Wilfred Hahn ((Eternal
More and more economists, policymakers and investors are becoming ever more
certain that the good times are here again. Not even the crises in
Japan, the Middle East, Europe and
can quell the prevailing mood of resolute complacency. Apparently, the
effects of the Global Financial Crisis (GFC) are long past. However, this
couldn’t be further from the truth. The soothsayers are unable to discern
cause from effect; artifice from reality; wisdom from folly. Time will judge
today’s policymakers and opinion leaders.
stark reality is really this: Conditions are not getting better, Actually,
the long-term outlook is becoming darker. The Global Financial Crisis is not
over; only shifting and morphing into new forms. An unprecedented mix of
factors is playing out at present around the world (geopolitically,
socially, economically and financially). Whether these factors may be
disastrous or not, they surely do not warrant an attitude of complacency.
key difference is that a “balance sheet depression” is unfolding in America and
several other countries … though admittedly in fits and spats. What is meant
by this term is the phenomenon whereby falling asset values (i.e.
residential and commercial real estate) and high debt levels collide,
causing debt levels to be reduced (either through default or repayment).
These are usually long-running adjustments requiring many years to complete
at best, provided that governments and monetary authorities do not interfere
in this essential process.
Just where do we see debt levels declining today? Actually, policymakers are
doing their dastardly best to frustrate responsible debt loads. By slashing
interest rates to near-zero levels they frustrate savers, making debt even
cheaper (provided lenders are willing to lend and that the borrower’s credit
rating qualifies). Secondly, governments have turned to massive and
unprecedented borrowing, so to counteract the decline in consumer confidence
and spending. All in all, seen in the aggregate, debt levels are not
declining. Overall debt levels are still rising as increases in government
and corporate borrowing are out-running the debt decline in the household
sector. This is what is playing out in many nations (certainly the
U.S., the UK
and perhaps soon such nations as
the meantime, the average household continues to be squeezed. Income growth
remains low, unemployment extremely high, house prices are still falling,
and the cost of living rising. After adjusting for the effects of
inflation—this including the impact of rising food and energy prices—the
average American household is now experiencing negative “real” income
growth. And, even as property prices have declined by a third since 2006,
property taxes have risen by 27%. Yet, Wall Street economists are more
confident than ever since the GFC struck, that a “solid” recovery is
underway. Financial markets have again become frothy, as financial
speculation is being encouraged by policymakers who believe that a “wealth
effect” will help to get economies rolling again.
strangest spectre to observe—tempting rational people to apoplexy—is that
apparently very few policymakers and economists seem to have learned any
lessons over the past several years. The very same conditions that led to
the big financial bubble burst in the first place—overpriced houses,
mispriced asset-backed paper, speculative financial and commodity markets,
carry-trade lending, high borrowing and debt levels … etc. — are now being
promoted in the hope of reigniting the financial good times (i.e. bubble).
they really think that these policies will somehow not lead to yet another
crisis? It certainly will. Of course, this is known, and therefore reveals
the deep corruption at work. The intent is to perpetuate what is
unsustainable (this evidencing dishonesty) for a while longer, pushing off
the inevitable costs to others in the future. We can indeed expect a much
bigger crisis … and possibly very soon! (No doubt, we will then experience
the usual clamour for our books. But unfortunately, much too late!)
of this folly reminds us of several Bible accounts. The coarsest is found in
Proverbs 26:11: “As a dog returns to its vomit, so a fool repeats his
folly.” In the Old Testament we read of Jeremiah who had long warned the
people of Judah of the
dire consequences to their excesses, idol worship, and sinful carousing.
They instead chose complacency rather than fearing sin and God’s authority;
to live it up and live according to their lusts. Eventually, God did allow
the Israelites to be punished. Then the bad times hit. What was the response
of the people? It was not remorse. Instead, they pined for what they still
regarded as the former “good times.” They chose to blame Isaiah for
depriving them of their former hedonism.
“We will not listen to the message you have spoken
to us in the name of the LORD! We will certainly do everything we said we
would: We will burn incense to the Queen of Heaven and will pour out drink
offerings to her just as we and our fathers, our kings and our officials did
in the towns of Judah and in the streets of Jerusalem. At that time we had
plenty of food and were well off and suffered no harm. But ever since we
stopped burning incense to the Queen of Heaven and pouring out drink
offerings to her, we have had nothing and have been perishing by sword and
famine” (Jeremiah 44:16-18).
According to the New Testament, the same type of response is to be expected
again. We conclude that the basic character of human beings has not
materially changed these last 3000 years. Despite the many travails that
come about in the Tribulation period, on at least three occasions we read in
Revelation that mankind still refuses to forfeit their idolatries. For
example: The rest of mankind that were not killed by these plagues still
did not repent of the work of their hands; they did not stop worshiping
demons, and idols of gold, silver, bronze, stone and wood—idols that cannot
see or hear or walk. Nor did they repent of their murders, their magic arts,
their sexual immorality or their thefts” (Revelation 9:20-21).
Loosely interpreted, despite the punishments, people continued to prefer to
hold on to their idolatries and lusts (i.e. financial, corrupt monetary
systems, and otherwise). Moreover, once the hard times came about (these
being a direct consequence of the prior excesses) rather than wanting to
change their ways, they instead longed for bacchanalian revelry of former
Looking ahead, what is wrong with this picture? Would you need to be a
highly-paid economist working on Wall Street to draw a correct conclusion?
Food stamp usage in
continues to climb (with almost 50% more people qualifying for their use
since the Fall of 2008).
is at a record high.
Sales in low-price
stores such as Wal-mart are lagging … even declining on a same-store basis
in some months. However, the sales of high-end retailers such as Saks and
Macy’s are growing strongly.
labor market participation rate has declined sharply (by 2 percentage
points). Does this normally occur in a recovery period?
The sales of luxury
goods manufacturers such Louis Vuitton, Burberry … etc. are strong and the
auction prices of rare art never really having suffered a downturn.
As mentioned, real
income growth for the average U.S. household has turned negative
in the past few months. The same is now true in the UK.
Corporate profits are
now higher (as a share of national income and partially at the expense of
household incomes) than before the GFC began.
banking sector is now more concentrated than before (this being a major
complication should bail-outs ever be required again).
The FAO (Food and
Agricultural Organization, a division of the United Nations) reports that
food costs around the world have soared to all-time highs.
Profits for the entire
financial sector have returned to prior highs, and multi-billion dollar
bonus payouts are at new highs.
including the U.S, are heading towards plutocracy (that meaning to be ruled
and controlled by the rich). The top 1% of households now control over 44%
of income … the highest since prior to the last Great Depression.
From these few facts, what should be the diagnosis? Why, of course, economic
conditions are improving! But for whom?
biggest death knell of all is this: With interest rates having plunged (and
still remaining relatively low at this time) the cost of retirement has
soared. This is a catastrophe that is rarely discussed in the public arena.
Were one to invest one’s pension in a 5-year treasury bond, you would today
need a pension fund that is more than twice the size of 3 years ago to
generate the same amount of income. (Please see Figure #1 in
issue of Eternal Value Review) “Yes,” say the quantitatively-trained
economists who know relatively little about causal economic theories, “but
that is not inflation.” Of course it is. For the middle class household, a
retirement next egg (whether a pension or other forms of savings) is the
biggest purchase they will make in their lifetime. Now, to a large extent,
the future purchasing power of retirement savings has been pillaged.
Unfortunately, this fact has not yet sunk in with many people.
second biggest household purchase is a home. The collapse of home values
(combined with a senseless increase in mortgage debt) obliterated the net
worth of a large number of households headed by members of the 45 to 64 year
cohort. Overall, home net equity has plunged to an all-time low. (Please see
Figure #2 in
April 2011 issue of Eternal Value Review, this being the most disastrous
event for America—and Israel—in our view.) These two
wealth devastations for middle class America really amount to a sucker
two-punch. What to do next?
History suggests that there are only a few outcomes possible.
Over-indebtedness can be dealt with in one of three ways: 1. Default. 2.
Massive inflation, thus shrinking the size of historical debts (though this
leading to ultimate bust, as well); 3. Or the hard way—by saving and slowly
paying down debts. However, if the situation is also marked by a condition
of an extreme wealth distribution imbalance (as it most always is), much
more volatile outcomes are likely. Indeed, as mentioned, wealth distribution
today in many nations (also the
U.S.) is the most extreme since the 1920s,
if not at an all-time record. A thought for reflection is this: The bloody
French Revolution was instigated by the very same conditions.
Finally, in dealing with these perplexities, we must not forget where to
keep our focus.
“So I tell you this, and insist on it in the Lord, that you must no longer
live as the Gentiles do, in the futility of their thinking. They are
darkened in their understanding and separated from the life of God because
of the ignorance that is in them due to the hardening of their hearts.
Having lost all sensitivity, they have given themselves over to sensuality
so as to indulge in every kind of impurity, with a continual lust for more”
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 head 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.