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Wednesday, March 31, 2010

#Economic Crisis 101

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Nehemiah 5:9

"I and my brothers and my men are also lending the people money and grain. But let the exacting of usury stop."

It has been a long time since people have obeyed the prohibition of usury. But today the total consumer debt, business debt and government debt has reached unsustainable levels which can never be paid back. The economy based on such unsustainable debts cannot continue to grow.

The government encouraged banks to loan money to low income families for mortgages. Houses were sold with no down payments and no income checks to people who could not afford them. These loans were repackaged and sold as mortgage backed securities with AAA credit ratings given by the biggest bond rating agencies. The result was the biggest mortgage bubble in history with rapidly rising house prices. Eventually a lot of the borrowers could not make their payments and forclosures rose to record highs. This resulted in lower housing prices and a large number of home owners owed more on their mortgages than their houses were worth. This led to a vicious circle of spiraling foreclosures and lower house prices.

Credit card interest rates of 20% to 30% are certainly usury and are at ridiculously high rates. It is better not to borrow at such rates for things which are not needed.

Mortgage rates, however, 30 year fixed rates at 5.03% are not usury. In fact some time before thirty years are up it is likely that inflation will go way up along with interest rates. The money will be paid back with cheaper dollars. It is not a good business model for banks to borrow money in the short term markets and lend long term. To insure profits these loans are resold to the public as mortgage backed securities, insuring an underwriting profit for the banks. A large part of these loans are resold to Fannie Mae and Freddie Mac which were insolvent and whose bonds are now guaranteed by the government.

The total national debt is $12.3 trillion dollars and the deficit for this year alone is projected to be $1.6 trillion dollars. Such a deficit will be hard to finance. This is the sovereign debt crisis. The debt will never be paid back but each year the debt is rolled over with new lenders to pay back the old lenders plus new deficit. This is what is called a Ponzi scheme. The Madoff Ponzi scheme was very small compared to the sovereign debt Ponzi scheme. Now the deficit has reached a crisis stage. It is hard to find new buyers of the debt. Recently a large percentage of the debt was monetized by the Fed. That is to say the Fed created the dollars out of nothing to buy the debt. If this continues it will be highly inflationary. The US Government is no different than Zimbabwe printing money. Inflation was so high in Zimbabwe that they started printing $100 trillion dollar bank notes which are now worthless. The Fed does not say in advance that there will be high inflation but tries to talk down inflationary expectations. The Chinese are uneasy about the large amount of treasuries which they own worrying if they will become worthless. They have good reason to worry.

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    In Nehemiah 5 we hear complaints by needy men,
    Of the conditions that existed in the nation then.
    Some said "We've had to mortgage all our vineyards and our fields,
    To get grain during famine though they've had abundant yields."
    Some others said "We've had to borrow money for the King,
    Whose taxes on our fields and vineyards leave us not a thing."
    Still others said "Their flesh and blood is of our family tree,
    Yet our children suffer under yoke of slavery."
    When Nehemiah heard them, anger great he could not mask,
    The nobles and the rulers were the ones he took to task.
    He called a great assembly where he chose to lay the blame,
    On bankers, judges, politicians who had run the game:
    "You are exacting usury of your own countrymen,
    Unlike my men who freely lend to needy brethren.
    What you are doing is not right, you must do as we do.
    So "Stop exacting interest!" It is the Big Taboo.
    Return their fields and vineyards and their houses and their grain,
    And also all the usury, the whole illicit gain."
    The nobles and the rulers said: "They will not have to pay.
    We'll give them back all their possessions. We'll do what you say."
    Prosperity resulted from his ban on interest,
    "Remember me, O God, with favor" was his last request.
    Watch out for many Bibles where the most important phrase,
    Has been deleted from the text, the problem not to faze.
    The message Nehemiah states is "Stop the interest,
    And give them back what you have seized and it'll turn out best."
    The newer versions of the Bible simply state "Atone,
    And give them back their stuff." No talk of interest on loan.
    Who chose to cut the answer out? Who played this evil role?
    We know the ones who own the publishers have sole control.

  2. King of the Paupers, if you happen to return here, thank you very much for your valuable input.

    Usury is one of the things that bothers me the most. Yet no one seems to speak of it at all...