Tag Archives: hyperinflation

Coronavirus: Bursting Babylon’s Bubble

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Hanging Gardens of Babylon

Our world has been hurtling toward globalization for decades. Progressives spend their lives devoted to the cause of globalization with zeal unmatched by most of their ideological opponents. And, with the enthusiastic and unwitting help of their conservative opponents, a global capital economy has engulfed the majority of today’s societies.

From the point of view of economics, a nation is simply a political barrier to the movement of the factors of production. Since capital freely flows across borders in our modern global economy, globalization is nearly accomplished from an economic standpoint. Regional economies such as the European Union already allow the free movement across national borders of another factor of production—labor.

With a global economic system in place, progressives need only consolidate political power to achieve their goal of a one-world government. Progressives hate nationalist and populist movements because they stand in their way. I think this explains the irrational hatred of Donald Trump and his supporters among the media and progressive elites as well as the opposition to Brexit.

Nations Have a Purpose

From one man he made all the nations, that they should inhabit the whole earth; and he marked out their appointed times in history and the boundaries of their lands. God did this so that they would seek him and perhaps reach out for him and find him, though he is not far from any one of us.

—Acts 17:26-27

People have a natural, sinful tendency to think they are self-sufficient, without any need for God to help them succeed.

You may say to yourself, “My power and the strength of my hands have produced this wealth for me.” But remember the Lord your God, for it is he who gives you the ability to produce wealth—Deuteronomy 8:17-18

In the Bible, Babylon represents any world system antagonistic toward God and his people. It is no wonder then, that the most famous king of Babylon was judged for failing to recognize God’s sovereignty over him.

All this happened to King Nebuchadnezzar. Twelve months later, as the king was walking on the roof of the royal palace of Babylon, he said, “Is not this the great Babylon I have built as the royal residence, by my mighty power and for the glory of my majesty?”—Daniel 4:28-30

This illusion is even more powerful and destructive when the entire world gathers together to solve humanity’s perceived problems without any deference to God and without acknowledging the real problem facing humanity—sin. At the tower of Babel the result of humanity’s desire to unite in rebellion would have been so disastrous that God, in his mercy, confused their language and scattered them over the earth. Better a world divided into nations than a world united in apostasy.

Recognizing Babylon

Both Scripture and history describe the world system called Babylon.

John in Revelation 17:5 describes Babylon as the great harlot (Revelation 17:5). The Bible uses adultery to describe idolatry. Idolatry is unfaithfulness to God (Hosea 1:2). Babylon opposes God’s redemptive plan and replaces it with human self-sufficiency. Babylon seeks power and wealth in an illusory attempt to get away with a sinful lifestyle opposed to God’s standards (Revelation 18:3). The great whore Babylon seeks worldly wealth convinced that its lack is humanity’s real problem. It hates the real riches we can obtain only through Jesus (2 Corinthians 8:9).

Babylon at the time John wrote the Revelation was Rome, an empire that persecuted Christians and sought to control vast portions of the world. The world system Babylon at the end of the age will be drunk with the blood of the saints (Revelation 17:6) as it seeks luxury. Its merchants will both fear and mourn her demise, one she never saw coming because of her rebellion against God (Revelation 18: 7,10-11).

We can recognize Babylon as any society that makes wealth acquisition its top priority at the expense of others (i.e., slavery in Rome, or enslavement by debt in modern societies) and one that opposes God’s standards of morality while persecuting Christians who would stand against its man-made standards.

Coronavirus vs Globalization

Globalists/progressives try to plan the world’s course without God. Our modern day situation is really not that much different than that at the tower of Babel. The predictable outcome now seen in the developed world—record individual, government and corporate debt, unrestrained sexual immorality, rampant abortion, small families and the resultant demographic crises—can be directly attributed to the all-out quest to serve money instead of God.

The coronavirus, with astonishing speed, has brought the global economy to a standstill.

Will anyone notice the spiritual implications?

We don’t know how long the coronavirus will wreak havoc on the global economy. But even if the pandemic ends sooner than expected, it will leave in its wake a worldwide economic crisis (more on that in my past and future blogs).

Has coronavirus dealt a serious blow to globalization? Or, will progressives find a way to use it to their advantage, not willing to let any crisis go to waste? It’s not hard to imagine a progressive call to unite the world to fight future pandemics and to resolve the looming worldwide economic crisis. Of course, they will want to expand government to attain their goal.

Bursting Babylon’s Bubble

This is where American Evangelical Christians need discernment. We have been told that, before coronavirus, the United States economy was very strong; even the best we’ve ever had. That’s a lie. Our economy and the world economy were unsustainable; they were built on debt. Coronavirus was simply the pin that pricked the debt bubble. The underlying problems in our economy and that of the world are so deep and severe that two or three months of a shut down economy pale in comparison.

Years of artificially low interest rates have increased the money supply (in the form of debt) to unprecedented levels. When all of that money is unleashed on economies that have misallocated resources into non-productive assets, prices will skyrocket as competition for necessities increases amid a slowed economy. The world is awash in debt it cannot repay (Psalm 37:21). Babylon cannot solve the problems it has made for itself.

Christians Unite

God will not give his glory to another (Isaiah 42:8). Not to progressives, not to conservative politicians, not to our economy, not to a united world. God provided the solution to the world’s problems when Jesus Christ died on the cross for our sins and rose from the dead. If Christians are to unite, let’s do so to proclaim God’s mercy to the world.

How Much Socialism Does It Take to Collapse An Economy?

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Empty shelves depicting economic collapse
How Much Socialism Does It Take to Collapse An Economy? Part 1

Economic and societal collapse in any nation is a tragedy. Inflation at 700% (expected to reach 2000% by 2018) devours the life savings of every Venezuelan. Food shortages along with high food prices caused the average poor Venezuelan to lose 19 pounds last year. Violent protests wrack Venezuela leaving some no choice but to flee their homes hoping to find a better life in a neighboring country. Others, with medical or engineering degrees in hand, have fled to Columbia but have found no work except as prostitutes. Economic sanctions squeeze Venezuela, restricting its ability to borrow money, though some nations, for political reasons, may lend at punitive rates. Meanwhile, President Maduro apparently has no intention of stepping down or declaring bankruptcy.

We might not give this situation much thought because 1) we can’t seem to do much about it and 2) we cannot imagine ourselves in Venezuelan’s shoes because we think this kind of economic collapse only happens in socialist/communist nations headed by a dictator. We may even look at Venezuela’s plight and say, “they’re getting what they deserve.”

It seems preposterous to think the United States could ever experience such a fate, but is it really? Can the havoc wreaked by socialist dictators be replicated in a capitalist democracy?

Common Threads

To answer these questions we ought to look for similarities in our economies.

For example, though we don’t have a dictatorship, state-owned enterprise or central government planning of the economy like Venezuela has, we have a central bank that wields enormous influence over our economy and free enterprise. Artificially low interest rates, induced by the Federal Reserve, direct capital from where it would naturally flow into wasteful endeavors much in the same way a socialist government directs its citizens into endeavors they would normally not engage in.

We also share a system of unsustainable wealth transfers.

Unsustainable Wealth Transfers in Venezuela

Venezuela’s leaders wanted to decrease inequality and increase the size of its middle class. But, instead of investing in a diversified economy and paying for social programs via taxes, Venezuela nationalized its oil industry, and used oil revenues to purchase foreign goods and to pay for social programs. When oil prices plummeted, Venezuela’s economy could neither pay for imports nor produce the goods required to sustain its people.

Not only had Venezuela failed to invest capital in productive endeavors, it hadn’t even attempted to move its poor workers into more productive enterprises. Venezuela’s leaders chose instead to feed its social programs with proceeds from a finite natural resource (oil) whose price they could not control.

The result was predictable. When oil revenues fell, the government started printing money to pay for social services. As inflation increased and the nation destabilized, even more foreign capital fled the country.

Unable to provide for its own needs, Venezuela must buy what it needs from other nations. As their currency devalues in relation to other currencies, the price of foreign goods increases. Since the only thing they have to offer is their currency, they print more which only makes it less valuable. This downward spiral of inflation and currency devaluation usually ends in hyperinflation if that nation has, for reasons of war or economic neglect, lost the ability to produce its own necessities.

Most instances of hyperinflation have occurred in nations that have lost a war that destroyed much of their infrastructure and capital equipment. War reparations and debt exacerbate the situation. Venezuela is heavily in debt, doesn’t pay its bills and its Socialist leaders have destroyed their economy from within. Even with a reversal of course, Venezuela faces a grim future.

Unsustainable Wealth Transfers in the United States

The United States has a much stronger, larger and more diversified economy than Venezuela, so it would seem we do not face the same dangers. But we too have reduced our capacity to produce what we need, relying on cheap imports for many of our basic goods while increasingly selling services to the world.

Instead of exporting oil, we export dollars to fund our social programs and purchase foreign goods. Because the dollar is the world’s reserve currency, our trade deficit provides a seemingly never-ending supply of foreign-owned dollars ready to purchase our debt (Treasuries). We then use those dollars to fund our ever-increasing social programs, thus decreasing the burden of American taxpayers and placing it, in part, on the shoulders of our trading partners.

Contentious Narrative

The contentious narrative in America concerning social programs stems, in part, from the belief on one side that all social spending comes directly out of their pockets via taxation and the conviction on the other side that we need social safety nets because the economy isn’t generating growth for everyone. Few voices point out that there is little incentive for either political party to make unpopular decisions to decrease spending on social programs as long as the U. S. dollar remains the world’s reserve currency.

Just as contentious is the subject of inequality. Some are convinced it only occurs because of differences in ability and effort while others insist it mainly results from oppression and/or crony capitalism. Lost is the fact that, like Venezuela, we have failed to invest capital properly. Because of artificially low interest rates, large quantities of capital have been diverted from productive investment into asset bubbles that mostly benefit the wealthy.

Will our large and diverse economy shield us from calamity even though we, like Venezuela, have funded our social programs from an unsustainable source and have neglected our economy so that more people are dependent on social programs?

To complete the comparison of the U.S with Venezuela we need to determine if the path we are on predictably and inexorably leads to a currency collapse. Part 2 in this series discusses that and more.

Helicopter Money

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helicopter drops money

According to some economists and government leaders, parents all across America have evidently been wrong for decades. Money actually does grow on trees.

To these leaders, money is free. All you have to do is create it, ex nihilo, and watch as it magically transforms into stuff everyone can use and enjoy. This is but one more example of economists abandoning common sense while claiming that what holds true for individuals somehow doesn’t apply to nations.

The Economic Chicken and Egg Question

Most economic theory boils down to two disparate beliefs, either that supply necessarily precedes demand or that demand necessarily precedes supply. The predominate belief, implemented by central banks around the world, is the latter. It’s otherwise known as Keynesian economics.

It is true that need precedes supply, but need is different from demand. Need always exists. Demand doesn’t. Demand implies the ability to pay for what someone else supplies.

In reality, the only thing we have to offer anyone for their goods or services is the fruit of our own labor be it in the form of goods or services. Not so for Keynesians. They believe simply having money creates legitimate demand. But this is a disingenuous position, because even Keynesians would not accept counterfeiting by individuals.

Somehow, though, counterfeiting is morally good if done by the government.

They base this belief that it is good for the government to create money “out of thin air” on the premise that falling prices, i.e. deflation, leads to a death spiral of delayed spending, reduced profits and increased unemployment. I discussed this false premise in a previous article on negative interest rates.

Thus, for many economists, inflation is the key to economic growth. They believe the threat of higher prices in the future causes people to spend more now, leading companies to hire more workers to produce goods that meet this demand.

So, when considering supply and demand, which is the chicken and which is the egg?

Why It Matters

Too much money chasing too few goods and services produces inflation. If governments can increase the amount of money people spend without a commensurate increase in the amount of goods they supply to society they can achieve their goal of inflation.

There are only three ways to gain wealth above and beyond what you have produced through work. You can steal, borrow or receive a gift.

I have discussed how inflation is theft, yet governments and central banks act as if inflation is the gift that keeps on giving. Our government, in its quest for inflation and ever-increasing demand, encourages covetousness and its accomplice debt by offering tax deductions for interest payments. Artificially low interest rates allow this generation to steal from the next.

The alternative perspective that supply is prior to demand recognizes that need motivates people to provide for themselves and their families. As they become more productive through experience and innovation, their productivity increases which means they can gain more wealth per hour of labor. This is just another way of saying prices fall (deflation).

This cycle of work/save/spend is morally superior to the Keynesian cycle of borrow/spend/work because it recognizes that the borrower is a slave to the lender. Its practitioners are less likely to succumb to covetous desires to acquire wealth outside God’s providential timetable. It also does not leave them open to being those the Bible describes as wicked because they borrow and do not repay.

Helicopter Money

I suppose that one’s stance on these matters depends, in part, on whether or not one believes that policies geared toward increasing demand have worked.

Despite declarations from politicians and economists that the economy has recovered from the 2008 crisis, it has not. Keynesian policy has not worked as evidenced by the fact that the dire situation portrayed in my post, The Wizard of Odd, has only gotten worse during the past year. Quantitative easing and near zero interest rates have not succeeded in increasing inflation or the hoped for demand but have succeeded in increasing debt.

Rather than admit defeat, central bankers are willing to go “all in” to prove their economic theories work. Not only has there been talk of negative interest rates, but also of “helicopter money.” This term is not new, Milton Friedman coined it in 1969 to describe what could theoretically be done when all else failed to produce inflation. The fact that anyone even mentions helicopter money now indicates the poor condition our economy is in.

The Federal Reserve’s Hubris

With their heads planted firmly in the sand, central bankers continue to deny the ticking time bomb they have created by flooding the economy with money. They even have the hubris to blame the failure of their policies to increase demand on banks for not lending the money and on consumers for not taking out loans. So, in their benevolence and intellectual superiority, they will consider plans to place money directly into the hands of consumers. Instead of giving money to people who already have plenty like they did with quantitative easing, they will give it to people they believe will actually spend it.

But, I think these “intellectual giants” have underestimated the public. Yes, many will spend the money, but there will be plenty of people who will be prudent enough to pay off debt with the money they are given. The problem of low demand the Federal Reserve seeks to fix will persist.

Former Federal Reserve chairman Ben Bernanke, while acknowledging the political difficulty of implementing a helicopter money policy (because it will remove central bank independence), touts the benefits of “helicopter money” in the form of increased public spending or tax cuts financed by a permanent increase in the money supply. He asserts that such a move, unlike debt-financed programs, would not be paid for by issuing new government debt to the public and would not increase future tax burdens.1

Money Doesn’t Grow On Trees

Herein lies a major flaw in Keynesian economics – failure to recognize that every dollar issued is an I.O.U. Helicopter money will monetize debt, both public and private. Critics warn it could result in hyperinflation. They’re correct.

But this is the endgame we find ourselves in. Those in charge of our money will destroy it because of an irrational fear of deflation and because of a defiant defense of their belief that “governments should never have to give in to deflation.” 2

Imagining that money grows on trees won’t save our economy. Money dropped from metaphorical helicopters won’t either.

Notes:

  1. Bernanke, B S. (2016), “What tools does the Fed have left? Part 3: Helicopter money”, Brookings Institution, 11 April.
  2. Bernanke, B S. (2016), “What tools does the Fed have left? Part 3: Helicopter money”, Brookings Institution, 11 April.