that just making the interest payments takes a large amount of their financial resources. Much of this world debt is owed to world bankers that then dictate their own economic policy to these countries. These policies do not favor the poor.
The largest economy in the world is the United States. The US government is currently more than 14 trillion dollars in debt and I project that to go to 20 - 25 trillion by 2020. Paying the interest on that huge debt in future years will cost as much as what is now spent on national defense (using modern historical interest rates and the cost of defense under normal peace time conditions).
The United States is now by far the biggest debtor nation in the world. For many years we have been importing hundreds of billions more dollars in goods and services than we are exporting each year. In 2005 through 2008 the trade imbalance averaged well over 700 billion dollars per year! Trillions of US dollars are now in the hands of foreign investors who at any time could dump the dollar causing a devaluation of the currency.
Just a few years ago, the US government was forecasting surpluses of trillions of dollars based on the stupid assumption that there would not be a downturn in the economy for decades. This foolish assumption was of course proven wrong and deficit spending in 2009 and 2010 will be at least two trillion dollars a year if everything is really counted. The only reason the United States is not yet feeling the pinch of spending beyond its means has been the record low interest rates. The low interest rates were brought about by Federal Reserve manipulation to stimulate the economy but interest rates eventually will have to rise. Soon all who need loans will be making higher payments and the US government will be paying much more to service the national debt.
Debt and unfunded liabilities promised through entitlement programs is now over 60 trillion dollars. This amount of money in non inflationary dollars is impossible to raise! Thus, the US is now technically bankrupt. In order to keep up the facade that the US is solvent for even another decade or two, one or more of the following must happen.
1. Taxes must be raised.
2. Government spending will have to be drastically cut.
3. Deficit spending will dramatically increase.
If taxes are raised, it will kill the economy and the debt load will get worse and not better. Spending will not be drastically cut because these types of cuts would never get through the political system. Therefore, massive deficit spending will take place. The monetary system will be inflated so that this debt can be paid by using a dollar worth only a fraction of what it is today. This means a much weaker dollar in the future and much higher prices for all goods and services imported to the United States (in short it means we should expect hyper-Inflation).
The best long term scenario is that the economy will expand for decades and we will partly grow our way out of this debt crunch (like we temporarily did under Ronald Reagan). But, I do not see stability for that length of time as even a remote possibility in this world full of crises. I think it is only a matter of time before a downturn in the economy or an unforeseen world event brings about the collapse of this house of cards.
The catalyst for a crash can come in any number of ways. One likely scenario is that confidence in the US dollar will falter. When this happens interest rates will have to rise dramatically to try to lure foreign investors to re-service our debt. Higher interest rates will then shut down our economy and less tax money will be raised. The debt will still have to be paid at the higher interest rate so the government will print even more money and deficit spending will increase. The dollar will fall in value against other currencies bringing about an inflation spiral in the United States and even more dumping of US dollars for a more stable currency.
Banks and financial institutions holding today's unrealistic low interest loans on property will go under, causing a collapse of pension systems and/or a taxpayer bailout that will worsen the deficits even further. Many with adjustable rate mortgages will not be able to make the payments and they will default on their loans. The foreclosed houses will be dumped on the market bringing a collapse in all home values. All this in effect will cause an inflationary depression in the largest economy in the world.
The fall of the US economy will have a domino effect and bring about a worldwide depression that will further depress the US economy and bring a full fledged inflationary depression worse than the great depression of the 1930's. When this happens most companies will go bankrupt and will be nationalized.
When I first wrote about the coming economic crash caused by debt in the year 2000, I said the stock market was three times higher than it should be. Since then the market has fallen. It is still over valued. If investors today had a proper perspective on interest rates, the falling dollar, record oil prices, record deficit spending, the housing crash, terrorism and the foreign conflicts, the value of stocks would decline to less than half of what it is in the fall of 2011. Eventually it will, at least in inflation adjusted dollars.Paper money is only worth what it can be traded for in real goods and services. The United States record deficit spending is putting cash into the economy but like all who spend beyond their means the bill will come due. Soon foreign investors will lose confidence and others that hate the US will deliberately cause more pain and the dollar will fall like a rock. The fall of the dollar has already begun. The US dollar only buys half of what it did in Europe only a decade or two ago. Only time will tell if the current fall of the dollar will briefly stop or continue descending into a worse crises. Meanwhile, if there is another downturn anytime soon caused by economics or terrorism, or further collapse of housing we will not be able to buy our way out of it again without hyper-inflation.
Inflationary depression worse than the great depression
Two thirds of the families in the US are now invested in the stock market compared to three percent in the great crash of 1929. When the economic crash comes, retirement accounts, mutual funds and most paper wealth will be wiped out. Most banks and financial institutions will fail, be bailed out, or be taken over by the government (causing further devaluation of the dollar). Most people making a living on the service sector of our economy will be unemployed. Prices on everything made in this country will either deflate or paper money will lose most of its value. The resultant depression will affect everyone and it will be the worst that this nation has ever known.
When the US economy goes down it will take the world economy with it. This economic collapse will cause great civil unrest all over the world, cities will be filled with riots and later with troops. Democracy will be dead and people will look to demigods to solve their problems. When the economy of the West crashes Russia may get ideas to invade the Middle East to seize its riches.
This day will not take some of the elite of the world by surprise. They know that this day is coming (Satan pulls their strings). At the appropriate time, the solution to the crises will be to abolish almost all debt and all savings and to start over with a new world economic system that will set the stage for the end time economic system described in the book of Revelation.
There is little question that the world debt crash is coming. It does not even have to start in the United States (it could begin in Japan, China, Europe or elsewhere). The only question is the timing of this crash. The world debt situation is so bad now, that a deliberate or accidental crash could occur at any time. The world bankers and world leaders have been putting off the inevitable by huge bailouts and extensions of debts but with these bailouts there is loss of sovereignty to world government and world bankers. They will continue in this mode until the house of cards collapses of its own weight, someone pulls a card, or some large scale economic disruption blows this house of cards over.Students of Bible prophecy know that a new world economic system will be set up under a world government where no one will be able to buy or sell unless they take the "mark of the Beast". The formerly debt ridden world will embrace this worldwide cash-less monetary system after the crash because a new system will wipe out most debt and all nations will start afresh. This new economic system will promise great prosperity to the world.
Signs of the time
There is unparalleled greed and foolishness happening in the financial markets of today. People have lost their ability to reason. Like gamblers at casinos the day traders believe that they cannot lose. They think the stock market will always go up. When they take a loss they just double up on their bets. At the high roller's table there are the derivative speculators that are gambling trillions and whole corporations on the wheel of fortune.
We allow government to spend more than it collects and thus defer the bills to our children with little thought to the consequences it will have for them. The scripture says that the love of money is the root of all kinds of evil. Even many Christians have embraced these evils. The number one message preached today in Christian media and in pulpits is "give us money". God has blessed the United States because of His people but greed will ultimately bring correction.
The massive world debt load argues that borrowers have become enslaved by the lenders and will do their wishes. On a temporal national level this means that debt ridden nations must fall in line with the agenda of the globalist socialist elite or they will find themselves in a depression. In the longer term when Satan is ready for his man to take control of the world, this generation will see a total crash of the old economic system. The solution of the new economic system will eventually bring the 666 mark of the Beast and enslavement.
Derivatives: Global roulette wheel, by Arnaud de Borchgrave
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