Crisis Control For 2000 and Beyond: Boom or Bust?
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Crisis Control For 2000 and Beyond: Boom or Bust?

Larry Burkett

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eBook - ePub

Crisis Control For 2000 and Beyond: Boom or Bust?

Larry Burkett

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About This Book

Best-selling author, Larry Burkett, looks at Y2K and the growing world-wide economic instability and gives his evaluation. Will it be a boom or a bust economy? Either way, the seven basic principles he shares will provide God's wisdom to investors of all ages and incomes.

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Publisher
Thomas Nelson
Year
1999
ISBN
9781418558659
PART I

AN ECONOMIC LOOK AT 2000 AND BEYOND
1
What Happened to the Ear thquake?
Iwrote a book in late 1991, The Coming Economic Earthquake, the gist of which was that the U.S. government was spending too much money (significantly more, in fact, than it generated each year in tax revenues) and that if this decades-old trend were not reversed, we were headed for an economic collapse of historic proportions. As with all books dealing with future events, I approached the writing of Earthquake with some fear and trepidation. But I felt that our national debt and annual deficit were out of control and would eventually (perhaps at the turn of the century) bring our economy to its knees. The book did more than just attack the national debt; it also shed some light on our growing Social Security and Medicare problems and the rising tide of consumer debt.
The book became a national best-seller, and in 1993 Congressman Frank Wolf (R-Virginia) stood on the floor of the House of Representatives and read aloud sections of the book to the members of Congress. In 1994 I revised and updated the book to include several chapters dealing with the Clinton agenda. Combined sales of the 1991 and 1994 versions of The Coming Economic Earthquake exceeded 800,000 copies. To some degree this book influenced the 1994 elections, because several Republican leaders adopted its theme.
That’s the good news. The bad news is that in the years following the book’s publication I received several letters from readers who pulled their money out of the stock market and otherwise “hunkered down” in anticipation of the economic earthquake. They all wanted to know, especially those who missed the stock market surge, “Why didn’t the earthquake you predicted happen?” Interestingly, I continue to receive criticism from Christians in the financial planning field who are trying to say they knew we would not have an economic downturn. To them I would say, “The verdict is not in yet.” I said in the book, and still believe, that whatever financial crisis we face would occur around the turn of the century, plus or minus.
Two points need to be made. First, nobody knows the future— not me and not anyone else. All anyone can do is look at the facts and try to draw some conclusions. Second, I never recommended that people cash out of the market—unless they felt God was directing them to pay off their homes.
However, I do recommend that Christians get out of debt, including their homes. God’s best is to be totally debt free. Clearly, the majority of families today are carrying too much debt! You can’t be financially bound and spiritually free. If that means cashing out, so be it!
The question “Where is the earthquake?” is legitimate. Many of my faithful readers have surely asked that question, as I have. It is for them and for the ones who are trying to make sense out of our financially uncertain times that I am writing this chapter and, ultimately, this book. As I write this, inflation in America is virtually nonexistent, unemployment numbers are the lowest they have been in years, and the stock market continues to hit new highs almost daily. And, according to Wall Street Journal columnists James K. Glassman and Kevin A. Hassett, this is only the beginning. The Dow, they say, could comfortably and reasonably hit 36,000—and sooner, rather than later.1
In other words, we have entered an era of unlimited economic prosperity—when deficits, debts, and interest payments no longer matter; stock prices are no longer tied to company earnings; working is stupid; and “day trading” is smart. Finally we have discovered Utopia. We no longer need to raise and sell pigs; Americans are content to buy and sell “squeal.” Now that’s something that would register on the economic Richter scale!
Bear in mind that in all economies, good and bad, there will be voices of gloom and of glee. Therefore, somebody has to be right. Federal Reserve Chairman Alan Greenspan has issued warnings for two years that the market and the economy are overheated and poised for a downturn. Since Dr. Greenspan first issued that ominous warning, if you had also heeded his advice you would have missed a 55 percent rise in the market. Does that mean Dr. Greenspan is wrong? Only today!
Observant readers of The Coming Economic Earthquake will recall that economies tend to run in cycles. This graph, which charts the progress of our economy from 1812 to 1990, illustrates the historical pattern of market highs and lows.
Crisis_Control_final_0022_001
One real concern when I wrote The Coming Economic Earthquake in 1991 was that we could realistically anticipate an economic downturn to occur about 70 years after the Great Depression, or, in other words, around the turn of the century. I never said that I thought our economy would tumble in 1993, ’94, or ’95; rather, my sights were set much closer to the year 2000. And, despite rosy forecasts from analysts like Glassman and Hassett, I still believe we are in for a major economic and market “adjustment” in the near future—that is, unless we really have found a way to overrule all the fundamental rules of economics. Timing is impossible to predict, but the basic rules of (biblical) economics will always prove to be correct—given enough time.
Can I be sure that 2000 will be the year? Of course not! As John Kenneth Galbraith once said, “Only a fool tries to predict the future.”2 But you don’t have to look very far to see trouble brewing and, in many cases, boiling over. The truly amazing part is that the U.S. economy has escaped the chaos thus far. If I had written The Coming Economic Earthquake in Russia, Indonesia, or Japan, it would still be a best-seller in those countries.
The virtual collapse of economies around the world rivals that of the Great Depression. In fact, if the U.S. economy had followed suit (or if it should), the headlines would have read, “Worldwide Depression Threatens Industrialized Society.” But as any student of economic history will agree, the Great Depression didn’t just happen in October of 1929. The stock market rallied and slumped for nearly three years following the crash, finally bottoming out in 1933 and dragging on until the U.S. entered World War II.
Many sectors of our economy were at an all-time peak when the market collapsed in ’29. Technology and industrial output were roaring, and many noted economists pronounced the market crash of ’29 a “great buying opportunity.”3
Look around the world today. Japan’s economy, which came dangerously close to a total meltdown in 1998, is teetering, with some of its biggest banks close to default. As I write this, the Japanese economy has gained a little ground, but on closer inspection you find it’s because of government spending. Also, increased inventory orders in anticipation of Y2K may be providing some boost.
But other highly productive nations are in depression. Indonesia, the world’s fourth-largest nation, has collapsed financially. So far, Brazil is barely surviving but only with the help of a massive International Money Fund bailout.
And Russia (reminiscent of the depression-era Germany) only distantly remembers its former status as a world superpower. In that once-powerful nation, government officials are telling workers that basic needs like food, oil, and electricity cannot be guaranteed anymore. “But,” the ex-communist leaders promise, “you can count on having potatoes.”4
One very sobering thought is to imagine what the world would be like today if Adolf Hitler had been able to grasp the reins of power in Germany and had assumed control over 18,000 nuclear weapons—and the missiles to deliver them. That is the scenario facing the world in Russia today. Political and military chaos usually follows economic chaos. The recent aggressive posture assumed by the U.S. only makes the rise of a dictator in Russia or China all the more possible.
America: Standing Alone in a Collapsing World?
So why has the U.S. been spared from the economic chaos? Or perhaps a better question might be, Why have we been spared so far? In The Coming Economic Earthquake, I speculated that the 1994 congressional elections would play a major role in the direction our economy would take. When the Republicans who ran on promises of tax cuts, welfare reform, and smaller government were swept into office, clearly we saw a return to “common sense” economics (at least in the short term).
I’m not trying to be partisan; if the tables had been turned, it could just as easily have been Democrats ousting Republican spenders. The point is that some fairly significant changes were made. We didn’t get the anticipated tax cuts, but we did see Big Brother retreat in the face of lower government regulations, spending reductions, and a new pay-as-you-go welfare system that encouraged Americans to work. And, remember, Hillary Clinton’s very expensive socialized health-care plan was defeated.
It is my belief that these relatively minor political changes sparked a much larger attitude change in our nation. As a result, our economy benefited from a new wave of optimism that spawned the largest expansion of any peacetime economy in history— one that, for the moment, seems “bulletproof” to any and all outside problems. But why?
One reason is the deflationary cycle we have experienced since the latter part of 1995. In The Coming Economic Earthquake, I noted that a deflationary period would restabilize our economy, but I also assumed (wrongly) that increasing federal deficits and falling revenues would lead to an inflationary spiral, as the government resorted to more credit.
Instead, thanks to the “bubble” that has isolated our economy from the rest of the world, we have reaped the benefits of lower prices on imported goods as other economies have shriveled; and, at the same time, we have experienced unparalleled growth in our own economy. This unanticipated windfall has kept overall prices low (even depressed), while real wages in America have actually increased. So far, we win; they lose.
Scales out of Balance
Unfortunately, one by-product of deflation is that we can no longer sell as many of our products to our trading partners; they simply do not have the money to spend. We have seen an unprecedented 53 percent rise in our trade deficit over the last two years.5 As our exports decrease, the ripples of this contraction will eventually be felt in industries all across the country. In fact, according to Fortune magazine’s annual listing of the largest U.S. public companies, profits for the Fortune 500 companies fell for the first time in seven years in 1998—a casualty of the economic crises in Asia, Russia, and Latin America.6
In 1998 the U.S. trade deficit soared to $169 billion, and prospects look even worse for 1999-2000.7 But does the average American really care if corporate profits fall? After all, prices for imported goods continue to fall as other economies decline. That makes our kids’ clothes cheaper, computers cheaper, and European vacations good deals. So why complain? In the short term, the U.S. consumers are the winners. Besides, in a “bubble” economy nothing seems to slow down the ride. The economy (and our stock market) has a shield around it that causes all bad news to bounce off. It seems that every time a company announces lower-than-anticipated earnings, the traders announce that it’s a better buy and, ultimately, it soars even higher. So is there a penalty associated with our newfound prosperity? I think so.
Companies adjust their highest costpoint (salaries) based on profits or losses. If 20 percent of a company’s employment is supported by exports and those exports fall by 50 percent, will the direct result be the reduction of 10 percent of its workforce? Not immediately. Companies will ride out short-term changes rather than displace employees, which is usually very costly. And it is very difficult to replace the trained labor force if the trend turns out to be temporary.
But if this negative export trend continues, further eroding foreign demand for U.S. products and services, Americans will face job layoffs on a major scale. One additional reality of too many imports and too few exports is that pressure-sensitive politicians try to curb foreign-made goods through trade barriers and tariffs. If our economy begins to slump, we could find ourselves in full-scale tariff wars; and tariff wars, history tells us, were one of the major economic factors that triggered the Great Depression.
Government Spending: Setting the Stage for Disaster
I also have to note that the spending cuts introduced by our politicians in 1994 are only temporary. Congress did not eliminate most programs; rather, they simply reduced...

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