THE REASONS FOR THE CURRENT HOME LENDING CRISIS
Why have house prices risen so rapidly over the last four years? Will the
current housing boom crash? What is the future for the housing market? Why
is it more difficult for the average family to survive than 50 years ago?
Over recent weeks there has been growing awareness of difficulties in the
USA with some home owners are experiencing servicing their mortgages. An
increasing number are defaulting, resulting in mortgage sales, which is
affecting the housing and financial markets. There is now real concern that
this could spread to the wider economy, triggering off a depression.
Recently the US Congress held a special hearing about the crisis. Why what
was the wealthiest group of nations in the world now are so heavily in debt,
and at the mercy of their foreign lenders? Why has consumer debt threaten
to over-whelm so many?
Following September 11 the American banking system was in danger of
collapse. The Federal Reserve Board pumped money into the banking system to
prevent a run on the dollar and to keep confidence in the banking system.
Prior to Sept 11 there was already considerable liquidity in the USA, as the
Fed had increased the money supply to prevent the US sliding into a
recession? While the increase in the money supply stimulated consumer
spending, and growth of American GNP, much of this spending went on consumer
goods manufactured abroad and domestic housing. This resulted in an outflow
of funds to Asia, allowing them to create the capital funds for the Asian
economies to finance their own domestic growth.
Japan, which already had extensive overseas investments, was concerned that
the Yen would rise rapidly as it accumulated US dollars from its trade
surplus. This would have had a negative affect on the Japanese export
industry. To prevent the Yen increasing in value, the Bank of Japan printed
Yen to purchase surplus dollars being accumulated by Japan's exporters. The
Japanese then lent the money back to the USA - buying Treasury bonds,
investing in the US capital markets and lending to US banks. Not only did
they lend to the USA, but other nations, especially in Asia and the
Anglo-Saxon nations. They invested heavily in China. US dollars were
recycled back into our banking systems - the more we purchased from Asia,
the more debt was accumulated. More recently China has become the main
supplier of consumer goods to the world, and has also accumulated surplus
dollars, which they in turn lent back to the Anglo-Saxon nations so we could
buy more of their goods.
The Anglo-Saxon banks became flush with money that flowed back from Asia.
They in turn on-lent these deposits from Asia to western consumers. They
marketed debt aggressively, encouraging consumers to borrow for credit card
and consumer debt, creating enormous profits to the banks. Banks promoted
extensively mortgage finance, as it was perceived that property would
provide better security. This has been inflationary, pushing property
prices up much faster than personnel incomes needed to service the cost of
borrowings, creating a speculative property boom.
What consumers have not been warned is that most the funds deposited with
the Western Banks have come from foreign investors, who can withdraw these
funds just as quickly if lenders are able to obtain better returns
elsewhere. The withdrawal of funds from the western banking system would
end mortgage and consumer finance, as there is little domestic savings to
replace the foreign bank deposits. This would be followed by a property
market crash. Consumer spending would dry up, bringing on massive
unemployment, and business failure - they would be unable to service their
debts - many will have all their equity wiped out. There will be a complete
unraveling of the economy - assets will loose value, and poverty, starvation
and anarchy will follow.
Yet today the Anglo-Saxon nations are told by their political leaders that
times have never been so good. The people are told that deficits did not
matter - the Asians will keep on lending to us as they could not afford to
let us go broke. Sadly our people have been deceived by lies by their
political leaders - claiming our economies are prospering and failing to
tell the truth that they this perceived prosperity is financed by debt that
has to be repaid. What we are not told is that our external debt is now so
large we have no way of repaying it. Unless wealth is accumulated from
earnings, rather than debt, it can not be sustained.
Wages and incomes have not increased to compensate the increase in property
values or the growth in consumer debt. Saving has fallen to zero. Our
economies have only increased GNP through overseas borrowings - not from
domestic saving. A greater percentage of earnings are going to overseas
creditors to service debt. The more debt that is accumulated, the more real
wealth is flowing out of our countries to finance the trade deficit and
overseas borrowings. As interest rates rise, then so does the cost of
servicing debts to overseas creditors, and the poorer we become. With zero
savings, and a growing trade deficit, the Anglo-Saxon economies have now
dependent on being able to attract new foreign capital to finance domestic
economic activity and to service their debts. The scale of their external
debts is such that they have no hope of repaying these loans from export
incomes - the size of trade deficits (with the exception of Canada) has made
it extremely difficult to turn their economies around to generate any net
income to repay external loans.
What has gone wrong? Governments today are taxing at a higher rate to
maintain expensive welfare programs required as society becomes less healthy
and self-sufficient. Now it requires two incomes to earn sufficient income
to provide for a family - 50 years ago a family was able to maintain a good
standard of living on a single income. But more importantly, and the key
reason why our earning power has declined is because of the cost of
servicing debt borrowed from foreign nations. The out-flow of funds to our
creditors is draining away the wealth of our nations, and will eventually
take us down the road to poverty that much of the third world experiences.
Some may argue that we need not worry - as most of this debt is in US
dollars and the USA can just print more money to repay these debts. However
this would have disastrous consequence to the US dollar, causing it lose all
value and become worthless. This would also be damaging for America's
creditors, whose US dollar investments would be wiped out. It would bring
about a chain reaction which would end in the collapse of the US economy.
Today, the Western banking and finance industry attracts the brightest
brains, paying the highest salaries, and accumulates the biggest profits.
These parasitical organisations are sucking the life-blood out of our
economies, leading our people down the road to poverty and slavery. They
borrow from nations that were our former enemies, on-lending this money to
our people at ever-higher interest rates. Financial institutions have
exulted themselves over our people, encouraging borrowing ever increasing
amounts of credit, to produce ever greater profits. They are not
contributing a cent towards increasing real wealth to a country; rather they
are siphoning off the national wealth to satisfy their greed. Even worse,
they are forcing producers into adopting destructive environmental practices
to service bank debt.
As a result of these banking practices the national wealth of the
Anglo-Saxon nations is being transferred to those nations we have borrowed
from. The effects of this borrowing are still not fully apparent, as banks
are still able to continue borrowing to sustain our current level of
economic activity. It is only that when they are unable to continue
borrowing to finance our current level of economic activity, and that we
have to repay our international debt from income that our problems will
become evident. When the Anglo-Saxons default on their international debts,
their currencies will collapse, creating a global depression. They will be
unable to export to earn the income to service their international debt
obligations. They will slide into bankruptcy.
This will be followed by total economic collapse of the Anglo-Saxon nations.
Starvation, famine, and anarchy will follow. Government revenue will dry up
- government services will cease. Every person will have to vend for
How did our nations get into such a financial mess? How have we ended up
totally mortgaged to nations that were our former enemies, and depended on
their continued credit for our economic survival? Why is it that housing
costs have escalated out of reach of young families today? The answers to
these questions and the solution to our housing and economic crisis are
found in the Bible.
Many of our problems today stem from our economies following false theories
promoted by economists, rather than following the economic laws that have
been given to manage our economies in the Bible. If these economic laws
were followed our economies would now be debt free and prosperous.
Following these laws would result in:
1. Land distributed evenly amongst the population, and retained in the
ownership of individual families. Land may not be bought and sold, or used
as collateral for debt.
2. All debts be written off every 7 years, preventing the financially
institutions exploiting the population.
3. The charging of interest banned within a domestic economy,
eliminating the costs of debt servicing.
4. If through mis-fortunate families were to lose title to their land,
it will be returned to the family ownership every 50 years, or the Jubilee
It these basic economic laws were followed, our society would become
extremely wealthy and productive. Here are just some of the benefits.
1. The population would have the security of home ownership with
sufficient land for families to be self-sufficient.
2. Young families would not be burdened from excessive borrowing to
establish a home - they would only have to raise the finance to build a
house, without the cost of purchasing the land.
3. Capital could be invested as equity in productive enterprises,
rather than exploiting others from interest earned on deposits held in an
unproductive banking system
5. Equity investment would eliminate the need for the parasitic banking
system being able to rob the people of their wealth.
6. It will allow for more equal distribution of wealth - preventing
wealthy elite to exploit the majority of the population.
7. Agriculture production management would be sustainable, practicing
permaculture methods, and not burdened with debt-servicing costs.
8. Rather than borrowing from foreigners, we could lend to them,
earning income from investments in other countries.
There must be a totally new approach in the way our economies are managed,
before the environment is destroyed, and life will no longer be habitable on
this planet. There needs to be an alternative economic model that will
reward those who work hard and with diligence, allow the people to prosper,
and also protect the environment. However, financiers who produce nothing
towards creating national wealth, but rather place people into bondage
through high interest rates, debt and finance fees there is no longer be a
need if we followed the Biblical economic laws. It is only then that we
will have prosperity and financial freedom.
28 April, 2007
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