American Treasury bonds are backed by the “full faith and credit” of the United States government. Whenever there is economic turmoil in the world, many investors make a “flight to quality” by investing in America’s bond market. American Treasuries (bonds, bills and notes) are a “safe haven” for foreign investors in the present nightmarish world of collapsing global economies.
But what if that all changes? Can it change? As many international journalists are quick to point out, we Americans deceive ourselves by arrogantly thinking we are invincible.
In the August 5 USA Today, an eye-opening article by Rich Miller states (emphasis mine throughout), “Ratings agency Fitch IBCA warned Tuesday that the USA is living beyond its means and said a weaker stock market and dollar would likely be the result.” If we honestly assess today’s global economic news, anyone should recognize that America is most likely going to experience the same kind of precipitous stock-market fall and currency devaluation being seen in Southeast Asia and Russia.
In spite of recent stabilization in the U.S. stock market caused by the Federal Reserve lowering interest rates, the value of the “almighty dollar” has begun to fall like a rock off a cliff. In a nasty reversal, Japanese investors have watched the value of the foreign-currency mutual funds, stocks, bonds and cash accounts drop sharply as the dollar fell as low as 111 yen in Asian trading October 9, from a high of over 145 yen in August. Such dramatic losses can quickly turn foreign investors away from America in search of more stable investments.
The article continues, “While reaffirming the USA’s top-tier AAA credit rating, Fitch voiced concern that the economy as a whole is becoming too dependent on foreign capital to finance [its] growth.… The USA became a net debtor nation—owing more to foreigners than foreigners owe it—in the late 1980s after years of big trade deficits. Those deficits now look set to balloon again as the Asian crisis slashes demand for U.S. exports.”
The U.S. owed the rest of the world $1.3 trillion at the end of 1997 over and above its national debt of $5.5 trillion. “Behind America’s deepening debt: a paltry domestic savings rate. That means the government and U.S. companies need foreign capital to keep going.… So far, that has not been a problem. Foreign investors, attracted by America’s exceptional economy and frightened by the Asian crisis, have poured money into the USA. In the first quarter [of 1998], they invested a record $29 billion in U.S. stocks.… But Fitch…says that can’t go on forever.… A lot of countries around the world have found you get yourself in an uncomfortable position if you rely on foreign capital too much.”
A Moody’s Investor Service executive summed it up by saying, “A big sell-off of U.S. Treasury bonds by foreign holders is not a threat if U.S. investors are prepared to step in and buy what’s sold. But if they’re not, watch out.”
Loss of Confidence in America
Americans will not be able to “step in and buy” the Treasury bonds which finance our national debt and keep our government running. They can’t! As Fitch Managing Director Lionel Price said, “The [U.S.] population as a whole is spending all its income. The economy needs savings, and it’s being sucked in from abroad.”
The New York Times of August 7 sarcastically spelled it out: “The world economy is spinning crazily on the axis of the unsustainable Japan-U.S. relationship. They sell to us. But we can’t afford to keep buying. So we borrow from them with the money they earn from selling to us.”
For the last 15 years, America has been on this unsustainable financial high that was and is made possible only by the injection of enormous amounts of foreign money into American bond and stock markets. But that will come to a screeching halt as soon as the American dollar and markets lose their “reserve currency” and “safe haven” status.
The Dictionary of Economics pointedly defines reserve currency as “a currency used as foreign exchange reserves [savings] by other countries.… Reserve currency countries receive cheap loans from the holders [through bond sales] while the system lasts, but their currencies are exposed to severe speculative pressure if confidence in them declines.…”
Confidence is a very fleeting and uncertain thing. It is based on trust, which can be betrayed easily and just as easily shattered. Confidence can be likened to a gossamer balloon blown about by the winds of whimsy. Likewise, investor confidence is nothing more than a delicate balloon waiting to be burst by the buffeting gales of economic crises.
What could cause the beginnings of a loss of confidence in America? In the middle of August, a senior currency strategist at the Deutsche Bank in London made the comment that the dollar’s fluctuations—at least against continental European currencies—are “a reflection of President Clinton’s problems, which Americans shrug off but foreigners take more seriously. Foreigners see it as weak president, weak dollar.”
On the international level, strength of character is equated with strength of economy, and both are extremely lacking today in America! Regardless of the “full faith and credit” of the U.S. government, global investors are becoming increasingly aware that an investment in America is no longer an investment in strength. There is only an illusion of strength being propped up by foreign capital.
Once a loss of confidence occurs, the reaction is similar to the effect of adultery in many marriages today—victims of such a breach of trust start looking for a way out, and many times they take every financial advantage they can on their way out the door. Through such devices as credibility-destroying scandals, a mountainous and expanding national debt, a hugely overvalued stock market, record-low-yielding bonds and other “confidence shakers,” America is becoming increasingly vulnerable to the devastating effects of foreign capital flight.
Look at Russia’s continuing dilemma, where foreign investors expected a 100 percent return on investment, but now will be lucky to receive 20 cents on the dollar! Investors, in droves, have pulled up stakes and run in sheer panic! The resulting catastrophe shows that foreign capital flight implodes an economy, drying up the international loans and credit needed for survival, leaving nothing but a devalued and bankrupt skeleton with vultures picking the last shreds of financial meat off the bones!
Financial Feeding Frenzies
Jesus Christ, in Matthew 21:12-13, called many of the currency speculators (the “moneychangers”) of His day nothing but thieves, and in the last 2,000 years that has become even more accurate. Trillions of dollars per day are exchanged on today’s world currency markets. That amount of money attracts every kind of con-artist and crook known to mankind. And every possible innuendo and financial sleight-of-hand is used to take advantage of the naïve and inexperienced.
The economic problems plaguing Hong Kong reveal the financial blood-sucking and highly speculative advantage-taking which has been at the heart and core of the Asian, and now global, financial meltdown. The Economist of August 22 states, “The [Hong Kong] monetary authority’s aim [by intervening in their falling stock market] was to slap down hedge funds [speculators] that had been shorting shares (selling borrowed shares in the hope of buying them back later at a lower price). As central bankers see it, these funds have been playing a no-lose game. First they short shares. Then they sell Hong Kong dollars [causing a surplus and thus lower value in the HK dollar], which, under the rules of the territory’s currency board, automatically shrinks the money supply [takes HK dollars out of circulation to end the surplus] and pushes up interest rates. The higher rates then suck money out of the stock market [into then higher-interest bonds, for example], driving [stock] prices down and creating profits for the short-sellers.…”
Once the scent of blood is in the nostrils of currency speculators, the piranhas of the worldwide monetary system, there is no mercy shown to the hapless victim. Any dirty trick in the book is used, as efficiently as razor-sharp teeth in a feeding frenzy, to strip every ounce of value possible from an economy and its currency.
When a greed-driven feeding frenzy begins, ever-increasing numbers of investors begin pulling their money out of the ill-fated economy for fear that their money will also be consumed by the voracious financial predators. The more successful the attacks, the quicker foreign capital flees in panic, until finally nothing of value is left to consume and no international credit dares to make itself available to try to save the economy and currency from collapse. And so the financial feeding frenzy proceeds around the globe from victim to victim to victim until the momentum of the frenzy itself is strong enough to topple even the strongest economies.
Nightmare Scenario for U.S.
Reuters News Service on August 24 released a story entitled “Global Meltdown Poses Nightmare Scenario for U.S.” It stated, “A nightmare scenario is threatening to unfold for the global economy that could be beyond the reach of U.S. policymakers.
“The financial crisis that started in Asia last year once looked manageable, but analysts warned on [August 24] it may turn into a global epidemic. Billions of dollars in international emergency aid have failed to contain the turmoil. There is hardly an emerging market left that has been spared. Russia’s economy is crumbling fast, and now Latin America threatens to become the next victim.
“‘This is a serious global emergency,’ said Greg Mastel of the Economic Strategy Institute, a Washington-based think tank. ‘It’s foolish to think that this problem is going to go away overnight.’ [U.S. Treasury Secretary Robert] Rubin has warned time and again that U.S. prosperity and jobs, among the greatest achievements of the Clinton administration, could be at risk if Asia’s economic sickness infects other emerging economies.
“The speed with which it is spreading around the globe has left U.S. policymakers scrambling for new solutions. But as they struggle to keep up with the crisis, officials are running out of fresh ideas. ‘I don’t think there’s really much left that Washington can do,’ said Jay Bryson, international economist at First Union Corp. ‘Nothing really sticks out that they haven’t tried yet.’…
“An IMF-led $23 billion bailout package for Russia, concluded a month ago, unraveled faster than Washington could have forecast even in its worst-case scenario. What’s more, the IMF’s kitty has been all but emptied out, leaving the international community ill-prepared financially for whatever problem might spring up next.…
“The Asian crisis already has caused the U.S. trade deficit to soar, and all that combined with a collapse of wobbly Latin American economies might all of a sudden ring closer to home than most Americans would like. ‘It’s like hurricane Bonnie,’ said Mastel, referring to the storm [which recently smashed] the eastern U.S. seashore, ‘These problems are not of our own making, and they are beyond our power to eliminate.’”
Can America Really Be Next?
The WSJ of July 7 predicts, “Just when it looked as if the U.S. economy may have escaped serious harm from the one-year-old Asian financial crisis, economists see trouble ahead: They say the brunt of the crisis will hit the U.S. during the next six to nine months [by the end of 1998 or the first quarter of 1999].
“By an overwhelming majority, the 55 economists participating in The Wall Street Journal’s latest semiannual forecasting survey named the Asian crisis as the major threat facing the U.S. economy and believe that a deep and prolonged recession in the world’s most populous continent [Asia] will prompt U.S. companies to slow production and reduce employment levels.
“‘The Asian crisis is off the radar screen of history in its seriousness, scope and eventual potential to do severe damage to the [U.S.] economy,’ says Alan Sinai, chief global economist at Primark Decisions Economics Inc. ‘We see a scenario of falling export sales, rising inventory levels and slower domestic sales as American consumers substitute imports for domestic products. Corporations will respond to the weakness by cutting back on workers.’”
Another major problem is surfacing in that America’s dependence on foreign capital to finance her ever-widening trade deficit comes at a time when foreign investors are buying fewer Treasuries.
Sales of U.S. bonds finance America’s national debt and provide the government with operating capital. That sad state of affairs has been going on for the last 15 years. Yet that is all changing. Foreign investors’ appetite for Treasuries is falling along with U.S. bond yields, or returns on investment. In the first quarter of 1998, foreigners purchased a net $11.8 billion of Treasuries. As recently as the fourth quarter of 1996, that figure was $92.7 billion.
With a growing current account (trade) deficit expected to reach in excess of $200 billion in 1998, compared to $155 billion in 1997, America needs to attract growing quantities of foreign capital, but in the face of declining confidence in America’s President and in its stock and bond markets, as well as the USA’s inability to end her own and the world’s falling economic conditions, it is becoming much more difficult to attract foreign investors to America’s life-blood, the U.S. Treasury bond.
Where the Money Is Headed
News reports around the world are headlining the fact that American and foreign investors alike, flush with cash, are betting on the rising star of Europe. Industry Week of July 6, in an article entitled “U.S. Slowing and Europe Growing,” talked “of Europe overtaking the U.S. to become the long-term-growth-rate leader among the world’s industrialized economies.”
Most of the 55 economists (30 of them) mentioned above in the July 7 WSJ semiannual forecasting survey “believe that Europe will be the fastest-growing international market in the next 12 months.” An American economist with typical arrogance and naïveté is quoted in that issue as saying, “The U.S. might suffer harm by losing some of its reserve currency status, but we should more than offset that by selling to a strengthening customer [Europe].”
The Far Eastern Economic Review of August 27 says, “The fact that the euro will be the currency of the world’s most important and powerful trading and economic bloc—backed by an independent central bank—will inspire confidence.” The article then all but blames the ongoing Asian financial meltdown on America by saying, “It’s a question of rebalancing global monetary relations.… There is an imbalance between the United States’ economic and commercial role and the influence of the dollar. And this imbalance creates instability—of which the recent Asian experience is one example.”
Another article in that same Far Eastern Economic Review states that the advent of the euro “signals a seismic shift in the world economic system—the kind of reordering that comes about only a few times each century and which hasn’t been seen since 1972, when the Bretton Woods system of fixed [currency] exchange rates collapsed.” The article says later that “thinking and dealing in euros…could quickly erode [Asia’s] heavy reliance on the dollar.”
Investor confidence is aimed at a German-led Europe, the new darling of the monetary world, and away from America, the self-centered, overconfident and spendthrift wench. The powers of Europe will control world economies and will produce confidence in her to the point of awe. Flying on the heels of that confidence in Europe will be investor capital, seeking the highest possible return on investment, regardless of consequences for the rest of the world.
Foreign capital flight is on the horizon for America, yet Americans, in all their haughtiness, refuse to see it coming. America is going to be blind-sided and totally shocked when she is rejected by the investors of the world. In fact, foreign capital flight is one of the primary mechanisms whereby America will be abandoned by her former “lovers.”
The Fall of Israel
The identity of biblical Israel is one of the major keys to unlocking the truth of your Bible. In this 20th century, the Church of God has proclaimed that identity to the world for over 60 years. Without an understanding of the identity of biblical Israel, approximately 90 percent of your Bible will be a mystery to you. Primarily, America and the British nations around the world are the modern-day descendants of ancient Israel. To receive more on the fascinating truth about this subject, please write for your free copy of The United States and Britain in Prophecy by the late Herbert W. Armstrong.
Isaiah 46:10 says that God foretells the future of mankind. II Peter 1:20 states that “no prophecy of the scripture is of any private interpretation.” And John 10:35 tells us that “scripture cannot be broken.” God’s word stands as the only guide to sure truth! Understanding that truth requires a humble mind which is yielded to being taught.
Jeremiah 4:30 reveals God’s word concerning a time when Israel will try to make herself appear financially attractive to other nations, but all in vain. God says, “And when you [Israel] are plundered, What will you do? Though you clothe yourself with crimson, Though you adorn yourself with ornaments of gold, Though you enlarge your eyes with paint, In vain you will make yourself fair; your lovers will despise you; they will seek your life” (New King James Version).
America is rapidly entering a time when she will need to entice her “lovers” back to her with high interest rates and other economic premiums which will cost the U.S. hundreds of billions of dollars. Just look at Russia and the many other nations which have recently spent their wealth in futile attempts to attract foreign capital back to their shores. Why would anyone think America is different? To do so is nothing but vanity. America is not immune to the lessons of history, nor able to defy the prophecies of the Living God!
Jeremiah 30:12-15 clearly reveals why America and the nations of Israel receive this fierce punishment. “For thus says the Lord [to Israel]: Your affliction is incurable, Your wound is severe. There is no one to plead your cause, That you may be bound up; You have no healing medicines. All your lovers have forgotten you; They do not seek you; For I [God] have wounded you with the wound of an enemy, with the chastisement of a cruel one, for the multitude of your iniquities, because your sins have increased. Why do you cry about your affliction? Your sorrow is incurable. Because of the multitude of your iniquities, because your sins have increased, I have done these things to you.”
National sins and leadership scandals are a stench in the nostrils of the Eternal! And what is worse is that the people of America don’t care as long as their gods of money and economic well-being are satisfied. But the riches of this world are going to be stripped from Israel to leave her bare and naked in all her shame! (See Ezekiel 7:19; Luke 23:30 and Revelation 6:15-16.) God’s word says that soon their false gods will desert them, and, along with the rest of the world, they will be throwing their money into the streets and crying out for death to end their torment!
Ezekiel 16:35-39 describes Israel’s desolation. “Now then, O harlot [Israel], hear the word of the Lord! Thus says the Lord God: Because your filthiness was poured out and your nakedness uncovered in your harlotry with your lovers, and with all your abominable idols, and because of the blood of your children which you gave to them, surely, therefore, I will gather all your lovers with whom you took pleasure, all those you loved, and all those you hated; I will gather them from all around against you and will uncover your nakedness to them, that they may see all your nakedness. And I [God] will judge you as women who break wedlock or shed blood are judged; I will bring blood upon you in fury and jealousy. I will also give you into their hand, and they shall throw down your shrines and break down your high places. They shall also strip you of your clothes, take your beautiful jewelry, and leave you naked and bare.”
Israel, led by America, is going down if she doesn’t repent. God is her judge, and He will not be denied! His prophecies are true and will surely come to pass! Because of America’s meteoric fall from unprecedented heights, all nations on earth are about to go through a time of world trouble like no other time has been or ever will be (Matt. 24:21; Dan. 12:1).
God has promised in His word that, if America does not repent, He will drive her down into the dirt so that she will finally repent and see herself for what she really is: as Isaiah 40:15 says, nothing but a drop in the bucket of history!
God’s Mercy Extended
After the lessons of these terrible times are written in the annals of human history, God, in all His mercy through His Son Jesus Christ, will show mankind the way to perfect peace and economic well-being.
Gone will be the cunning and predatory currency speculator. Gone will be greedy investors, willing to do anything to net a profit at the expense of others. Nations and people will learn the loving way of “give” and will reject the selfish way of “get.”
Jesus Christ is going to return to this earth in only a few years to teach mankind the way of God’s loving government. All of mankind who learn those marvelous lessons from God will finally find the harmony and happiness that has eluded us throughout history! ▪