Flunked Econ 101? Read This…

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Okay, so my recent attempt at explaining retail economics has been riddled full of holes by would-be Warren Buffetts. To get someone more knowledgable to explain to me why my reasoning was off, I emailed a friend of mine, Tom, who is an attorney. He provided what must be considered the Unified Field Theory of Economics as he not only discussed how credit works in the business world but also included an explanation of the current Wall Street meltdown. So in a way, I tie in two of my previous posts (“The Truth About Christian Bookstores” and “Jefty Economics and the Least of These“).

What follows is a fascinating overview. (As to some of the political commentary in the response below, it’s integral to the piece. Cerulean Sanctum toes no party line and never will, so I offer the following with that caveat.)

The world runs on credit. Merchants don’t purchase their inventory, they borrow it for sale. In some cases they use a business credit line from a conventional bank to get the money to buy inventory for sale. Certainly, a very small business has to do that because they can’t get credit from suppliers. The smallest businesses use credit card financing—they buy with a credit card and use proceeds to pay the credit card bill. If you pay the balance at the end of each month you never have interest charge—and you get 30-60 days of money for free.

In more established businesses, the manufacturer supplies inventory on a net-30 or net-60 term which means in essence that the manufacturer is loaning the inventory. Auto dealers work through a financing arm of their manufacturer to get inventory on the shelves without paying for it, or at least paying very low interest on its value.

Wal-Mart’s model is to pay quickly but sell more quickly. They typically get cash terms from suppliers, i.e., no finance charge, pay 30-60 days after delivery. But they sell merchandise before the payment for that merchandise is due to the manufacturer. Wal-Mart will roll prices down to cost, just to make sure that they get the inventory sold before it is paid for. If you make this scheme large enough you have billions of merchandise sold and later paid for , and millions if not billions of dollars continuously in Wal-Mart’s pocket. Money earned from sales and not yet paid to suppliers, money that is constantly flowing in and out but which has a steady positive value—which Wal-Mart is free to invest in stores or put in the money markets to make interest. Without even profiting on the product sales (!), Wal-Mart can make money on “float”. It is brilliant.

If you contemplate this, you can see why the big box, Wal-Mart style stores rule retail. They can survive on very tight margins because they can roll inventory through their store that they never effectively pay for. Consumers love the selection and the store has a volume of transactions that can generate a sufficient profit even as the actual margin per transaction is very low. The old mom and pop store that actually owns its inventory is dead and will never come back (outside of highly niched businesses).

This explanation says a lot for why a credit crunch is extremely hazardous to our economic system. Our economy uses credit so systematically and it is so much at the core of our economic effectiveness, that to constrain it just the littlest bit sends shock waves throughout the whole system. The businesses that are right on the edge—the ones that need to borrow money even for a day or two to cover the cost of inventory and make payments to manufacturers before inventory is sold—are in a very precarious position. If they can’t get credit they’ll get caught between paying for inventory and paying for payroll, for example. That’s a tough spot…if you don’t pay for the inventory on time you get no more and you’re out of business. If you don’t pay the employees, they all quit and/or the news gets out and your suppliers dry up. Any way, you’re out of business.

Banks make short term loans mainly in the form of business lines of credit. The banks use their own money for such loans, or borrow money in short term credit markets. Banks make margin on the interest rate difference. (Obviously, a bank can borrow short term money at a lower rate than a business can borrow short term money.)

It is not just the odd business that runs on short term credit—essentially all of them do. And not just retail. Manufacturers operate on credit. Obviously, they want to get paid for what they make, but they don’t get paid as fast as they like (thanks to Wal-Mart and its friends). Manufacturers have costs to cover and need money to keep the plant rolling.

Businesses around the world thus play in the short term credit market, some directly, most indirectly. They give IOU’s to cover their costs while they wait for receivables to come in, and they pay back as they can. Most businesses do this through a bank but some large companies play in the markets directly.

Bank and large company IOUs are the cash of the macro economy. They are where mutual funds put their money, and where banks park every dime of excess cash that they have, to make sure they make money on their money, rather than have it sit around. (Banks have a minimum of cash on hand they have to maintain – every dime above that minimum is parked somewhere it can make money, and this is done on a daily basis.)

When the short term credit market dries up and short term lenders like banks and mutual funds don’t want your company’s short term IOU’s, you’re dead. Again—missed payrolls, crisis selloffs, etc. GE is a perfect example of a company that couldn’t get enough cash and wound up having to mortgage itself to Warren Buffet. The auto makers are moving toward the same spot and that is why everyone is now saying they’ll get a government loan too. There are many small business examples.

The recent meltdown is so problematic because it has impacted every one of these short term credit markets. I’ll explain how…

The start of the problem was Fannie and Freddie. They were Government-sponsored home loan clearinghouses that wrote low-income mortgage guarantees. They collapsed due to too many claims against mortgage loan guarantees they wrote. This happened primarily because Fannie and Freddie were undercapitalized and underregulated (not subject, for example, to the reforms put in place after the Enron failure). They were never properly regulated because they were an insider institution—Government created, Government coddled. They were also a PC institution— affordable “subprime” loans for the underqualified was a sacred cow of the Democrats. Not surprisingly, Fannie and Freddie were in the pocket of the Democrats and vice versa, and Fannie and Freddie became havens for Democrat politicos. Fannie and Freddie dumped fortunes of cash into the Democrats to get protection—and poured some into the Republicans as well, to get cover. And Fannie and Freddie also dumped fortunes of cash into the pockets of their own executives, who arranged their compensation to be linked directly to the number of loans underwritten, rather than, for example, profitability or safety and soundness. The Democrats blocked every kind of real reform for years, and that is why that condition continued as long as it did.

Of course, an underregulated, politically connected institution with a penchant for guaranteeing risky loans is easy prey for Wall Street. Investment banks took advantage, which is what they live to do. In fact, investment bankers came to DC and completely took over Fannie and Freddie. Together, Fannie/Freddie and Wall Street sharks revolutionized subprime mortgage financing. The key tool was converting subprime mortgages into a different kind of instrument entirely—mortgage pools held together by elaborate “swap” contracts that dynamically grouped the loans into tiers. The top tier loans were whichever ones are being paid on or paid off, and the bottom tiers were whichever ones are not paid on or paid off. Obviously, the higher tiers have the lowest risk and bottom tiers have the highest risk. The mortgage pool pays the owners of the top tier securities the lowest interest rates return and pays the bottom tier security holders the highest interest rate return.

The subprime-mortgage-backed derivative securities were guaranteed by Fannie and Freddie, because the mortgages themselves were so guaranteed. Wall Street also arranged for the top tier securities to be reinsured by commercial insurers such as AIG. Those top tiers now looked really safe—they looked at lot like the short term paper Banks deal in fluidly. When you consider that any pool of subprime loans will include plenty of “house flippers” and refinancers, you’ll see that buyers of top tier securities would, at least until recently, be quite sure to get their money back very soon after putting it in. Only bottom tier people bore a risk of waiting for money to come back like a conventional mortgage lender. Of course, you can see the assumptions there—houses will hold value, people will continue to be able to flip real estate and refinance, etc.

The bottom tier securities mostly went to investment banks and investors ready to take a risk. Things turned out badly for those people, hence Lehman Brothers is no more…but that is not the big problem.

The big problem is that top tier mortgage backed securities entered the market for short term paper, previously occupied only by very safe borrowers such as banks and manufacturers, and very safe lenders such as money market mutual funds. Indeed, I understand that top tier mortgage backed securities were traded as freely as short term paper until the bottom fell out. If you want to lend some money, you can lend it to a bank, or a money market mutual fund, and now you had a third option: buy some mortgage-backed top-tier securities. If you need some cash, you borrow from a bank, or a money-market mutual fund, or you sell some of your mortgage-backed top-tier securities. Basically, mortgage-backed top-tier securities traded just like cash in the world markets.

Of course, the world market for cash demands certainty. Banks will only give short term IOUs to people they are absolutely sure will pay them back. Otherwise, since the bank has put every extra penny into the money market, if it does not get paid back the bank immediately falls below its reserve requirements. It will then get regulatory warnings, the balance sheet will show losses, and the stock will plummet. If it gets bad enough depositors get spooked and start to pull assets, making the bank more unsound, and the death spiral is unleashed.

Banks and other investors across the country put short term cash into mortgage-backed securities, and a lot of it. The SEC and various state bank regulators should have blocked this or at least limited it, but they didn’t. I hope the cause of their failure was naivete or stupidity, rather than corruption. We’ll find out.

The bomb went off with the housing bust. Borrowers stopped flipping homes and refinancing, and instead started going bankrupt and into foreclosure. Fannie and Freddie started taking hits on their loan guarantees. Fannie/Freddie were undercapitalized and had been so for years. When they dried out, which didn’t take too long, Fannie and Freddie died, and so did their loan guarantees to backed up subprime mortgage debts, and the securitized versions of them. The holders of lower tier subprime-based securities saw them become nearly worthless. Lehman Brothers died.

It was only days for the rest of the dominos to fall. Only those in the top tier, who were reinsured, remained. But they didn’t last long, because the constriction of financing for home buying deepened the housing slump, and possible claims over top tier securities against AIG and other commercial insurers severely crippled the balance sheet of AIG due to its massive reinsurance exposure. AIG bankrupted, and was immediately loaned huge amounts of cash by the US Government, before we even heard the news. You can see why. AIG was the last guardian of a massive short term credit pool built on mortgage-backed securities.

Now controlled by the US Government, AIG will sell off all of its profitable businesses to cover its reinsurance obligations. Its shareholders, massively diluted by the obligations to the US Government, will be waiting for years for the next dividend, if one ever comes.

AIG was rescued, but the damage was done. Nobody knows if AIG really has enough money to pay off its reinsurance obligations, and in fact, nobody will know for a very long time. The US Government has not said it will guarantee AIG’s reinsurance of mortgage-backed securities, it has only injected cash, become the preferred stockholder, and replaced management. Confidence is lost. Nobody will trade in mortgage-backed securities any more, even the top tier ones. What was being treated as cash is now being treated as worthless. So, the whole system is undermined. The banks that hold the top tier securities, which they bought to park cash, are now stuck with something else entirely: not cash at all, but a long term security for which there is no buyer.

Think about it—nobody knows to what extent these assets are going to pay back. Nobody really analyzed what they were buying and selling in the top tiers before, because they relied on guarantees. That situation is antithetical to short term paper which is supposed to be safe. Short term paper should be only those obligations that are so safe you don’t have to think about whether they’ll get paid back. Top tier mortgage-backed subprime securities are probably OK investments, but clearly, they are not cash.

Banks are obliged by recent reforms to “mark to market”, meaning they must reflect current market price for everything on their balance sheet. When the market for short term mortgage-back securities froze, those rules required the banks to treat those securities as worthless, and write off a huge portion of what had been cash reserve. Suddenly banks across the country were at risk of being unsound for having too little cash. Some were particularly bad —Washington Mutual, Wachovia, etc.—those that were major players in subprime lending.

When these mainstream banks found out those banks were unsound, the collapse accelerated— uninsured depositors at those institutions, such as small businesses with more than $100k on deposit, retirees with their nest eggs in COD’s, etc.—heard about the precarious financial condition of those banks and pulled out. The rest of the cash drained, and the banks failed.

Also, you may have read about a money market mutual fund that failed—it was heavily into mortgage-backed securities. Massive cash withdrawals from that fund forced it to drop below a $1 share price. They were bailed out using a depression-era fund established for just that purpose.

So, a huge amount of short term money was sucked out of the world economy by the failure of mortgage-backed securities. Then the effect spread through failures at very large banks and money market mutual funds. Confidence was lost in each of the three traditional places to park cash: banks, mutual funds and short term securities. Much of the lubricant of the economy spontaneously turned to jell-o.

Treasury moved fast, making money available on short term, propping up AIG, ensuring no depositors lost money, propping up failed money market funds. But there is still the original toxin—mortgage-backed investments that should be cash but are now recognized to be long term, risk-bearing investments. They have to work out of the system, get treated as long-term risky obligations that they are, and get replaced with enough cash to keep things running. This would happen over time, and the market would punish those institutions that bought too much of those investments. But that could be very painful and perhaps not survivable by an economy like ours.

Hence the current answer: the Government buys up to 700 Billion dollars of top-tier, subprime-mortgage-backed securities from the market, replacing them with cash. How much they are worth is unknown—but they are worth something because the homes that secure them are worth something. Maybe 30 cents on the dollar is a fair price … who knows? Any price is better for the system than where we are now, which is them being treated as worthless.

The only entity in the world that can buy these securities out of the market and replace them with solid hard cash is the United States Government, the world’s last and only Warren Buffet. If this does not happen, we’re going down the rabbit hole with no clear idea where it leads.

I find this all morbidly fascinating. However, I remain optimistic that through all of this, we will recover. We will suffer a recession about as bad as that from the dot-com crash, and come back stronger. This is a cautionary tale, something I’m sure we’ll learn from in future generations and hopefully will not repeat. Maybe our addiction to credit will finally be quenched for a few generations. One can hope.

A fine, succinct explanation from a guy much smarter than I am. It pays to have informed friends.

18 thoughts on “Flunked Econ 101? Read This…

  1. Don Fields

    I didn’t flunk Economics, I never took the class. Maybe this will cause you to write a post about the poor educational choices of Bible Colleges. 🙂

    Anyway, thank you so much for this very understandable and educational post! I also hope that I learn a valuable and lifelong lesson from this.

  2. john

    There is a very wrong assumption at the end of the article and it is this statement:

    “The only entity in the world that can buy these securities out of the market and replace them with solid hard cash is the United States Government”

    The U.S. Governmnent does not issue “Cold Hard Cash” anymore. All U.S. currency is I.O.U.’s

    There is nothing of value that backs American Currency or for that matter ANY major world Currency today.

    The only thing that backs ANY currency today is the felt belief that the government that issues it will honored if asked by the bearer to exchange it for a hard asset at some given point in the future.

    What has happened today is that most countries governments, the U.S. the worst offender of them all, has taken a liking to being able to print “money” at will and crank up the printing presses and create “money” out of thin air!

    Its called a Moral Hazard. The governments know that they cannot at anytime honor their commitment to exchange every Dollar I.O.U. for a hard asset. But most, except for the U.S. and Third world Banana Republics do try to slow the printing presses so as to not give the clear indication that they cannot at any given time honor ALL claims for all I.O.U’s (dollars) that they have issued.

    The U.S. dollar has become something much worse than a Mortgage Backed Security, it has become almost equivalent to a “Junk Bond”.

    The U.S. Government and its citizens are so far in debt that they have no hope of ever paying back all the debt that they owe.

    The U.S. Government with this bailout has only made a critical debt problem terminal!

    As rough as it sounds, the U.S. needs to go to the wall in order to reforn its economy and extricate itself from this culture of debt and replace it with a Biblically based economic system

    • Tom

      John is correct that US currency, like almost all others, are not asset backed but rather backed by fairth and credit. Oirignally, currency was coins which had metal value. Later, currency was paper, and was backed by gold on deposit by the country that issued it. After that, the idea of gold-backing was dropped, in favor of the notion that a currency had value as a conssquence of the issuing governmetn’s ability to tax its citizens and distributie the revenue as it wished including to prospective redeemers of its currency. Currency issued by a government that can tax from a healthy economy and use that money to buy gold (or whatever your measure of objective value is), is as strong as a currency backed by gold, just indirectly so.

      The world economy thus dropped the notion of hard currency a long time ago. This of course means, as John says, the US Government, and any other issuer, can dilute its currency by “printing money”. However, a responsible government wants to have its currency used as an economic vehicle, not be an international joke. One wants this, because the more dollars in circulation, flowing into and out of markets, the greater the wealth and power of the issuing country. Indeed, the dollar is the leading reserve currency in the world today and that is a foundation of the United States being a wealthy nation.

      The Treasury manages the amount of money it supplies to the market (known as the M1 money supply) so that its currency in circulation approximately corresponds to the amount of money that is needed to lubricate commerce in dollars. This is a published statistic one can watch. To the extent the Government does not borrow money to meet its debts, it has increased the M1. Mostly, the Government borrows money to finance debts. Of course, too much M1 and the currency’s value becomes unstable from inflation. However, economic growth requires additional currency to circulate, otherwise there is a currency shortage and deflation.

      Any government with a currency that is part of the intenrational money flow can increase its money supply — aka print money — without damage, in proportion to the economic growth of the part of the market that uses that currency. This is a basic reason that economic growth worldwide inures disproportionately to the benefit of the United States, because US dollars are used in so many parts of the world and not just the United States.

      One thing to watch closely in any slowdown, is the global value of the dollar or any other currency against others. So far, it has been the Euro and Yen that have lost to the Dollar. That means investors are wagering on the United States to lead the recovery, and thus the best place to have a currency investment.

      As to the National Debt, its significance is and has been a great subject of debate. Since the US economy is a dynamic thing, typically growing over time and thus shrinking the relative size of the Debt, the most useful statistic seems to be the proportion of national income that is consumed in interest on the National Debt, and by that measure, the United States is far better off than most if not all households. Furthermore, that statistic is going to become better in the short term, because in the current credit crisis investors have been purchasing Treasuries due to their inherent safety, running away other investments that might not be as safe any more. That has driven down the interest rate the Government has to pay to borrow money as debt from the US Government is now more in demand. It has also slaughtered the interest rates in non-Government debt, which is why all forms of credit based on non-Government debt including home mortgage interest rates, have gone down in this crisis and may continue to go down until some of the credit markets have readjusted. If you can qualify, this may be a once in a lifetime opportunity to get a new home mortgage at a rock-bottom fixed rate.

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  4. thanks! i’ve read many explanations but this one is both succinct and to the point (why this happened and what are the consequences for all). thanks!

  5. bob pinto

    Thanks for the post and the optimism. Business and economic forecasters have been screaming since I could remember.

    “Paper money is the end!”
    “The end of the gold standard is the finish of us all!”
    “The Federal Reserve is a secret organization of Jews and Masons set on bringing [name your disaster]!’

    Well, you get the picture.

    Harry Truman once said if you laid all economic advisors end to end they’d point in all directions.

    I’m an amateur myself. But things we panic about will change. Your friend’s Walmart example made me think.

    Remember when Sears was KING of retail, and on American made goods! They built that beatiful tower in Chicago which I visited recently. Now, they don’t own it or occupy it and aren’t the kings they used to be.

    Remember K-Mart? Oh, they, too, are still around but business is so much slower you can actually find a parking space near the front entrance.

    A business ad for an investment firm a couple of decades ago said something like, “We’re dull and conservative. Kind of reassuring in these times, isn’t it?”

    Empires come and go, crises come and go, and the end of the world still hasn’t come. My big concern is outsourced jobs from your and my neck of the woods.

    It seems ever since God said “by the sweat of your brow” we’ve been worrying and panicking. I’m no different.

    And I’ll probably die after having had a good meal.

  6. john

    Tom’s comments are all good and well for an explanation from a fallen humanist economical viewpoint. But The current Fiat money system is not moral nor is it Biblical!

    Biblicallly sound money has a fixed value, it does not have an allusory value that can be manipulated at will by those in power in order to manipulate and direct public opinion or business conditions to their favor.

    Fiat money, fractional reserve banking are both immoral and against God!

  7. John: Gosh, I’ve been misreading the Bible for years. All along, I thought it was about Jesus. Turns out it’s an Economics textbook. Bizarre how I missed that.

    OK, so that comment was snide as hell, and my apologies. But my point is a serious one. Prima facie, I think you’ll have a hard time convincing me that anything the Bible says about the content and structure of an economic system (as opposed to its goals) is intended for our time. Unless you’re serious about re-instituting stoning for disobedient children . . .

    Ken Smith

  8. john

    Biblically sound money backed by a commodity such as Gold prevents a government from turning its populace into debtor slaves taxed to death in order to repay an over inflation of a national currency.

    Every single fiat money system that has ever existed has led to economic failure as once governments gain control of the monopoly to print “money” at will, they have and will bankrupt a country by promising ever increasing benefits from the government treasury to the voting populace in order to purchase their support.

    The total outstanding U.S. Debt public and private including unfunded Social Security obligations is in the region of $44 Trillion. The U.S. government not only sell treasury bonds in order to increase government expenditure via debt issuance for benefits to the voting populace but it takes taxes intended for social security payments and gives the Social Security Fund Treasury Bonds in exchange.

    While it is true individuals are flocking to U.S. Treasury Bonds, they are only doing so because they are under the illusion that the U.S. Government is a safer bet to repay their debt than are dividends from Stocks and interest payments from corporate debt. The U.S. Government never repays ANY of its debt it only issues new debt to repay old debt and it increases the issuance of debt further indebting the country.

    The debt and economical model that the U.S. operates under was put forward by John Maynard Keynes who showed how a country could devalue old debt through inflation of its currency over time, thereby giving Currency an illusory and shifting value set by those who own the printing press.

    God was very clear in the old testament that merchants were to have an honest scale and were to not cheat buyers by making their scales unbalanced in the merchants favor, thereby enriching the merchants and impoverishing the populace.

    John Maynard Keynes was an Athiest Socialist who believed that the populace should be controlled by an intelligencia elite, and that inflation of a country’s currency over time was one avenue with which to gain complete control over the population.

  9. John: I’m entirely on your side when it comes to the stupidity of financing our economy through national debt. My grandfather was a conservative Democrat who hated Reagan, and I still remember his response when I pointed out that the economy had grown massively under Reagan: “Of course you’re going to flourish when you’re borrowing that much money. But it’s all a ruse.” And I’ve come to agree with him.

    But I think that your leap from the admonition to use “honest scales” to bringing back to the gold standard is, well, a bit of a theological leap. It reminds me of the old Sidney Harris cartoon:

    http://www.webamused.com/blogosophy/archives/002064.html

    Suffice to say, you need to be a bit more explicit in Step 2. If you want to argue for the Gold Standard, please, go right ahead. I don’t have any formal economics training, and for all I know, you could be right (though the arguments I’ve read against the Gold Standard seem persuasive to me). But I do have six years of formal theology training, and with that as background, your claim that the Bible prescribes the Gold Standard strikes me as well beyond doubtful.

  10. john

    Ken,

    you said this: “your claim that the Bible prescribes the Gold Standard strikes me as well beyond doubtful”

    I was not saying that the Bible prescribes a Gold Standard. All I was saying was that the Bible says for merchants to conduct themselves honestly.

    Our Economic system is run by Merchants. The Federal Reserve is not a Federal Agency, it is a Private Agency owned by specific banking fmailies as Shareholders. i.e the Merchants. And they do not conduct themselves honestly with our monetary system.

    I would say however that a gold standard would be much closer to a Biblical Moral Standard than a Fiat money system ever could as unfettered demand for gold would set its value. Fiat money systems values are prescribed by a small powerful elite, its value can be manipulated at will by them for their own ends.

    Fiat money systems have been shown over history, 100% of the time to enslave a nation in perpetual debt. This also violates a Biblical Moral standard of the “Jubilee year every 50 years where all debts were to be forgiven, so as to not enslave a nation or family into perpetual debt.

    It constantly amazes me how so called Christians can paint The U.S. Economic, Financial or monetary system as blessed by God or approved by God. No part of it meets a Biblical Standard.

    And in closing I enjoyed and agree with your article today:

    “Only One True Kingdom”

    I constantly received emails and letters from so called “Ministries” that claim this is the most critical election in our history! What little faith these people have! No election is the most Critical! What is critical is that those who call themselves Christians Live like it, and those who are not Christians turn to God in Repentence! Only then will this country be changed!

    • Stephen

      In a time like this, the Gold Standard is attractive. But the enthusiasm needs to be tempered:

      1) The gold standard was tried in numerous forms (gold bullion in the mercantilist era, true gold standard of the pre-Depression USA, and the Bretton-Woods gold standard we used until the 1970s). Every system failed in one way or another, the most spectacular being the Great Depression. The countries that kicked the gold standard earliest (i.e. Germany) were the fastest to recover. The USA was the last to recover, largely because the Fed couldn’t add enough liquidity to the market due to the gold standard.

      2) Adam Smith notes extensively in “Wealth of Nations” that rampant money inflation took place under the mercantilist gold standards; governments simply dilute the purety of the bullion, adding other metals instead. This doesn’t mitigate against John’s point regarding “sound money.” But please note that government can manipulate the money supply easily, no matter what commodity it’s linked to.

      3) So instead of using a volatile commodity to anchor our money, why not just have an inflation target? Or link money growth to GDP growth? It’s a similar concept, and it satisfies the need for “honest scales.”

  11. David

    I have to laugh at the concept of going back to the gold standard. There isn’t enough gold in the world to accurately back the current size of the US economy, let alone that of the world. That was the reason we left gold behind as “collateral” for our monetary supply; it limited economic growth.

    Let’s all face it: Debt is with us to stay. The question Christians should be asking themselves is this: At what point does our economy affect our Christian walk? At what point does the desire for economic security overcome our desire for Christ? At what point does the mark of this world get stamped on our forehead instead of the mark of God? Because once we’ve taken the mark of the world, it’s hard to turn back. At a certain point, the trumpet will sound, and that mark will determine our eternal future.

  12. john

    David said:

    “I have to laugh at the concept of going back to the gold standard. There isn’t enough gold in the world to accurately back the current size of the US economy, let alone that of the world. That was the reason we left gold behind as “collateral for our monetary supply; it limited economic growth.

    Let’s all face it: Debt is with us to stay. The question Christians should be asking themselves is this: At what point does our economy affect our Christian walk? At what point does the desire for economic security overcome our desire for Christ?”

    Again I did not say that the U.S. should return to the Gold Standard. What meant was that our current economic system and monetary system cannot be said to be Biblical in any shape or form. And accept it or not the Gold Standard is much closer to a God honoring monetary system than a Fiat money system. As the value of Gold is set by open demand. And the is the assumption I was making.

    Also you do make statement that follows along wiht God’s Word about the increase in lawlessness and the scientific principal know as “increasing entropy”

    Entropy is the increase of disorder. It says that ALL systems go from states of order to an eventual state of complete disorder. And the universe if left on its own will move to a state of complete disorder.

    Sound familiar? Entropy is known as the the fundamental law of fallen creation.

    so what you say about debt being here to stay, fits with the Bible’s premise of increasing lawlessness, and Science’s premise of Entropy.

    Everything we see about our economy today, and how it functions, each facet at one time was considered immoral. That is until that immorality became of wide enough acceptance to make it a legal activity. (An increase in lawlessness, or entropy)

    So it begs the question, how much of how our economy functions should Christians be involved in? And it goes to your point of:

    ” At what point does our economy affect our Christian walk? At what point does the desire for economic security overcome our desire for Christ?”

    Desiring to have a more God honoring monetary system or economic system is not a desire for more “economic security” It is a desire to honor God, and it is a desire to be the light, to be the salt, to the dying world around us.

    So the opposite could be said in your comment: At what point does our desire for material wealth and to be part of dubious financial dealings at the expense of Biblical Principles overcome our desire for Christ?

    I believe that our closeness to God is inversely proportional to how much we integrate ourselves into the immoral systems around us. We are to be world denying, not world confirming.

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