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Olive Tree Ministries (Link)
- Todd Strandberg (June 15, 2011)
There are growing indications that the U.S. economy is headed
back towards negative growth. The recovery that economists claim we�ve been
having over the past several months has been mild at best. The unemployment rate
went from a high of over 10 percent to just under 9 percent. We still have 16
million Americans out of work, and nearly 25 percent of the workforce is
underemployed.
Several key financial indicators are pointing to a slowdown.
Here are a few:
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In April, the economy created only 54,000 new jobs. The
unemployment rate climbed to 9.1 percent. Factory orders fell 1.2% in April,
the most since May 2010. GDP growth has declined to 1.8 percent.
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You can�t have a
recovery in the general economy without the participation of the housing
market. Real estate saw modest improvement, thanks to a tax credit
program that has now expired. In the last few months, home prices have
collapsed. The average selling price of a home is now below the levels seen
during the 2008 subprime meltdown. The decline has even surpassed the
decline seen during the Great Depression.
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President Obama tried to put a positive spin on the
latest woes, telling auto workers at an Ohio plant that it would take a
while for the economy to mend. �There are still some headwinds that are
coming at us. Lately it�s been high gas prices, then you have the economic
disruptions following the tragedy in Japan,� Obama said. �There are always
going to be bumps on the road to recovery. We are going to pass though some
rough terrain.�
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The problem with
the American economy is driven by longer-term issues. The national
debt is now over $14.4 trillion, and is within a couple of percentage points
of equaling our Gross National Product. We already have a $1.5 deficit
projected for fiscal year 2011. If the economy stalls, the deficit will soar
over the $2 trillion mark.
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The rating agencies that track the creditworthiness of
our debt are starting to see the reality behind the numbers. Last week,
Moody�s warned that it might have to cut the United States� coveted
top-notch credit rating if the White House and Congress do not make progress
by mid-July in talks to raise the debt limit.
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Another huge danger is the solvency of banks. As the
value of real estate drops, so does the value of the balance sheets of banks
that hold those mortgages. The big money center banks were already insolvent
when we went into this mess. Congress changed the accounting rules to allow
banks to keep the original loan value on their books.
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At some point,
the drop in housing prices will trigger a meltdown. The Bank of
America has $2.4 trillion in mortgages. If the market value drops by 5
percent, the potential loss for the Bank of America is $120 billion. The
firm only has a stock value of $114 billion. If millions of people start to
walk away from their mortgages, the too-big-to-fail banks will need
trillions of dollars to stay afloat.
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At the end of this month, the Federal Reserve will
conclude its program to buy $600 billion in bonds from the U.S. Treasury.
Since the Fed has been buying 70 percent of our debt at the weekly auctions,
it�s not clear who will step up to take its place.
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The Chinese have
already said they are not interested in raising their holdings of U.S. debt.
China has just sold 97 percent of its holdings in our Treasury bills--which
are securities that mature in one year or less. All their holdings are now
in longer-rate bonds that demand a higher interest rate.
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There is no way we can survive a return to recession.
The Federal Reserve has already printed $3 trillion to keep us afloat, and
we simply don�t have enough credit to fund round two.
We�re now at the point where the
dollar and the bond market could collapse at any moment.
I am amazed at how long our financial system has held
together. There are so many fuses all leading to the same pile of dynamite, you
would think that one of them would have been triggered by now. I think the
guiding hand of God is the only explanation for why the system has survived.
This whole scenario reminds me of a documentary I saw about
the bombing of Hiroshima. Months before the deployment of the �little boy�
device, the city was excluded from any bombing campaigns. The residents of
Hiroshima thought it was odd that Allied bombers never targeted their city,
which had major industrial and military operations. After August 6, 1945, it was
instantly obvious that the city had been spared to measure the damage caused by
the first military use of an atomic bomb.
The fact that we�ve
managed to avoid a depression for three years now seems to indicate that God may
be planning to drop a financial bomb on this sinful world. The
Rapture may be what triggers the financial meltdown. We will soon find out.
�I must work the works of him that sent me, while it is day: the night cometh,
when no man can work� (John 9:4). �
America ~ Economic Crisis ~ Obama |