Ten years ago we had Steve Jobs, Bob Hope, and Johnny Cash. Now ten years later we have no jobs, no hope and no cash. This may be true for those whose hearts are tied to this world system. As believers we all have a JOB, a HOPE, and an INHERITANCE. We are commanded to preach the gospel to every creature. We also have our hearts focused on the blessed hope of the imminent second coming of Christ. Lastly as believers we have an eternal incorruptible inheritance. We are heirs of the kingdom.
Now for an overview of the grim economic situation. The Franco-Belgium bank Dexia just collapsed. Not to worry, it just passed a European bank stress test in July! The problem was leverage. If a homeowner puts a $40,000 down payment on a $200,000 house, he is leveraged by a multiple of five. Dexia seems to have been leveraged 100. The bank is currently being dismantled. Belgium’s cost of the debacle has raised their total national debt by fifteen percent.
It seems as though the Europeans are using different accounting standards in the 17 countries in the Euro-zone. The British banks have shaved fifty percent of the value of their Greek bond holdings, the French have shed only twenty percent. Some financial institutions estimate that Greek debt should be written down sixty percent. If the French banks wrote down the bonds this much, it would drastically affect their tier 1 capital status. This would dramatically increase the need to recapitalize their banks.
This crisis has the potential to impact France’s triple A credit rating. It could also increase their financing costs and add to their already large deficit. The euro-zone is counting on France and Germany to lead the way to economic recovery. Current statistics show that economic growth in both countries is either flat or contracting.
Portugal, Italy, Ireland, Greece and Spain are all having similar problems. Sadly these countries are referred to in financial circles as "PIIGS". They are suffering from massive budget deficits, high unemployment and severe social unrest. The world is now focused again on bailing out Greece. As Europeans dither, the debt plague is spreading. Italy and Spain are too big to rescue with the current 440 billion euro bail out fund. Some estimate that this Sovereign debt crisis which has metastasized into a banking crisis could cost up to two trillion euros to resolve.
It took since July to approve the current 440 billion euro bail out mechanism. Europe breathed a sigh of relief when Slovokia’s government finally approved the proposal. Now there is concern that Finland will insist on collateral from Greece. This could jeopardize any further expansion of the fund.
The whole system seems ready to collapse. We may be heading for another Lehman Brother’s moment that will create a global credit crisis. It is proving impossible to solve a debt crisis by adding more unsustainable debt. The austerity measures being introduced in the peripheral counties are increasing unemployment, reducing tax revenues, accelerating this downward debt spiral.
Twelve British banks were just downgraded by the major credit rating agencies. The same day the British government flooded their banking system with 75 billion pounds of additional liquidity. The value of the pound fell in response to this fiscal easing. That day alarm bells also went off in Japan. The value of the yen spiked against the euro, making exports from Japan less competitive.
Are we surprised by these events? In the Last Trumpet first published April 1980, there are two articles focusing on a debt crisis which would lead to worldwide economic collapse. These articles focus on future economic conditions in Great Britain and Japan. Please read the articles and see if you think my brother and I were good guessers or that the God of Israel answered our prayer to show us “THINGS TO COME