The “Shock and Awe” of the Iraqi and Afghani Wars and Future Inflationary Debt Spiral
Do you remember the three months after 911 when the entire economy of America took a sabbatical and went on a spending free vacation? The air fight traffic was in a tailspin. Nobody was flying overseas. People stayed at home. For the first time in decades the family had time together, and bible study groups were popping all over the nations, block after block.
We are about to walk through another lesson experience as the economies around the world are exploding and imploding. Debt and leveraging your income is out and frugality is in. Americans are slowing paying off their debt burden and learning to live on less. People all over the nation are cleaning out the clutter and the decades of storing their treasures are now being transferred to the flea markets and antique and collectable market places.
This is occurring so much that the antique dealers are overloaded with everything with the largest inventory in decades. If you wonder why, look how we accumulated debt since 1980s! Now we are trying to unload 30 to 40 years of living in excess.
So we look at the total economy, and realize that we are reducing our debt burden, spending less, and the marketers are floundering because the “golden calf” is melting away. When the economy crashed in 2008, many learned a valuable lesson.
Now we are looking at an economy that exploded for decades and we thought that was normal. Now the whole economy is deleveraging and savings has now come back into fashion. Remember the 1950s when a 1-2% growth rate was looked upon as normal even for the stock market? Now for 12 quarters in row, that is for the last three years, the personal consumer debt as a share of the total economy has declined. We are learning again how to be frugal, to live within our means, but will that be enough?
What is known is that consumer debt produces a systemic decay in both the national economies and affecting most the global economy. When consumer driven America sneezes the rest of the world catches pneumonia.
Up until 2008 all the wise pundits on national TV or the new politicians plying their political wisdom were complaining with obsessive about how high was the debt of the American government. But it was the excessive private consumer debt that drove the Stock Market to collapse on Rosh Hashanah 2008. We could not buy enough houses. Houses to live in, houses to fix up and sell and houses to rent. Then we added all the amenities to fill them up and to gratify our own delicate taste for ambience. When the housing market collapsed, the economic impact upon the rest of the country screeched almost to a halt.
Let us take a small vignette and look at the European debt crisis. What is little known is that Greece was unique or a loner in the European debt market, for the public sector debit was wildly spending beyond its means while the private sector debt was quite conservative. Was this because too many people were sucking off the spigots of the government? This is the international perception and probably correct.
The Falling Private Debt Load of Americans since 2008
Today, the cities and governments within the European economy are in harsh financial constraints as they find it more and more difficult to borrow money. As such they are having to borrow at higher and higher rates. Yet from the 2008 world banking collapse to the theoretical end of the American recession in June 2009, the total American debt load has declined faster than any other era since records began in the early 1950s.
At the same time, as a share of the economy, the private debt has plunged as families are dumping debt, in what we are calling deleveraging. At the same time, banks are doing the same thing, plus nonfinancial institutions, states and even local governments and entities. The total debt to the gross domestic product (GDP) fell from 3.73 times the GDP to 3.36 times.
Compare these statistics. Since the recession theoretically ended in June 2009, and the eleven quarters that followed, the personal domestic debt rose by $702 billion or 1.4%. Yet, in the eleven quarters before the recession began at Rosh Hashanah in the fall of 2008, during the years of 2005 to 2007 the personal domestic debt rose by $10.7 trillion or 28%. This is when consumer debt went into an extensive bubble.
This difference is huge for Americans were acting and living as if there was no tomorrow. As America lived, so the rest of the world watching and dreaming that this was how they wanted to live. They wanted a life like the American consumers and their private sector debt also skyrocketed.
The American and the European global economies were growing rapidly at a rate that was not sustainable. Even China and Russia were greasing the wheels to fuel the engines of their economies, stoking them to a faster and faster pace. Yet it was the economists that were giving the warnings.
Low consumer debt loads are all essential to the growth of the economy, but the Tulip Craze Bubble of the Netherlands in 1636-37 finally caught on in a rage as the “Me Generation” citizens of the western world economies lived up to their reputation of living and acting like the modern purveyors of the Grecian Hellenism; “live for today, for tomorrow we might die.”
The “lust” of mammon, or the “Golden Calf Syndrome” that almost destroyed and derailed the Mount Sinai experience and the establishment of National Israel was having its same affect today. Let us not forget, “lusting” has little to do with sex. We lust after everything that turns our eyes away from the G-d of Israel as the Sustainer of the Universe.
Yet, we’ve been here before. During the Roaring 20’s the private debt skyrocketed and when the private families began to unload their debt, the bottom kept plunging down and down. It took World War II to pull America out of the 1929 Depression. Even though the wars are today officially over, the cost of paying for them will go on and on.
According to the Congressional Research Service estimates posted on March 29, 2012, the Federal spending on the Iraqi-Afghani War up through 2012 was estimated to reach $823 billion. This surpasses the $738 billion in inflation-adjusted dollars that America spent on the Vietnam War, but still far less than the $4.1 trillion spent on World War II. Maybe this is why it is imperative that the whole world collectively must shoulder the cost of past wars with the formation of a New One World Order.
The question we must then ask, “if the plummeting personal debt ratio continues to spiral downward into another, this time “Inflationary Depression” will it take World War III to pull us out of the spiral. If so, the prophets of Israel appear to be right, for they give us some big clues as shown in Ezekiel’s Gog-Magog War (Ezekiel 38-39) or Revelation’s Armageddon (Revelation 16:16).
The Cycles of Debt in relation to Inflation and Depression since 1920
It is generally agreeable that consumer debt is good at lower and modest levels for this fuels the economy and contributes to growth and economic stability. This was the conclusion of a position paper presented by Stephen Cecchetti, M.S. Mohanty and Fabrizio Zampolli, economists for the Bank of International Settlements (BIS), at the Jackson Hole Conference by the Federal Reserve on August 2011, titled, “The Real Effects of Debt.”
Cecchetti and co-economists – “Beyond a certain point, debt becomes dangerous and excessive,” and can lead to increased volatility, financial fragility and slower growth. It can even bring down the real economy with it, as we have seen.”
Then they laid the markers or parameters of when the economic growth will become impaired; when “nonfinancial corporate debt hits about 90% of GDP, or when household debts hit 85% of GDP, or when public debts hit about 85%. Also during this time period, between the years of 2007-2010, the median American household lost almost 40 of its wealth, most of it tied into the value of their homes, whose value plunged during the recent recession and beyond. According to Scott Hoyt, and economist for the Moody’s Analytics;
Scott Hoyt – “Richer people owned more bonds that didn't get killed," Hoyt said. "For middle-income households, their primary asset is their house, and the government stimulus backstopped incomes at the low end.”
How is this reflected in real life? In the United States, the household debt reached a peak of 98% of the GDP in 2008 and has fallen today (2012) to 84%. Nonfinancial corporate debt reached a peak of 83% in 2008 and now has fallen to 77% of the GNP. Financial sector debt reached a peak of 123% of the GNP during the financial collapse of 2008 when the New York Stock Exchange fell 777 points in one session as the Fall Festival Season of the Jewish people was beginning on Rosh Hashanah. It later plunged from 123% in 2008 down to 89% in 2012. Yet, the public debt rose from 56% in 2008 up to 89% in 2012.
As the Sentier Research reported in April 2012, in spite of the official end of the recession in June 2009, the median household income continued to decline as it was adjusted for inflation. It was still 5.9% lower than when the recession began in 2008, and 8.3% lower than in late 2007. According to Gordon Green, the co-founder of Sentier;
Gordon Green - “The decline is larger and more persistent than in the recovery from the recession after 2000, when family incomes were restored within 18 months. Incomes went down more during two years of this recovery than during the recession itself. I don't think we've seen anything like this."
According to Federal Reserve’s flow of Money Report, the deleveraging in the private sector still is in its infant stage and watching what the consumer market is still doing today, still has a few more years to go, if the economic conditions do not change. But, what if the finger of the G-d of Israel intervenes with the world market collapsing and bring now virulent catastrophes around the world that will disrupt the world’s social cultures? What if there suddenly appears a true “act of G-d” such as that “Planetary Angel” that made a “Pass-over” ancient imperial Egypt and the theoretical speculation becomes a true reality as that dark binary star, called Planet X reveals itself as G-d's emissary of judgment. The world plunges into a pole shift. This will couple with a worldwide earthquake in which “all mountain and all islands will be moved out of place.” (Revelation 6:14)
Giving ourselves a bigger picture though, we may not be able to envision the finer details, that the G-d of Israel is orchestrating all the events at the “time of the end” to its appointed end, for it appears that the “Appointed Time” has come for the “Age of Man” to end and the “Age of the Messiah” to begin. The vision of the future by the prophets of old suggests that learning to live debt free is part of G-d’s economy where in every fifty year Jubilee all consumer debt is abolished and there will be “no more war” until the “Forces of Darkness” under the control of HaSatan are completely destroyed after another millennium. What a day that will be!
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