Wednesday, December 31, 2008

Slouching to the Beast

The politicians and bankers will prop it up their economies, but they will be sowing the seeds that sprout into the next problem. That is fine, because political powers never want correct solutions. They cannot eliminate problems, because they need the next crisis to justify an expansion of power.

Mistakes by political leaders do not mean state power will diminish. State power will increase dramatically throughout the economy and society, as people demand political action to solve the problems their political leaders created. The main consequence of the credit crunch will be an enormous increase of state power throughout the world.

America is slowly grouching toward being the Beast. The home of market capitalism and the bastion of independence is becoming the breeding ground for state power. Faith in the state has been growing rapidly in the United States over the last few decades. The state has now made a huge series of interventions in the economy and most Americans are cheering. People who would not accept telephone number that includes the digits 666 are glad to have the state bailing out the banks and auto makers. They will never be a credible resistance against the creeping power of the state again.

The credit crunch will not destroy American power. The productive base of the United States is strong enough that after a brief hiccup its world empire will keep on expanding. The only impact of the credit crunch will be a sharp shift from freedom and independence towards state subservience and control. This radical change will happen without even a whimper of protest.

Tuesday, December 30, 2008

Uncertain Economy

At the moment, I am not certain how things will go. There are two possibilities.

  1. The actions of the political and monetary authorities might be effective. Sometimes the wrong solutions are effective for a while, even if it stores up problems for the future. The capital injections of central banks may be enough to unclog the banking system. Collapsing gasoline prices and declining mortgage interest rates might make households feel confident enough to take out their wallets and start spending again. The world economy might respond by changing up a gear and moving slowly back into growth mode.
  2. Government policies might fail. Unemployment could surge upward meaning that more and more households are unable to make their mortgage payments. An increasing number of mortgagee sales could cause house prices to collapse even further. More toxic bank debt might be exposed causing the banking system to implode. A big wind down in consumer spending could bring business activity crashing to a halt. These effects could join together in a vicious circle of decline.
The political and financial authorities hope that the first option will prevail, but they cannot be certain.

One outcome is certain. The credit crash will lead to an immense increase in state power. Huge losses in personal and economic freedom will be welcomed throughout the world by people who want to be rescued from troubles.

Robert Higgs

Robert Higgs has made a detailed study of the Great Depression and understands it better than the other famous student in high places. He is concerned about the Fed flooding the banking system with reseves. Excess reserves have gone from $2 billion to $559 billion in three months.

So much potential new money is now impounded in the commercial banks’ holdings of excess reserves that it is difficult to see how the Fed will be able to stem the flood once the banks begin to transform those excess reserves into normal loans and investments. If the Fed attempts to sell enough government securities to soak up the growing money stock, it will drive down the prices of Treasury bonds and hence drive up their yield, increasing the government’s cost of borrowing to finance the huge budget deficits the government will be running because of its various bailout commitments and so-called stimulus programs. This scenario holds the potential for a complete monetary crackup.

I have never been inclined toward touting doomsday financial scenarios. I raise the possibility now because I am unable to foresee how the Fed and the Treasury can navigate through these treacherous waters - waters that their own previous actions have whipped to a foam - without creating terrible financial and economic harm.

Monday, December 29, 2008

Fools at the Wheel

The biggest risk to the world economy is the men who pull the levers of power in the government and the financial system. They have considerable ability to get things wrong while trying to put things right. Most depressions are caused when unexpected events are exacerbated by political and financial leaders. The credit crunch is the result of foolish responses to previous troubles. The capabilities of our political leaders have not improved with time, so they still have massive ability to stuff things up.

The Federal Reserve is currently pumping credit like a thirsty man at a dry well. The Fed knows nothing else, but boosting credit is just more of the same; more of what created the credit crisis in the first place. Massive credit creation may limit the worst of the immediate damage, but it will spawn terrible problems for the future. Current policies will leave a lake of liquidity. When confidence conspires and leverage ramps up again, the world economy could spin into hyper-inflation.

The central banks are now pushing the banks to do more lending, but this is naive. Their solution is the same as the problem. Reckless lending got the world into a mess, so more lending will not save it. A new borrowing binge and spending spree will not restore the economy.

Bush’s $700 billion rescue package for the banking sector may restore banking confidence, but it will not resolve the problem, because it rewards weaker lenders with new capital. In free market, the competent and wise people who prepared for hard times usually take over the assets of the reckless and incompetent. This time the reverse is happening. Governments are taking from the prudent people and businesses that built up wealth and giving to the careless, foolish and bungling banks. That cannot be good for the economy.

The American financial system is seriously flawed. It will eventually collapse when God has had enough of American shenanigans, but until that happens, it will lurch from minor crisis to minor crisis and from power to more power.

Bernanke and Co Ltd are throwing the kitchen sink at the global credit crisis, but they produced the crisis, so it is unlikely that they understand the solution. That does not matter, as wrong solutions often appear to be efficacious, and appearances are all that count in the political world.

Easy Credit Easy Belief

During the easy credit era that began this century, everyone seemed to get in on the act. The financial sector got into leverage. Households started a building boom. It seems that the church all wanted its share of the cake. The New York Times reports that increasing numbers of churches are facing foreclosure, because they cannot afford to pay the mortgage on their building.

Some of the mentality that you saw taking hold of the residential marketplace probably shifted into the church. Lenders loaned far too much, they loaned into lofty projections of future growth, and they just saddled the churches with far too much debt.

What has happened to the idea that the church should be different from the world.

Who will rescue these churches? Bernanke or God?

Peter Schiff

Peter Schiff predicted the collapse of the housing bubble when most economists thought the new world had come. He is now concerned about the impact of the government pumping the supply of money.

For now the inflationary tide is being held back by the countervailing pressures of bursting asset bubbles in real estate and stocks, forced liquidations in commodities, and troubled retailers slashing prices to unload excess inventory. But when the dust settles, trillions of new dollars will remain, chasing a diminished supply of goods. We will be left with 1970s-style stagflation, only with a much sharper contraction and significantly higher inflation.

Sunday, December 28, 2008

Credit Multiplier

Textbook teaching on the creation of money and credit usually describes an increase in the supply of money. Here is an example in an article prepared by an economist at a reputable central bank. She describes a situation where a deposit of $1,000 that comes into a bank from outside becomes $10,000 within the banking system. She assumed a credit multiplier of 10, but if the level of reserves held by the banks the lower, the credit multiplier would be even larger. More money must be good, so all this seems to be quite benign to a student of economics.

Textbooks rarely illustrate the opposition situation where $1,000 is taken out of a bank and the system loses $10,000. This is not quite so nice, but it is relevant to the current situation. If a bank has to write off a bad loan, its capital is reduced by the amount of the loan. The credit multiplier kicks in and reduces the money in the banking system by 10 times as much as was lost by the bank. This is sometimes called deleveraging. The credit multiplier can easily become a credit cruncher.

Lost Capital

Panics do not destroy capital; they merely reveal the extent to which it has been destroyed by its betrayal into hopelessly unproductive works.”

Mr John Mills, Article read before the Manchester Statistical Society, December 11, 1867, on Credit Cycles and the Origin of Commercial Panics as quoted in Financial crises and periods of industrial and commercial depression, Burton, T. E. (1931, first published 1902). New York and London: D. Appleton & Co

Saturday, December 27, 2008

His Best Shot

Many Christians assume that human “free will“ prevents the Holy Spirit from fulfilling his commissioning to establish the Kingdom of god on earth. They cite human free will as the reason why things will get worse and worse on earth. The Holy Spirit cannot prevent humans from doing their worst.

This view is that is based on a misunderstanding how the Holy Spirit operates. He is actually an expert on achieving his objectives by working through human free will. He does not work against free will. He works despite it. For example, the Holy Spirit has the ability to convict people of sin.

When he comes, he will convict the world of guilt in regard to sin and righteousness and judgment (John 16:11).
The Holy Spirit is able to convict those who are opposed to Jesus of their sin.

I know this is true, because it happened to me. I was moving away from God as far and as fast as I could. I had written a good essay for my course in Philosophy that proved that God did not exist. To my surprise, a number of things happened to me and a number of thoughts were put into my mind that caused me to repent and believe in Jesus. I had a turnaround that surprised even me, but throughout the conversion process my free will was not compromised and I was not forced to do anything against my will.

I could have rejected the wooing of the Spirit, but he so subtlety exposed the weakness of my foundations and so deftly destroyed my objections that it was almost impossible to resist. He knows the perfect way to challenge and draw each person.

Most Christians believe that the enemy can put thoughts in their mind that might cause them to fall into sin. We call that temptation. However, very few seem to understand that the Holy Spirit is able to do the same things even more effectively. He can prompt other unbelievers to do things that challenge an unbeliever. He can put thoughts in an unbeliever’s mind at any time. If he can do that for me, he can do it for anyone.

Many Christians seem to be more confident of the devil’s ability to tempt Christians into falling, than they are in the Holy Spirit’s ability to convict sinners into repenting. That is bizarre. The Holy Spirit is far more wise and far more powerful than the devil.

My faith in the Holy Spirit’s ability to convict sinners to repentance has an interesting implication. The reason that so many people in the modern world have not come to faith is not because the Holy Spirit is incapable of bringing them to faith in repentance. The church is not declining, because the Holy Spirit is not up to the task. The truth is that he has not been able to bring the modern world of sin and bring them to faith, because he has been held back. He has been held back because there are not enough Christians who are willing to work seriously with him at this task. He has also has been held back by God, because some other things must happen first. See the Game of Two Halves.

We have not yet seen the Holy Spirit having his best shot. Many think that because he has not done it yet, he cannot do it, but that is wrong. When the Father lets him go for it, most Christians will be totally amazed at what he does. He will make the devil look totally embarrassed and feeble.

Jim Rodgers

Jim Rogers says the government's $700 billion rescue package for the fiancial sector does not address how banks manage their balance sheets, and instead rewards weaker lenders with new capital.

What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent.

What's happening this time is that the government is taking the assets from the competent people and giving them to the incompetent people and saying, now you can compete with the competent people. It is horrible economics (Reuters).

Friday, December 26, 2008

Bernie Made Off with Billions

Bernard Madoff made off with about $30 billion. People are really upset and accusing him of fraud. They claim that he was operating a Ponzi scheme. So what is all the fuss is about.

Here is the relevant legal background. The economist Eric Posner wrote,

I deposit some cash with the bank, I don’t retain my property interest. Instead, I’m making a loan to the bank and I obtain a contractual right to repayment on demand. If I demand my cash (plus interest, if any) and the bank fails to pay me, then I can sue it for breach of contract and demand expectation damages…. I have to race other creditors for its assets; otherwise, my contract right is converted into a claim in bankruptcy, and I have to share with other creditors.
The most important legal decision on this topic is Foley v Hill
Money, when paid into a bank, ceases altogether to be the money of the principal; it is then the money of the banker, who is bound to an equivalent by paying a similar sum to that deposited with him when he is asked for it . . . . The money placed in the custody of a banker is, to all intents and purposes, the money of the banker, to do with it as he pleases; he is guilty of no breach of trust in employing it; he is not answerable to the principal if he puts it into jeopardy, if he engages in a hazardous speculation; he is not bound to keep it or deal with it as the property of his principal....
Bernie Madoff’s activities seem to comply with these statements. It seems that once people deposited money with him, he was entitled to treat it as his own property and “do with it as he pleases”. All that the law requires was that he make the interest payments, he contracted to make. The law does not specify that he must employ the money in a particular way. Provided he returned any money entrusted within the contractually specified number of days ore receiving a redemption notice, he was not breaching the law. Bernie Madoff did nothing illegal, until he stopped meeting requests for redemption of funds.

Just kidding!

Posner’s quote above was a response to suggestions by Walter Block that fractional reserve banking is immoral. I quoted the decision in Foley v Hill in response to comments on a post disagreeing with the practice where banks treat demand deposits as their assets.

The similarity is quite disturbing. If what Bernie Madoff did complied with modern banking law, something is seriously wrong with modern banking.

Thursday, December 25, 2008

Grace or Works

Celebrating Christmas has become hard work
Presents to buy
Meals to prepare
Then after Christmas
More work to pay for it all.
Christmas is about grace.
Why is celebrating God’s grace
such hard work?

A King for Christmas

The angel's message to Mary was interesting. He said nothing about salvation as we think of it.

But the angel said to her, "Do not be afraid, Mary, you have found favor with God. You will be with child and give birth to a son, and you are to give him the name Jesus. He will be great and will be called the Son of the Most High. The Lord God will give him the throne of his father David, and he will reign over the house of Jacob forever; his kingdom will never end" (Luke 1:30-33).
The angel did not talk about Jesus dying on the cross. He talked about him reigning as a king, in a kingdom that will never end. We got a King for Christmas, but we are not sure about what do with him. We like to keep him in the manger where he is safe, and we are not challenged.

Wednesday, December 24, 2008

Compulsory Gifts

God gifted his son to us, because he loved the world,
not because he felt that he must.

When you feel that you have to give a gift,
it ceases to be a gift.

The marketers and merchants have conspired to make gifts
something that we have to do at Christmas.
They have ripped the heart out of the Christmas gift,
because a gift that is not bathed in love is just a duty.

Falling Prices (6) - Investment Strategy

If inflation stopped completely and prices began to decline slowly, investment strategies would also have to change dramatically. Buying an asset and just waiting for the capital gain would no longer be a feasible strategy. That would be a good thing for the economy, as investors would shift to assets that are actually productive.

Investment decisions would require real wisdom and prudence. Ownership of a house would not be viable unless it could be let out for a rental that covered all expenses and any decline in price. Most investors would have to switch to investments that produce something real and valuable.

Inflation has disrupted investment patterns in a very negative way. One of the reasons is that real incomes in the western world have not grown as much as we would like is that most savings (and massive imported savings) have been ploughed into residential dwellings. The problem is that residential dwellings do a produce a return that benefits the economy in turns of jobs and output.

If inflation disappeared, investment would flow into assets that are productive and produce goods and services that people are willing to purchase. Declining asset prices would push investors into more productive investments, which would be good for the economy. More productive investment would benefit society be increasing employment and wealth.

Tuesday, December 23, 2008

Falling Prices (5) - Houses Too

Inflation makes investment easy, people can buy assets, do nothing, and watch them slowly increase in price. The benefit comes at the expense of people on fixed incomes, as inflation robs them of their wealth. Of course, inflation does not affect all assets evenly. Some assets increase price more quickly than others, and housing has done better than most other asset types. People have brought dwellings and watched their wealth increase, as inflation pushed up the value of their homes.

Our long experience of house rising in price is actually an illusion. The reality is that houses age and suffer from wear and tear over time. Therefore to be a good indication for economic decision making, the price of dwellings should decline slowly to reflect that reality. In ten years time, my house will be ten years older, so its price should be less than it is now. If inflation were eliminated, residential dwellings would gradually decline slowly in price year by year, reflecting the fact that they are getting older and less modern. A thirty year old house would be worth less than a two year old house.

Unfortunately, people have become so used to inflation that the thought of their home not increasing in value over time is quite disturbing. The reality is that most capital goods decline in price over time. Manufacturing plant and equipment can be almost worthless when it has reached the end of its useful life. Nevertheless, business people are happy to buy plant and equipment knowing that its resale value will decline over time, because they can use it to produce goods that can be sold for a return that will compensate them for the depreciation in value of their assets.

In the same way, we have no problem with buying a car that will be worth less next year than it is this year, because the transport services that the car provides are worth more to us than the decline in price and the cost of maintenance.

The reason that we would be disturbed by a decline in the price of houses is that we tend to think of a home purchase as an investment. This is incorrect thinking. In the absence of inflation, the purchase of a home is consumption expenditure. The person buying a home consumes all the shelter services that it provides. The purchase price is actually an up-front payment for a very long-term stream of services. (Some of the shelter services that are not used up may be sold when the owner is ready to move on)

The only way to turn the purchase of a dwelling into an investment that produces a return is to rent it out to some willing to pay for the shelter services. In addition to providing a steam of income, the rent would compensate for any decline in price.

If there were no inflation, people would have to stop seeing their home as an asset that will increase in value over time. People would only buy a house to live in, if they valued the shelter services it could provide more than the decline in price and the cost of any maintenance.

Monday, December 22, 2008

Falling Prices (4) - Normal

Very few people realised that deflation should be normal. If governments did not inflate their currency, price inflation would not drop to zero. In a country where the monetary policy is neutral, the price level would gradual fall over time. A few prices might increase in response to shifts in demand, but the prices of most goods and services would fall, as new technology and economies of scale reduce the costs of production.

Declining prices are a powerful economic mechanism, because the benefits flow to everyone in the economy. People on fixed incomes benefit, because the things they have to buy get cheaper. Those who are weak and powerless benefit, because they can purchase more with what they have. Inflation benefits the few, who can work the system and know how to use debt to speculate in property. Falling prices benefit everyone.

One of the best ways to help the poor is to eliminate inflation. Even if price inflation is only three percent per year, poor people will be worse off unless they can increase their income by that amount. Poor people generally do not have sufficient political or market power to negotiate that kind of increase in their incomes, so inflation harms their situation. On the other hand, declining prices benefit the poor without any need for negotiation.

Over the last few years, cheap imports of electronics and clothing from China have been so pervasive that the level of consumer prices has generally declined slowly. This should have turned into a downward flood that brought increased prosperity to everyone, but unfortunately governments continued to inflate their currencies throughout the period. The world thinks that inflation has been low over the last few years, but that is wrong, because prices would have been falling much more, if governments had not been manipulating the money supply.

When economies of scale and technological advances should be reducing prices, even zero price inflation is harmful. Over the last decade, people on fixed incomes have been robbed of the benefits that would have come their way, by governments that have stopped prices from falling. This inflation has eased the pain of those who are heavily in debt. Inflation punished those on fixed incomes and benefits and benefits those in debt. Gradual deflation would benefit everyone, especially the poor.

Sunday, December 21, 2008

Falling Prices (3) - Inflation is Good?

We have had inflation for so long, that people have begun to assume that inflation is good. For example, house prices are now so high, that home owners are only able to cope with the huge debt needed to buy a house, because the endemic inflation has reduced the burden of their mortgages. Over the last decade, inflation has made it possible for home owners to cope with really high debt levels, because rising house prices increase the equity of people with mortgages.

Governments are usually huge debtors. In the modern world, most governments have enormous public debt. They love inflation because even at low rates, it gradually erodes the burden of the outstanding debt. The declining value of debt, allows the government to increase debt further. Politicians like debt, because it allows them to spend money, without having to raise taxes.

Many people now believe that a little inflation is a good thing, but it reality inflation is a two-edged sword. It might reward those who are in debt, but it punishes savers. The value of savings is eroded by inflation. Even if inflation is between two and three percent, which most government see as a noble goal, the value of a responsible person’s savings will be halved in fifteen years. In thirty years, the saving will be worthless. Any phenomena that hurts saving and rewards debt is dangerous for an economy.

God’s blessing falls on lenders and not on borrowers.

For the LORD your God will bless you as he has promised, and you will lend to many nations but will borrow from none. You will rule over many nations but none will rule over you (Deut 15:6).
Borrowing is sometimes necessary, but is dangerous because it removes freedom.
The rich rule over the poor, and the borrower is servant to the lender (Prov 22:7).
Inflation blesses debtors and harms lenders. God works the other way round. Being free from the need to borrow is a fruit of his blessing.
You will lend to many nations but will borrow from none. The LORD will make you the head, not the tail. If you pay attention to the commands of the LORD your God that I give you this day and carefully follow them, you will always be at the top, never at the bottom (Deut 28:12,13).
Inflation fights with against God’s blessing.

Saturday, December 20, 2008

Falling Prices (2) - Borrowers Punished?

The other concern of the columnists is that deflation punishes borrowers.

A prolonged period of deflation can have a pernicious affect on an economy. The other main reason why deflation can cause so many problems is that it serves to make debt more expensive. Here's why. If you borrow £1,000 at the start of the year to pay for a new sofa, the cost of the loan does not change throughout the year. It remains at £1,000. But the sofa is falling in price. So at the end of the year – when you are still paying back the loan – you have ended up taking out £1,000 to pay for a sofa now worth just £900 or £800. Think of it as negative equity on a grand scale, spreading itself into every corner of consumer credit. Of course, in theory there are some winners: savers (Harry Wallop, Daily Telegraph).
The curse of deflation is that it increases the burden of debts. Incomes fall: debts stay the same. This way lies suffocation…. The great credit bubble of the last 20 years has pushed debt levels in Britain, the US and other Western societies to unprecedented highs… Our sensitivity to debt deflation is therefore greater (Ambrose Evans Pritchard, Daily Telegraph).
This is twisted thinking. The curse of debt has been replaced by the curse of deflation. Evil is good. The lie is truth.

The commentators dislike deflation, because it rewards those who save and punishes those who borrow. Falling prices redistribute wealth – the wrong way (for the columnists). Savings appreciate, which is good for those who have saved. Income is transferred from those in debt to those who have saved. Income is transferred from borrowers and speculators to those who have been responsible. In the strange modern world of debt and leverage this is seen as bad.

Friday, December 19, 2008

Falling Prices (1) - Postponed Spending

Asset prices and commodity prices are falling rapidly as the impact of the global credit crunch permeates the world economy. Newspaper columnists are now starting to warn of the dangers of deflation. The first concern is that consumers defer their spending when prices fall.

Deflation has other insidious traits. It causes shoppers to hold back. They wait for lower prices. Once this psychology gains a grip, it can gradually set off a self-feeding spiral that is hard to stop (Ambrose Evans Pritchard Daily Telegraph).
It encourages people to defer spending, as they wait for prices to fall further. This in turn forces down the price – as retailers slash prices in a vain attempt to attract shoppers. As retailers cut prices, so too do manufacturers, who then have less money to invest in new technology, equipment and, crucially, staff.

Wages then start to fall – psychologically very damaging for consumers, even those that keep their jobs. As they fret about less money in their pockets and their job prospects, they further postpone spending, starting the deflationary spiral once again (Harry Wallop, Daily Telegraph).
These statements are nonsense. Falling prices do not stop consumer spending. Computer prices have been falling for the last twenty years, but spending on computers never stopped. Although prices of most consumer electronics have fallen dramatically over the last decade, sales have increased significantly. The reason is that when prices of things fall, more people can afford to buy them, so sales increase.

The benefit of falling prices is that consumers can buy things when it suits them. During inflation, people rush into purchases before they can afford them, because they are scared that the price will go up. They will often get into debt, trying to beat rising prices. Inflation forces people to make purchases at the wrong time.

Falling prices eliminate this problem. People are not put under unnecessary pressure to buy. They can save for something they need knowing that price increases will not push it beyond their reach. People are free to buy large items when the time is right for them. Falling prices increase freedom.

The related benefit of falling prices is that people get access to better quality goods. By waiting a little longer, they can get a later model, at the same price. This makes them better off.

Lost Shoes

What was wrong with the barefooted reporter who threw his George Bush. He seemed to think that America invaded Iraq to improve the lives of the Iraqi people. If he was a serious journalist, he would know that the purpose of the war was to allow Americans to sleep peacefully at night and to make the world safe for American business interests in the Middle East.

Where did he get the idea that the deaths of thousands of Iraqi women and children is something to be concerned about. Surely he knows that the American military does not count civilian casulties. These towelheads and hajiis were going to hell anyway.

The guy just does not get it. He has lost his shoes; he is luck he still has his marbles.

Salvation through Regulation

Bill Bonner at the Daily Reckoning on Regulation.

Markets can’t rule themselves” says Joseph Stiglitz. We need “better regulation,” he says. Now there’s a novel idea. The SEC was set up by the Roosevelt administration 70 years ago. They were actually watching over Bernie Madoff’s company...and actually did a review of it in 2005 and 2007. Somehow, these ace regulators didn’t notice the biggest Ponzi scheme in world history...a scheme approximately 5,000 times bigger than the scheme of the eponymous Ponzi himself.

Better regulation? We know how to get more regulation. But what we don’t know is how to get better regulation. We don’t even know what it means. There were thousands of regulators on the job in New York City. Not one of them seems to have caught on to any of the great scams that were going on.

Thursday, December 18, 2008

God and Government

Christians believe that God is the King of all Creation.

How awesome is the LORD Most High, the great King over all the earth (Ps 47:11)!

For the LORD is the great God, the great King above all gods (Ps 95:3).

The LORD has established his throne in heaven, and his kingdom rules over
all (Ps 103:19).
The fact that God is a king means that he is very interested in the principles of government. Governing is the main role of a king. God is the king above all kings, so he must be the world’s top authority on good government.

If God is an expert on government, we would that he has shared his wisdom about government in the scriptures. The only place in the scriptures where he gives a full system of government is in Exodus and Deuteronomy. If we want God’s wisdom about government, we have to go back there.

The essence of government is good law. Every culture recognises the need for good laws. If God is an expert on government he must be an expert on law. He wants good government on earth, so we would expect him have revealed a good system of law to us. He is perfectly wise, so his laws will be the best laws available.
I will speak of your statutes before kings and will not be put to shame (Ps 119:46).

The law of the LORD is perfect (Ps 19:7).
God’s system of perfect law is revealed in Exodus and Deuteronomy, all ready for us to use.

Modern debates about government focus on the election of governments. The emphasis is on developing a good system for writing laws. If God has already provided the best laws available, this is a waste of effort. Human legislators will always produce sub-optimal laws, so arguments about how politicians should be appointed are irrelevant. God has already given us the perfect laws that are essential for good government.

Wednesday, December 17, 2008

The Great Prostitute

The worldwide religion that will intoxicate the nations already exists. This religion is faith in political power and democracy. Faith in democracy has swept the entire world in the last century. Most of the world believes that democracy is the key to their salvation.

Go back to the nineteenth century and this faith did not exist. A peasant farmer in England had no expectation of the government in London. If he got into trouble, the Lord of the Manor might be generous, but mostly he depended on his family and relatives to get by. Even when he faced injustice, he did not expect the politicians to assist. They only cared about the powerful and the privileged.

If a farm worker moved to the city to work in a factory, he did not expect help from the government. His only contact with the government would be when they threw him in prison, if he got into debt. If he was really deep in debt, they might deport him to Australia.

The natives in Africa had no hope in their colonial governments. They knew that the powerful would look after the powerful. The best they could do was to go unnoticed.

All this changed during the twentieth century. Now everyone expects the government to rescue them from their problems. The poor person in Africa expects his government to provide capital and jobs. The clients of Northern Rock Bank expect the government to guarantee their deposits. The auto workers in Detroit expect the government to save their industry. The factory worker in China riots when the government allows his factory to close. Everyone assumes that democracy is the best hope for Iraq, and Afghanistan.

Faith in government salvation is now universal.
The entire world is intoxicated by democracy.

John saw a prostitute sitting on many waters. The angel explained what this meant.

Then the angel said to me, "The waters you saw, where the prostitute sits, are peoples, multitudes, nations and languages (Rev 17:15).
The great prostitute obtained her power from the peoples and multitudes. Democracy gives governments enormous political powers. That power comes from the people. Democratic government “sits upon the waters”, because it derives its authority from the people below.

Democratic government is the great prostitute. Democratic government draws salvation and authority from the people, whereas true authority and salvation is in Jesus alone. Seeking salvation from any other power or submitting to any other authority is prostitution. The great prostitute is not a future world religion. The great prostitute is already here and the world is already intoxicated by her power.

Tuesday, December 16, 2008

Intoxicated by False Religion

Last week, I listened to a talk about Revelation 17 by Mike Bickle. He taught that the chapter describes the emergence of a new world religion. In a few years all the religions of the world, including much of Christianity will merge to form a new false religion. He said that entire world would quickly be intoxicated by this new religion. Judging by their questions, the bright young audience was obviously impressed by his teaching.

I am puzzled at why people are not shocked by this teaching. The Holy Spirit has been struggling to establish a worldwide religion for two thousand years. Most Christians doubt that he will ever be able to do it, yet they are happy to believe that the devil can get the acceptance worldwide religion in two or three years. He can pull off a task that the Holy Spirit has failed to do.

Here are two interesting questions.

Do you believe that a false religion can sweep the entire world and intoxicate the nations in a few short years?

Do you believe that the Holy Spirit can sweep the world with a revival that will establish the Kingdom of God?
Which of these do you think is most likely? If you voted for the first option, you have more faith in the ability of the devil than you have in the Holy Spirit. You believe that evil is more powerful than righteousness.

In terms of ability and power, most Christians rank the Holy Spirit above angels, but well below the devil. Some Christians would prefer to have angels active in their lives, which suggest that they rank the Holy Spirit below the angels.

Many Christians see nothing wrong in believing that a false religion could sweep the world in a few years. They declare, “The Bible says it, I believe it”, but do they have the same fervency about what Jesus promised that the Holy Spirit would do?

Monday, December 15, 2008

Two and Halfism

The view that the Kingdom is “not yet” and will come when Jesus returns in power is the last residue of dispensationalism. The truth is that the kingdom described in the New Testament cannot be established by his returning in power, because there are only two ways that he could do it.

  1. Human nature could be changed so that all people would lose the freedom to sin, but then it would be a kingdom of automatons.
  2. Jesus could use force to coerce unwilling men to accept his authority, but then it would cease to be the voluntary kingdom.
In either case, the resulting kingdom would be much diminished from the Kingdom described in the New Testament.

The only way for this kingdom to come is for people to freely choose to accept Jesus authority. That can only happen through the Holy Spirit renewing human hearts. God has set things up so that can happen now. Jesus had to go away so that could happen.

The widespread view that this cannot happen, is actually a belief (unbelief) that the Holy Spirit can not do it, but Jesus can. This is a distorted form of Trinitarianism, where there is one God in two and half persons.

Bush to Iraq

According to reliable media reports, George Bush visited Iraq over the weekend. A spokesperson confirmed that the President Bush was looking for a site to build the presidential library which will house the documents, artifacts, gifts of state and museum exhibits related to his life and career. He said,

The President has gone off the idea of building a library in Texas, as it would be to vulnerable to terrorist attacks by unemployed auto workers. Now that the war has been won, Iraq is one of the safest places on earth to live, so it is the ideal place to build a Presidential Library. The other advantage is that prices on commercial land are sharp and Iraq is handy to the Bush Family oil interests in the Middle East.
A report that Mr Bush has made an offer on a presidential palace overlooking the Euphrates River could not be confirmed.

Sunday, December 14, 2008

Oil Prices (2)

The factors I described in the last post have been working in both directions over the last few years. World-wide economic growth over the past decade created an enormous demand for oil. This demand reached peak in July, as China stockpiled oil for security during the Olympic Games. Productive capacity was unable to match this peak in demand, so the price rocketed up to $150 a barrel.

During the latter part of 2008, the world economy stropped growing and many western countries moved into recession. This caused a sharp decrease in the demand for oil. The politicians who control oil production have refused to reduce production, so the oil price has plummeted, as supply exceeds demand.

Motorists are really appreciating the drop in prices at the pump. However, we should not become complacent in response to the decline in fuel prices, because the high oil prices last year are a warning of what could happen in the future, if strong demand comes up against limited supply. When the world economy moves back to full speed, strong demand for oil will once again push hard against limited production capacity. The problem is that most of the easy oil has now been found. Production is declining at several of the largest oil fields. Many more oil discoveries will be made, but they will be much more expensive to bring on line, so much higher prices will be needed to make them economic.

The current low price of oil is probably temporary. Enjoy it while it lasts, but this is not the time to buy a bigger better gas guzzler.

Saturday, December 13, 2008

Oil Prices (1)

Back in July 2008, the price of oil peaked at nearly $150 a barrel. By November the price had dropped under $50. This is an amazing change in prices over a short period.

The usual pattern for most goods and services is that prices rise and fall to clear the market. If demand increases, the prices rise and supply increases to meet the new demand. If demand declines, the price will fall slightly, causing the supply to fall.

If either the supply or demand for a good does not respond quickly to small changes in price, bigger price changes may be needed to clear the market. This is the situation with oil. (Economists describe this as inelasticity with respect to price, but you can forget that if you are not an economist).

The reason for the recent sharp fluctuation in the price of oil is that production does not respond quickly to changes in price. Prospecting for oil is a hit and miss affair that takes time. Bringing a new oil field into production takes several years. When there is no spare capacity, an increase in price does not lead to increased production, because producers cannot bring new fields into production quickly.

The other reason is that most of the large oil fields in the world are owned by government authorities. Politicians do not like reducing their spending. So when prices fall, state-controlled oil companies do not cut production, because the politicians do not want to reduce their spending.

This problem has been evident over the last few months. OPEC agrees that the logical response to the falling price of oil would be to cut production to maintain the price at least $80, but they have been unable to take action, because none of the OPEC member states are willing to cut production. The politicians avoid economically sensible actions, because they have a short-term focus that makes them unwilling to think further ahead than the next election, or the next coup.

The complexity of the production process and the complicity of the political process prevents oil production from responding quickly to changes in price. This means that changes in demand can produce sharp fluctuations in price.

Lost Photo Found

Lasst week, the curator of a small museum in Washington found a copy of an historic colour photo that was previously thought to be lost. The photo shows Karl Marx, Fredrik Engels and Vladimir Lenin at an historic meeting called to form the Comintern in 1848. This organisatation, also called the Third International, was formed to work for the overthrow of the international bourgeoisie and advance the cause of Socialism in Europe and the Americas.

Friday, December 12, 2008

Aborted in Italy

When I visited Italy a couple of years ago, I saw plenty of materialism, a lot of religion, quite a bit of atheism and tonnes of dead cultures from earlier ages. I did not see much evidence of the Kingdom of God.

My father’s younger brother died in Italy during the Second World War. He was a kind, peaceful young men who loved God and was skilled at growing vegetables and raising animals. I sometimes wonder what he died for. He death did not advance the Kingdom of God. I suppose that he must have died to advance materialism and atheism. I wonder if he looks down from paradise, if he thinks that it was worth the cost. We do not have the right to say that it was.

A young life was lost, but that was not all. A young woman lost the husband that God had prepared for her. The children and grandchildren whom God knew before the foundation of the world had their lives cut off. An entirely family line was aborted in Italy.

I am constantly amazed that those who are most angry about abortion are often those who are quite happy for an entire family line to be aborted when a young man or women is sent to fight in pointless war. I wonder how many children will not be born, as a consequence of the war in Iraq.

Thursday, December 11, 2008

Not Pacifism

I hate war, but I am not a pacifist.

If I come home from work and find my daughter being beaten up, I will not tell her to turn the other cheek.

If she is being attacked by one person, I will use force to try and set her free. Force is justified when protecting a person in harm.

If she was being attacked by ten men, my response might be different. Trying to force them to stop would probably be a waste of time. I could do four different things.

  1. I could challenge them and warn them that what they are doing is wrong. That works in some situations.
  2. I could offer myself as a victim in her place. This is probably the Christian thing to do, but I doubt that I have enough courage for that one.
  3. I could quickly invite the Holy Spirit to intervene. This is the most important thing to do.
  4. I would call some of neighbours to help. Once several of us had gathered, then force might be sufficient to prevent the attack.
If my neighbourhood was being attacked by thugs, I would join with other people from my community to force them out and prevent them from returning.

If the southern island of New Zealand was being invaded by an army from overseas, I might join others to try and stop the invasion, but I would only do this if I thought there was a reasonable possibility of success without too great a cost in human lives. (I might be among the cowards who get sent home).

If defence of the island was futile, I would not fight. I know that my freedom comes from God, so no invader can steal my freedom to serve him. They could steal my property, which would not be nice, but they cannot take away my salvation. They could take my life, but that would just speed me on my way to heaven, which is not the worst thing that could happen. I find it ironic that people who say their home is in heaven are often those who would advocate the death of other people to protect their own life on earth.

The invaders might attempt to suppress the gospel, but I am not sure how bad that would be. The gospel is not doing very well under our democratic, materialistic freedom, and there is considerable evidence that the gospel does better when it is opposed.

I would join together with several other groups with in a fourth-generation defence of our land. I would not join with a tanks and bombs defence that would do more harm than good.

I would not fight to defend New Zealand, because it is not an entity that God cares about. There are many good things about our system of government, but it is not the same as the Kingdom of God.

I will not fight to establish the Kingdom of God. It comes by different methods.

Wednesday, December 10, 2008

War Rarely Works

I dislike war, because the benefits seldom outweigh the costs. The situations where war has positive benefits are extremely rare. Here are some of the possible options.

  1. When a large country is attacked by a small country, fighting to defend the large country does make sense, but this situation is very rare, as most small countries would not run the risk of getting a hiding by taking on a big one.

    Georgia did not under stand this reality. A country that has a mini-empire as a near neighbour has its options really constrained. For Georgia, a war with Russia was bound to end in failure.
  2. When a small country is attacked a big country, fighting is a waste of time, because the small country is going to get beaten anyway. The people might as well give up and seek the best possible terms for peace. Jesus talked about this situation (Luke 14:31-32).
  3. Sometimes a small country may persuade a powerful ally to help defend it against attack by a large country. This often does not work, as the powerful ally usually have its own agenda. The big country will only defend its smaller ally when it suits them.

    This was Georgia’s problem too. The president of Georgia expected assistance from the United States, if Russia counterattacked. Unfortnately, Big George needed help from Russia to put pressure Iran, so he talked tough, but did not come to little Georgia’s aid.
  4. A small country being attacked by another small country is about the only situation where war might work, as collateral damage is likely to be limited. However, if the two countries are evenly matched, the war might drag on with many casualties and no benefit. There are many places in the world today where this is happening.
  5. War between one empire and another empire never works. Two many nations and people get drawn in and the costs escalate without decisive result (The First World War was a good example of this situation).
Many politicians see war as just another policy option. War is not a policy option. War is a failure of the human spirit.

Tuesday, December 09, 2008

The Real Enemy

Our struggle is against principalities and powers (Eph 6:12). We should be attacking them, not people. We must not demonise people. People are on our side. They are fighting against the same enemy as us, but they just do not know it. If we are attacking people, we have lost track of our enemy.
Putting a bullet into an attacking soldier does not destroy his demons. They remain free to attack me.

Our real struggle is against principalities and power. When we participate in a war, we stop fighting against the principalities and powers and start working with them, because they are the experts at killing, destroying and stealing (John 10:10).

We are called to overcome evil with good (Rom 12:24). God has promised that good will triumph in the end. We must be careful not to slip into believing that we can overcome evil with lesser evil, because lesser evil eventually corrupts the good.

Monday, December 08, 2008

Moral Precision

I take a morality approach to economics. I am not interested in what will work. My focus is on what is right or wrong.

The consequence of this approach is that it is important to be precise about which actions are wrong and who is taking the wrong action. Vague statements will no do.

  1. The exact action that is morally wrong must be identified precisely.
  2. The moral actor who is taking the wrong action must also be identified.
  3. Laws that legitimise immoral actions are particularly insidious, so they must be accurately identified.
  4. The politicians responsible for passing the immoral law must be clearly specified.
This is why I have investigated the concept of bailment when discussing the banking system. I wanted to establish whether banks are acting immorally or not. My conclusion is that when a bank takes a demand deposit and records it as an asset on their balance sheet, they might not be stealing, but they are being very devious, because they make very little effort to explain to depositors the legal implications of their action. They do not say, “You have just become a creditor of the bank”.

On person made the following response.
The focus should be on fiat currency. That is where the fraud is occurring. That is where the thieving is going on.
This raises an important issue, but the comment is too vague. Fiat currency may be morally wrong, but we must specify more precisely the actions that are morally wrong. The moral agent responsible for the fraud or theft must also be clearly specified. Is it the government, or the banks, or people accepting the fiat currency?

Sunday, December 07, 2008


James Dobson warns that Christians will not be ignored by the Republican Party.

We’ve never been that marginalized in our culture and government — and won’t be anytime soon, the efforts and epithets of big media notwithstanding.
Unfortunately, he is wrong. Unless the there is dramatic change in the American church, it will become more and more marginalised.

The last election proved one thing. The Christian vote is no longer united or large enough to swing an election. Politicians watch the way the wind is blowing. Those who watched the last election carefully realise that while Sarah Palin won additional votes for the Republican Party, she lost more votes than she brought in. The Republican Party will never trust its future to a hard-core Christian again. A seriously evangelical Christian candidate is no longer electable in the United States.

Conservatives Christians will continue to rant against the lying liberals, but the reality is that more and more Americans are becoming liberal, just as the number of conservative Christians is declining.

Those who think that Christians will continue to hold sway in the political sphere are living in the past. The reality is that the Christian influence on America culture is declining fast.

This has already happened in my country, only a couple of decades earlier. When I was young, a majority of Members of Parliament from both political parties were Christians. The Prime Minister carried a copy of the Ten Commandments in his brief case. When the church spoke on political issues, the politicians took notice.
Over the last few decades, the percentage of Christians in our nation has declined dramatically, partly under the influence of secular media and education. Now a Christian in Parliament is a rarity.

For a long time the Church continued to strut and speak as if it was an important voice, just as James Dobson is speaking now. However, the politicians soon realised that strutting is not the same as substance and now the church is mostly ignored.

The future is here. The American church is heading rapidly down the same path. It is just a few years behind. Unless things change dramatically soon, the church will become marginalised.

The good news is that God will not be marginalised, but that is a different thing.

Saturday, December 06, 2008

Order (2)

The problem described in the previous post also affects the United States of America. For the first couple of hundred years, most migrants came from Europe, so they accepted Christian moral standards, even if they were not overtly Christian themselves. Regular revivals refreshed the wells of Christian faith and expanded the acceptance of Christian values. Migrants from Africa usually accepted Christianity soon after they arrived. This unity of values sustained an orderly society.

During the twentieth century, two things happened. The United States started accepting migrants from a diverse range of nations and cultures. At the same time, the church went to sleep on the job. The revivals which had swept a Christian perspective across recent newcomers came to an end. The United States is now a strange and diverse ethnic and religious mix without any unifying culture. This diversity would fling society apart, if it was not held together by force.

I read the other day that there will soon be 20,000 uniformed troops based in the United States to maintain homeland security. This is the inevitable consequence of the loss of a unifying culture. The homeland security troops will keep the lid on, but the tensions will always be there ready to emerge, when the right trigger comes along. They will establish an uneasy order, but it will not be the same as the order that comes from human responsibility and cooperation.

Unless the church in the United States forgets about waiting for Jesus to come and gets off its bum and spreads the gospel, the situation will get worse. Society will become more diverse and more divided. If there is no revival, the “United” will shrink and the “State” will expand to counteract the shrinking until it becomes “The State”.

I have real doubts as to whether the American church is capable of preventing this from happening. It is so blinded by end-times teaching and properity prophecies that it could not cope with a real revival. I think we have already moved onto Plan B in which God prepares a remnant to survive the ensuing chaos. Plan A where the church rises up to proclaim the gospel in the power of the Spirit to tranform the nation and unify the culture has already passed its use-by date. I hope I am wrong, but most of the evidence points the other way.

Friday, December 05, 2008

Order (1)

Last week I wrote these words.

Most of order in a society does not come from government,
but from people being responsible and cooperating with each other.
The statement is true, but it only applies in those societies where there is a culture that unifies people round a common set of moral standards that encourages respect for other people.

When unity of values or respect for people disappears, cooperation and responsibility no longer sustains an orderly society, so those with power eventually resort to political and military force to keep order. The problem is that force can only produce a semblance of order with the forces of disharmony smouldering just below the surface. The other problem is that soldiers and police can punish the people who attempt to destroy a society after the event, but they cannot prevent them from their harm. A society held together by force will be an unpleasant place.

Democracy cannot produce a unified culture, because it is a winner-takes-all system that decides which cultural group shall dominate all other cultural groups in society. The democratic process exacerbates cultural tensions.

Iraq and India are examples of this divisive diversity. They both contain an amazing range of ethnic and tribal groupings, laced with diverse religious beliefs. In absence of a unifying culture, such societies can only be held together by force. Saddam Hussein achieved this in Iraq. The United States military power has also managed go create an uneasy order, but Iraq will never have more than that without a unifying cultural force.

The British Empire created a semblance of order in India, but it never had the true order produced by cultural unity. Since the British left, many assumed that democracy could be a unifying objective. However, under democracy the winner takes all. The strongest cultural group gets to control the less powerful groups, so actually democracy is a divisive force. Democracy cannot provide the cultural unity needed to hold a diverse society together. Recent events in India are the natural consequence of intense cultural diversity breaking through the restraints of political and military force.

Nice System

Bill Bonner describes the Wall Street rescue package.

The U.S. government borrows money from it to Wall Street so they can lend it back to the taxpayers at a profit. Wall Street borrows ‘our money’ from the Fed at, say, 1%...then they lend it back to us at, say, 6% or 7%. That way, Wall Street makes money and we can still borrow what we need.

Thursday, December 04, 2008

Confirming Gods Word

We should be careful about saying that Christian scientists have confirmed God’s word by their research. Scientists test hypotheses by doing experiments. They cannot repeat the creation of this world, so it is logically impossible to prove what happened using the scientific method. When Christians claim they can prove what happened at the beginning of time, they fall into the same trap as the evolutionists.

The other problem is Genesis 1 does not contain hypotheses in a form that can be tested using the scientific method. Therefore the best that a Christian scientist can do is test a scientific hypothesis they think is consistent with Genesis 1, which is a very different thing. Christians should be really careful about going beyond God’s word.

God does not need us to confirm his word. He will do that himself.

Wednesday, December 03, 2008

Short Term

All over the world, credit markets are drying up. One of the worst problem areas is the commercial paper market, which is the source of operating funding for many banks and large corporation. The important question is seldom asked. Why are so many businesses, so dependent on commercial paper? The reason is very illuminating.

Short term interest rates are generally lower than longer term rates, because lenders demand higher returns to compensate them for the greater risk involved in tying up their money for a long time. Businesses and banks have taken advantage by substituting towards raising a considerable part of their funding on a short-term basis.

Banks have raised funding on the 90-day bill market to fund 15 year mortgages. Businesses have been raising funding using short-term commercial paper to fund equipment with a productive life of up to ten years. This has been profitable while short-term funding was abundant, but it was very risky. Short term funding is cheaper, but it is risky to use it to fund long-term liabilities. Hedge funds have funded some of their activities using overnight funding.

Borrowing short term to fund long-term liabilities is quite risky. If the short-term credit market dries up, the business or bank will be in trouble. They might be unable to roll over the credit, or they might have to pay very high interest rates to do it. That is what is happening now. Many businesses and banks that have borrowed short term to get lower interest rates are finding that they cannot role over their short term loans. The low interest rates were not the bargain they appeared to be.

Tuesday, December 02, 2008


Leverage has leached into every corner of life.

  • A young person buys a new television with no deposit, no interest and no repayments until 2010.
  • A woman who inherited a house from her parents uses the equity to buy four more.
  • A hedge fund uses bank credit to amplify the profit from trading in shares and commercial paper.
  • A young man leases a new truck from General Motors for three years.
  • A young woman maxes out four credit cards to spend $20,000 on a trip to Asia.
  • A new married couple takes a 100 percent mortgage to buy their first house.
  • A church pays for a new building with a mortgage, assuming that future tithes will pay the interest.
Leverage was everywhere. Everywhere that leverage went, pain is following close behind.

Monday, December 01, 2008


The G20 pledged that they would do everything possible to boost the international economy

The problem is that the G20 is a meeting of governments. Most of what a government does harms the economy, so it is hard to understand how twenty governments working together will make the economy better.