Two Crises for the Price of One

The world is facing two economic crises at the same time.

1. Financial Crisis
The first crisis is a financial one that has been going on for a long time. It probably began with the Tech Wreck back at the beginning of the new century when the Dotcom bubble popped and the Federal Reserve reduced interest rates and poured out credit to pump markets up again.

This easy money eventually created a housing bubble. This collapsed in 2008 when markets woke up and realised that many of the loans made to people to buy houses at inflated prices would never be repaid. Because the finance sector had sliced and diced house mortgages into various mortgage-backed securities and related financial derivatives and sold them on to other players in the finance sector, the entire edifice was in danger of collapsing.

Central banks and governments came to the rescue again by reducing interest rates and spending money hand over fist to rescue most of the big players in the finance sector. A few of the worst failed, like Lehman Brother, but the rest were propped up with easy credit and other government bailouts and never really took the lessons on board. Fortunately, apart from the many households left with mortgages greater than the value of their house, most of the real economy was not too badly affected. But the recovery was slow, and the world economy took many years to get back to where it had been.

Unfortunately, the easy money fed into a new bubble, this time in the share market and related activities. Big business borrowed money to pay for share-buy backs, which pumped up their share price. This left the top executives and shareholders better off, but their companies were vulnerable because they had few financial reserves to cover any downturn in activity.

Share markets reached record prices, but the bubble was popped by the emergence of Covid19. This collapse of value affects the entire financial sector, as when the collateral offered as security for loans declines in value, the borrower must stump up more collateral or pay back some of their loans. Big businesses that rely on short-term loans to fund their business have struggled to roll over their debt as the market for corporate bonds dried up.

Over the last few decades, the finance sector has grown massively, far outpacing the rest of the world economy. Banks and other businesses in the finance sector have worked together to create a huge infrastructure of debt that sits on the top of the real economy. This monster adds very little of real value for ordinary people and businesses, but it has made those who work within in the finance system fantastically rich.

Of course, central banks and governments are using every weapon that they have to fight this financial crisis and keep the unruly monster of the finance system from collapsing. Governments are making grants to businesses. Central banks have reduced interest rates to zero and made credit available to the usual culprits. They are buying up a wide variety of government and business securities in order to prop up the price of collateral.

I presume that these desperate policies will succeed in papering over the cracks in the finance system, but this will not resolve the underlying problems that make the modern financial system unstable in the first place. The worst consequence will be an enormous increase in government and business debt that will be a deadweight on the real economy as it tries to deal with the second economic crisis that we are facing at this time.

2. Covid19 Economy
The second economic crisis that the world has to deal with is the collapse of economic activity as a result of measures put in place to prevent the spread of Covid19. This is both a supply shock and a demand shock.

As a result of the collapse of tourism, travel and the hospitality industries, many people will be out of work. With their incomes dramatically reduced, they will stop spending in the way that they did in the past. People who still have jobs will be unsettled by the situation and cut back their spending as a precaution against uncertainty. All types of businesses will be careful about their spending until the long-term consequences of the shutdowns become clear. People who are heading towards retirement will have seen their superannuation funds shrink, so they will need to save more seriously.

This collapse in demand for goods and services will make it difficult for all businesses to recover. As they attempt to get going again, they might find they cannot return quickly to previous levels of activity and may need to cut back on the numbers of staff that they employ, which makes the situation worse.

Attempts to confine Covid19 are also a supply shock to the real economy. Many non-essential businesses have to shut down their production. That lost production might not be recovered. If the lost is production is an input into the production of another business, that business will be constrained until its suppliers can get going again.

In the modern world, many businesses have developed very long supply chains. The longer the supply chain, the more likely it is that there will be a break in the chain where businesses have stopped production, meaning that the required inputs are not available. I suspect that during the next year, many businesses will find that things they need to operate efficiently are not available due to shutdowns in other businesses and other nations.

The state of the Chinese economy is uncertain. We do not know if it really has defeated the virus, or how quickly production will return to previous levels. Companies that rely on parts and equipment that are supplied from China might find that it will take longer to get their production back to normal levels.

Unfortunately, the supply shock and the demand shock work against each other. Businesses that still have good supplies and can keep production going might find there is no demand for their production. Others that face strong demand might find that they do not have the supplies that they need to increase production to meet demand.

Unmeasurable
Economics is an imprecise discipline. It can describe the links that influence the working of the world economy, but it is hopeless at estimating the size of the effects it identifies. I have seen enough of economists’ forecasts to know that they need to be taken with a grain of salt. Therefore, it is uncertain how serious this crisis will become. The economy might recover quickly, or the collapse of activity might drag on a long time.

One thing is clear; the problem is made worse by the reality that we are facing two crises at the same time. Central banks will prop up the finance sector so it can create another bubble in a few years’ time, but the increased debt will be a drag on the real economy where the people who manage real businesses that produce things that people actually need are struggling to keep them going.

The situation distressing, but we should remember that economic uncertainty is normal for most people in the third world, and has been normal for most people throughout history. Maybe we are just returning to the old normal.

Coronavirus hits a Weak World Economy

A couple of weeks ago, I posted an article called Coronavirus hits a Weak World Economy. I listed nine things that have contributed to this weakness. Today, I added the following three points to that article.

• Many large businesses have weak balance sheets. Since the GFC, they have used cheap loans to finance share buybacks. These have pushed up the share prices for the benefit of shareholders, and particularly senior executives who are paid in shares or share options. Unfortunately, this practice leaves the business without financial reserves to tide them through a difficult time. For example, aerospace analyst Dhierin Bechai reports that:
  

  Boeing spent roughly $60B in buybacks ($40.6B) and dividends ($19.4B) in the past years while it generated roughly $55B in cash flows. Boeing returns all of its cash flow from operations to shareholders... Excluding 2019, we found that Boeing returns 92 percent of its operating cash flow and 113 percent of its free cash flow to shareholders.

  Coincidentally, or not, the $60 billion returned to shareholders is the exact amount Boeing requested in federal support for the aerospace industry.

  Jesse Fedler explains that the total net asset value of the McDonalds, Caterpillar, Boeing and 3M has fallen 90% from $70 billion just a few years ago to about $7 billion today. On average, these companies each spent $200 million per year on issuance of options to top management. Those very same managers were the ones who decided it was a good idea to leverage the balance sheet to buy back stock. This was done at the long-term expense of the resilience of their balance sheets.

• The problem with the current economic crisis and mounting job losses is the vast majority of workers are woefully unprepared for any type of disruption to their income going into recession. This will be a problem all over the world.

• The Chinese economy is weaker than it was in 2008/9 when it led the world out of the GFC.

Restarting the Economy

Shutting down the economy for a few months will have serious consequences. The production that is lost is gone forever. It will never be recovered. Of course, shutting down activities that have no benefit, such as casinos and creating financial derivatives, does not matter. But the production that has value will be lost for good.

There is no obvious way that the current economic crisis will end. If the virus is still active when the current four-week lockdown introduced by the New Zealand government is finished, it will have to be extended, or the cost of the initial shutdown will be wasted.

The problem is that political leaders are driving blind. They do not have a set of criteria for determining when the shutdown can be safely ended and when borders can be reopened. If the restrictions are ended too soon, greater reinfection and fear will ensue.

People are hoping that an effective vaccine will be developed quickly. This is not as easy as if often assume. A vaccine that works in the laboratory is not always easy to get into the field. The flu vaccine is happy being carried in egg yoke, but other vaccines might not be so easy to deliver. We should not assume that a vaccine can be developed, as there are many viruses for which no vaccine has possible. For example, there is no effective vaccine for the common cold.

Even when the virus is defeated here in New Zealand, it will still be active in other parts of the world. The spread will continue much longer in Africa and the refugee camps and war zones created by the US wars in the Middle East. This means that the government will have to be very careful about reopening the borders. There may be very strict controls over international travel for quite a long time.

Some businesses will gear up again quickly. After the shutdown finishes half the country will feel like they need a haircut, so hairdressers and others providing personal services will be busy. People will desperate to go shopping, so malls should open quickly, even if some shops are gone (if malls do not give rent holidays). The uncertainty will make many people nervous about spending, some demand for appliances might be quite slow for some time.

Manufacturing might be more difficult. Some manufacturers will find their customers are shut down and do not want to buy more stock. Others will find that suppliers cannot provide the inputs they need.

Companies providing business service might find they are discretionary until their clients get back onto a stronger footing.

The future of the construction industry will depend on how the demand for houses is affected by the shutdown. The uncertainty caused by the virus and the shutdown might make people and businesses reluctant to commit to big contracts until the economic recovery is more certain. By then some construction businesses might be gone.

The hospitality sector will struggle. People will be reluctant to travel and eat out until it is clear that all risk is gone. They will be keen to get out for a meal again, but will continue to be fearful for a while, and tourists will be gone, so the hospitality sector could struggle for a while. Some that have closed will probably find it too difficult to get started again if customers are scarce. If there are regions that are still shutdown because there are clusters in which the virus is still spreading, people will be very careful about travelling for many months and perhaps years.

Savings will likely increase. People who are getting up toward retirement age will have seen their value of their superannuation funds decline sharply. When they start saving seriously, they will have less spare money to spend on goods and services. Many other people will be saving hard to deal with the uncertainty that they are facing.

Strict limitations on international travel will have to be kept in place for quite some time. International visitors might need to be quarantined to reduce the risks. This means that it will be many years where the tourism business gets back to the level it was at before the virus. The government might decide that tourism is too risky for it to be a significant industry in our nation.

If the world shuts down for a couple months, it will not recover quickly and return to normal. Businesses will not restart in an orderly, logical way. Instead, the start-up will be discordant. Some business who restart will find that their supplies have not started. Others will find that the businesses that they supply have not restarted. Many businesses will find gaps in their supply chain because businesses have shut down and cannot afford to reopen.

The greatest problem is that the coronavirus shutdowns come at a time when the world economy was already weak. I have explained in a previous post, the economic vulnerabilities that will be a drag on the restoration of the economy.

New Zealand is a trading nation. Exporters could find that demand for their goods and services is weaker while the world economy is slack.

In a modern economy everything is linked. Some other linked directly, by buying an selling, but others will be affected indirectly. If one part of the economy suffers, all parts suffer to a greater or lesser degree. For example, homeowners who are using Air BNB to supplement their income will find that with tourism gone will find they have less money to spend. The businesses that supply their coffee will suffer. Although some of these effects are small, some businesses will face many of these small negative effects which together become a big effect. Many small cuts can quickly become a large wound.

Government Support

Governments and central banks think that the current economic problems can be resolved by making money available to businesses and people. Unfortunately, money is usually the symptom of a problem. not the underlying cause.

You cannot eat money.

Money is a means of exchange. It is useful, because it allows people to buy things that they need. But to get money, people have to sell things, or work in paid employment. Money only has value if there are things being produced that people want to buy.

Businesses and economists often assume that economic activity is demand-driven, so giving people extra money to spend will keep the economy going. Economies actually work the other way around. Supply creates demand. When people supply labour or produce something they can sell because they do not need it for themselves, they get income that enables them to buy things produced by others. If nothing is produced, people with money cannot buy anything, even if they have some spare money. Therefore, giving people extra money as a grant or loan does not help the economy, if nothing extra is produced.

When all businesses are expanding, it is easy for each business to expand. When many businesses are decline, most business will get caught in the downturn.

In the long term, a nation can keep only buying things, if it keeps on producing things that other people and nations want to buy.

New Zealand is a small nation that needs imports of good from overseas to support our daily lives. Although we are a food-producing nation, much of the processed food that we eat each day is imported.

This dependence on imports means that we need to be exporting goods and services overseas to pay for the imports. Fortunately, most of our export industries the export season is well through, so we will receive most of the overseas income for goods that were exported. For example, the dairy season is well through. This is important, because dairy products are a major part of our exports. Likewise, the tourism season was well through when the restrictions on travel were put in place. The concern is kiwifruit and other horticultural exports, for which the export season is only just beginning.

Governments will spend like crazy in a desperate attempt to keep their economy going, as if it had not stopped. They will keep some businesses from going under, but at a serious cost. Every dollar that the government spends on supporting business will have to be borrowed. Government debt, which is already high everywhere will blow out to unprecedented levels. Fortunately, the New Zealand government is not starting with high levels of debt, but if the crisis goes on too long, the build-up in debt could be massive.

Expanded Government debt will be a deadweight on economic recovery. This will make it much more difficult to deal with any economic crisis that occurs in the next few years.

Rather than focussing on when they will be able to restart their church services, pastors should be thinking about how they can organise their churches to support and care for people who fall through the cracks of government support. The government will not do it all.

Faith and Risk

Many prophetic voices are declaring that a spirit of fear is spreading around the world faster than the coronavirus. That is probably true, as fear is one of the enemy’s favourite weapons. However, we must not forget that complacency is another of his favourite weapons.

The best antidote to fear is trust in Jesus and walking his Spirit while living in a body of believers who love each other and are committed to supporting each other. Ps 91 is not a magic spell. Nor is it a guarantee to individual believers. It is a promise to a body of believers who love each other and walk in the spirit together, who make God their dwelling place (Ps 91:9).

The second-best antidote to fear is a clear understanding of the risk. Many people who contract the disease will have very mild symptoms. For most people, the risks of being killed by coronavirus are quite small, and most will get better.

The world we live in is full of risks, such as being knocked down by a car, but most of them are insignificantly small, so we can choose to ignore them. Many people, especially those who are young, have happily engaged in adventure tourism events, driven dangerously in motor vehicles, or done things under the influence of alcohol that exposed them to far greater risk than coronavirus does. We should not panic about risks that are relatively small.

However, for elderly people and others with pre-existing respiratory problems, the risks from coronavirus are much higher. We do not help them by trivialising the risks they face. They might need a group of faithful Christians supporting them in prayer, and some will possibly need a gift of healing to get through.

Although they are well trained, and have protective equipment, the nurses who will care for seriously-ill people hour by hour will feel like they are being exposed to greater risk than usual. They will need faithful prayer support and strong spiritual protection while they are caring for people in need.

As I noted in a previous post, the economic risks from coronavirus are probably much greater than the health risks, and they are already being felt. The slowdown of production in China is affecting production in factories all over the world. The controls on international travel introduced at the weekend will have a much greater effect. The tourism industry will be particularly hard hit, but in the inter-connected world that we live in, the pain will ripple thought the entire economy. I explain some of the reasons in Trade and Specialisation.

When life is uncertain, people stop spending, especially on goods and services that are not essential. This downturn will affect industries and businesses far beyond those that are directly affected. The large number of workers on casual contracts or on short-term freelance contracts will exacerbate the situation.

We had breakfast with friends in the restaurant of a tourist hotel on Saturday morning. The restaurant was quite empty, so I asked the waitress serving us about the impact of coronavirus. She said there had been a big decline in guests at the hotel. She said many of the staff had been put on reduced hours. She was worried about one of her colleagues who had just taken out a mortgage to buy a house. No doubt the situation people employed by this business got worse on Sunday when the government announced big restrictions on international travel.

Trivialising the economic risks is not helpful. Many people will face reduced hours, and some will lose their jobs. Most of the employment in the tourism sector are in low-wage jobs, so they will have much to come and go on. Many businesses will struggle, and some will fail. The restrictions on international travel could be in place for some time, which will increase the economic pain for the business and people affected.

Governments will introduce support packages to help the people and businesses affected, but they will not be able to restore everyone who is affected. Many will miss out, because they do not fit the criteria. Even if they do get help, they will not be fully compensated for their losses.
Unfortunately, because governments all over the world have mismanaged their economies in the last couple of decades, the world economy is not as robust as it should be. I describe these risks in Thoughts on the Economy.

People who are struggling economically will need assistance from the body of Christ. They will need people of faith to strengthen them and people of generosity to sustain them during their time of need. I explained how this could be done in Preparing for Economic Crisis. Unfortunately, the church in the western world is not well prepared for dealing with a season like this, as most of its income is committed to salaries and mortgage payments for buildings.

Preparation for Crisis (10) - Appropriate Response

The impact of any economic crisis will vary from region to region and country to country. The preparation that is appropriate for the current crisis will vary according to where people living.

1. In many countries the current economic crisis will manifest in high levels of unemployment. The main challenge will be transferring income from those with plenty to those under pressure.
2. In other countries, business trade will be disrupted. Assisting the flow of food from country to the city might be important. The methods described above will work effectively.
3. In some regions the economy and its infrastructure might totally collapse. This has happened in Zimbabwe (see substistance and secret). The supermarket shelves are empty, so no one has food, even the rich are hungry. In this environment, skills like baking bread and growing food will be really important. Sharing will be essential for survival.
4. A few places, society may collapse into total chaos. These situations call for a different level of preparation. I will deal with preparation for living in a collapsing society in another series of posts. A collapsing society could become a dangerous place for Christians to be living.

The problem for those trying to prepare is that none of us no how bad things will get in our city or region. The wisest option is to be conservative and prepare for the worst. If the worst does not happen, we will not have lost anything. We will be able to assist those who have not prepared. Jesus parable of the ten virgins should guide our preparation.

At that time the kingdom of heaven will be like ten virgins who took their lamps…. Five of them were foolish and five were wise. The foolish ones took their lamps but did not take any oil with them. The wise, however, took oil in jars along with their lamps (Matt 25:1-4).

This full series on preparation for crisis is here .

Preparation for Crisis (9) - Sharing and the Gospel

The objective of sharing is to spread the good news and not to keep God's people comfortable. Christians should also use their resources to help people who are not Christians. When the Arameans were besieging Samaria, four lepers were shut outside the city. When they found the army had panicked and fled, the hungry lepers were the only ones who noticed.

They ate and drank, and carried away silver, gold and clothes, and went off and hid them… Then they said to each other, "We're not doing right. This is a day of good news and we are keeping it to ourselves” (2 Kings 7:8,9).

Christians must not fall into this trap. We should aim to feed all the poor living in our communities, not just the Christians.
Everything that happens should be an opportunity for evangelism.

Now those who had been scattered by the persecution in connection with Stephen travelled as far as Phoenicia, Cyprus and Antioch, telling the message only to Jews. Some of them… went to Antioch and began to speak to Greeks also, telling them the good news about the Lord Jesus. The Lord's hand was with them, and a great number of people believed and turned to the Lord (Acts 11:19-21).

Economic crisis will create opportunities for proclaiming the good news.

Preparation for Crisis (8) - How Sharing Works

Christians can escape the barter trap through giving and sharing. The hairdresser might bless the gardener by giving him a free haircut. The gardener can bless the butcher by giving him his surplus potatoes. The butcher can bless the motor mechanic by giving him some lamb chops. The motor mechanic can bless the farmer by repairing his tractor. The farmer can bless the miller by giving him some surplus wheat. The miller blesses the baker by giving him some flour. The baker can then bless the hairdresser by giving him some of his bread. Giving and sharing provides everyone with what they need without any money changing hands.

In the circle of giving, goods and services flow in the same way as in the market. The difference is that money does not flow the other way. What does flow is blessing. Jesus said that it is more blessed to give than to receive. Each person gets what they needed, but they also get God’s blessing because they gave to those who are need. The giving and sharing makes the whole community better off and increases God’s blessing at the same time.

Giving and sharing will only work if there is a high level of trust between the various Christians. The will be committed to giving and be constantly looking out for people in need. If the Christian farmer does not know the Christian miller, the circle of giving could break down. If the baker knows the hairdresser, but do not care enough to find out what he needs, the links will break. Often the circle of giving will be much larger and more complicated than I have shown.

The world would have to trade on a reciprocal basis: you scratch my back and I will polish your shoes. Blessing flows round and round, which is more effective than reciprocal swapping.

Preparation for Crisis (7) - How Markets Work

In a money-based economy, the gardener pays the hairdresser for a haircut. The butcher sells lamp chops to the motor mechanic and buys potatoes from the gardener. The farmer pays the mechanic to fix his tractor and sells the flour to the miller. The baker buys flour from the miller and sells bread to the hairdresser. In this system, the goods and services flow one way and the money flows back the other way.

If the money system breaks down and the cash machines are empty, these exchanges would be impossible. If money loses value, buying and selling might become difficult. The world will have to go back to barter, where two people swap their surplus goods and services. Barter is very restrictive, due to search costs. If a hairdresser wants some bread, he must find a baker who wants a haircut. Economists call this the “coincidence of wants”. The problem is that when the hairdresser finds a baker with surplus bread, he might be bald and need a new shirt. A lot of productive time will be wasted looking for people who want to make exchanges, so everyone will be worse off.

Preparation for Crisis (2) - Personal Impact

At the personal level, an economic crisis affects people differently.

• Some people will lose their jobs. They will face a massive drop in income. If they find new work, it may not match their skills, so they will be less well paid.
• People who keep their jobs will continue to live quite well. If prices fall, they might actually be better off than they were before the crisis.
• Most business owners will face a reduction in income. They will generally be able to continue to operate, but their profit will decline.
• Some businesses will fail. The owners of these businesses will face a severe reduction in income.

The situation will be varied. Some people will have a dramatic decline in income. Others will carry on living as normal. The relative size of these two groups will depend on the severity of the recession.

Pauls spoke about the situation where some are well off and other are suffering.

Our desire is not that others might be relieved while you are hard pressed, but that there might be equality. At the present time your plenty will supply what they need, so that in turn their plenty will supply what you need. Then there will be equality, as it is written: "He who gathered much did not have too much, and he who gathered little did not have too little (2 Cor 8:13-15).

Paul suggested a solution for the situation where some have plenty while others are hard pressed. The solution is generous giving. A key to preparing for difficult economic times is to learn how to give and share. Christians can best prepare for difficult times by building relationships and building channels through which those who are better off can share with those who are hard pressed.

Deacons will have a role in facilitating this giving and sharing. Acts 6 describes how people with this calling were set aside to care for those in the Christian community who were poor. We should be working and praying to raise up this ministry.

For more about Deacons read Deacons.

Preparation for Crisis (1) - Think Carefully

The credit crunch has created a great deal of economic uncertainty. Christians are starting to think about life in difficult times. Some are preparing to cope with an economic crisis. This sense of urgency is good, but we must focus our efforts wisely.

When preparing for difficult times, most Christians think about returning to a subsistence lifestyle. Their first response is to start growing vegetables. Some Christians consider moving to the country, where a self-sufficient lifestyle will be easier. Growing vegetables might be a sensible away to support other people, but is probably foolish if the aim is to be self sufficient. The self-sufficient lifestyle is actually a substance lifestyle, and that is an awful way to live.

Returning to subsistence is not the best way to prepare for tough times when most people live in cities. If Christians want to provide a lead, we will need to develop models for life that will work in a city. Before rushing into the country, we should think clearly about what happens in an economic crisis. Once we have a clearer idea of what we will be facing, we can prepare more sensibly.

Pause Ending

New Zealand has forgotten God.
As a nation we once knew him;
not very well,
but we tried to serve him,
we tried to obey him,
we tried to worship him
and he blessed us.

But now New Zealand has abandoned God
most people have rejected his love,
many have forgotten who he is,
some of our leaders oppose him,
and others really hate him.
Given that we have forgotten God,
we should have lost our blessing
we should have lost it long ago.
But God is merciful
and has held back the judgement
He has held back the trouble and sorrow,
He has held back the pain,
and allowed his blessing to remain
although we had forgotten him

Now the long pause,
between forgetfulness and consequence
between sowing and reaping
is coming to an end.
Within a year
of a bright light being snuffed out
the economy will start to shake.
Just when people are saying,
The doomsayers were wrong.
We have avoided the hard landing,
a strident shudder will strike.

Economic Situation in New Zealand

Despite all the talk about crisis, depression has not come to New Zealand. Despite the chatter about crisis overseas, the economic reality is currently quite different in this country. The decline in GDP has been very small (mostly the result of a drought that is over).

Wages are under pressure, but very few people have lost their jobs. Those who do lose their jobs get generous benefits. Business is tough, but that is to be expected after ten years when business was easy. Profits are down, but very few businesses have failed. Adjustments to consumer spending are so marginal, that they hardly show up in the aggregate.

We are not experiencing anything like what happened in the 1930s. Life is still a breeze compared to those times. For the majority of New Zealanders, life just goes on as normal. People are still walking their dogs, not eating them.

The reason is that New Zealand went into the current world crisis in far better shape than most countries.

• We were the first country in the world to go into this recession (GDP went negative during the first two quarters of 2008), but the cause was a drought, not financial jarring. That drought has ended.

• Unemployment has been at a record low.

• Real estate agents and car dealers are suffering, but they have creamed it over the last few years.

• Most New Zealand businesses are in good shape (apart from excessive debt). We do not have any economic cripples like the US auto industry. The weak players here were shaken out during the early nineties.

• Government debt levels were much lower than in comparable nations.

• The New Zealand banking system is relatively sound. Most of the dodgy lending was done by the finance companies. These passed from the scene last year without causing too much pain.

• The decline in petrol prices is helping everyone.

• Homeowners and businesses have been assisted by a sharp decline in interest rates.

• Tax cuts have put extra money in most pockets.

• The devaluation of the New Zealand dollar is compensating exporters for declining commodity prices.

• Food production for export markets is our main industry. The people of the world who can no longer afford to buy SUVs still need to eat.

• Although Bama and Brown’s bailouts are morally flawed, they are keeping their flawed banking systems going.

When the economy appears to be recovering, and politicians are saying that the doomsayers were wrong, and economists are talking about a soft landing, and forecasters are talking up the recovery, but they could be wrong. Just as fear is turning into hope, the economy will probably turn to custard.

Crisis and Revival

Many Christians assume that the economic crisis will turn people back to God, but this is not inevitable. The escapades of the Christian Right have turned many Americans off the church, so they will be more like to turn to alternative religions in time of need. Many people are now so secularised, that God does not even cross their minds when troubles come. Church is not even on the radar. Troubled times might benefit the religions more.

Modern people look to the state when things go wrong. If Obama can kickstart the economy, that faith will be further boosted. A worse crisis will just turn people to the state. People in Africa and South America know that government leaders are crooks, who will look after their mates, so their only hope is in something supernatural. Americans have gone the other way. They see the church as crooks, looking after their mates. They will look to the state when troubles come.

To experience a harvest in times of trouble, the church will have to demonstrate a life that is viable, while all others are failing. In an economic collapse, pastor-centric, building-centric churches will be too busy worrying about their overdrafts and mortgages to be able to reap the harvest. Their members will be to busy struggling with their own hire purchase payments and credit card debt to reap a harvest. Non Christians who are struggling with debt will not take seriously churches and Christians who are stuck in the same sinking boat.

To reap a harvest during economic troubles, you will need a model of church that can bring life and hope to where people live. The point of the Commando Vision is that an economic crisis cannot produce a harvest, unless radical Christians get ready to function through tumult. The reason is that most modern churches will be wiped out by the crisis and will not be in a position to help others. I expect that the American church has too many F16 Christians and not enough commando Christians to bring in a harvest in troubled times. Therefore, I doubt that the Lord will put his church through a real economic crisis, because the risk of disaster is just too great.

Crossing the Chasm

Last Saturday I read iMonk’s article called the Coming Evangelical Collapse. I also read several articles but the financial crisis. I spent much of the day pondering what God is doing and how long the current economic crisis will last. That night, I had the following dream.

I was walking beside a river with a companion. The sky was blue and the river was flowing steadily. The sides of the river were shaped evenly almost like a canal. People were sailing and rowing boats in both directions. Everything was lovely and the river stretched on for ever.

My dream jumped forward and I was trying to cross a ravine that ran down to the river. A huge structure made of framing timber had been built across the ravine in quite a haphazard manner. I was cling to a couple of the vertical planks on the side of the structure. I noticed the the distance across the ravine was really short. I looked down and was amazed at the depth of the ravine. It seemed to go down thousands of feet.

I was holding on to the vertical planks with on hand and holding a bag containing some of my possessions with the other. I quickly realised that I would not survive a fall and that if I kept going I would certainly fall. I carefully got back off onto the bank of the ravine where I started.

My companion pointed across the structure showing me that it went right across the ravine. My first thought was that I could use the bridge to cross the ravine. I then noticed that there were no planks on top of the structure, so I do not know if it was possible. I woke up before I attempted to go cross.

When I awoke, the following interpretation seemed obvious. The river represented the world economy over the last decade. Everything seemed lovely and people thought it would go on like that forever. The narrow, deep ravine which came upon me suddenly is the current economic crisis. If left to work its course, it would be very deep but very short.

The wooden jerry-built structure represents the bailout packages adopted by various governments. They have put in place in a very haphazard way. People clinging to their property will fall into disaster, if they trust in government bailouts.

A problem that should be deep, but short, may have been made impassable by shonky government programmes.

Reaping and Sowing

The current economic crisis is not the end of the world. It is not the great tribulation.

We are mostly just reaping what we have sown. Businesses that make to many bad decisions eventually fail, as the American auto industry is learning. Banks that buy shonky assets for excessive profits are eventually caught short. Households that borrow too much to speculate in a housing bubble, will often get caught between falling prices and rising interest payment.

Excessive reliance on debt usually has a bad consequence. During the good times, businesses and households used cheap credit to amplify their profits and gains. The problem is that leverage wacks back during bad times. The world that sowed leverage in abundance is now reaping a harvest of leveraged pain.

Unfortunately, the pain of the reaping is being amplified by two negative factors.

1. A flawed banking and monetary system. Fractional reserve banking amplifies the pain of recession, just as if fed the exuberance of the preceding boom.
2. A flawed system of government. Democratic governments are expected to solve all problems faced by society, but when dealing with a sick economy, they usually make the situation worse.

The pain that people are feeling is real, but that does not make it into the end of history. We are still just reaping what we have sowed.