Is there a coming economic collapse? When will this happen? How will this affect us?

Many wonder what the future is for the global economy. Over the last few years economists have been expressing increasing concerns about the direction the global economy is going in, and the possibility of a worldwide depression. They have been warning about the growing global imbalances in the world economy, and the consequences if not corrected.

Yet we live in a time where the global economy is booming, especially in the Anglo-Saxon and Asian economies. Consumer spending is up. House prices around the world have risen dramatically. Unemployment remains low. The global economy has experienced the longest period of sustained economic growth in recent history. The $US continues remain stable.

Why has the global economy experienced such strong growth? Will this growth continue? What does the future hold?

Interestingly some of the stimulus for the growth the global economy has recently experienced is a result of decisions made following Sept 11^th . Already, prior to Sept 11^th the US Federal Reserve was maintaining a loose fiscal policy in an effort to stimulate economic growth in the US economy, which had slowed down following years of strong growth during the Clinton administration. Then along came Sept 11^th which threaten to destabilize the American banking system. To prevent this happening the Fed injected billions into the banking system to provide sufficient liquidity to prevent a run on the dollar and the banks.

Meanwhile, Japan since the late eighties had been wrestling with a stagnant economy, deflation and a rising currency. The Bank of Japan was already printing money prior to Sept 11^th to support their own debt-ridden banks and to stimulate the domestic economy, and has continued with this policy ever since – printing yen to purchase American dollars. Japan has been able avoid inflation through having high domestic savings and by investing heavily outside the country. This has kept the Yen from appreciating against the dollar, enabled Japan’s export sector to remain competitive, and kept interest rates at near zero. As much of Japan’s external investments have been in the USA, it has resulted in Japan holding assets worth trillions of US dollars, many of which are invested in US Treasury Bonds and Mutual Funds.

Printing money to solve a nation’s economic problem can never be sustained. Eventually, it will lead to the debasing of a nations currency and run-away inflation. Yet for a short period, it can create an artificial prosperity, deluding the masses into believing this new prosperity can be sustained. The long-term consequences of inflating their money supply will spell disaster for America and Japan, and have dire consequences for the global economy.

The rapid increase in the money supply of US dollars is the number one reason America’s wealth has shifted from the US to Asia and Europe. In particular China has benefited enormously from the inflow of dollars which has financed the rapid growth of its economy, providing the capital to develop their competitive export sector. The Asian economies high rates of personal savings have financed their domestic growth as well as finance the US deficits. This has continued to allow the USA to maintain its privileged position of retaining the $US dollar as the world’s reserve currency; and allowing it to retain its global military and political dominance.

It has become popular by American politicians to blame China for the decline in America’s production base. This is totally unfair, and shows both their ignorance and a failure to accept responsibility by the American leadership. Actually, it is through China being able to supply America with cheap consumer goods, and lend the capital to purchase these goods which has allowed the US to contain inflation, benefiting the American consumer. Germany, which is now the world’s number one export nation and which has a wage structure higher than the US, has had to cope with a rising currency, but has still been able to expand its exports between 10-20% per annum, and continues to have an expanding large trade and current account surpluses. German manufactures also have to compete with their Asian competitors just as those from America, yet have a 160.5 billion trade surplus.

The reason why America has such large trade and current deficits is because of the expansion of its money supply without the corresponding expansion of its productive capacity to produce the wealth to sustain the increase in money in circulation. The lack of domestic savings to provide the investment capital into new manufacturing capacity is also a contributing factor. The cost of maintaining a large military establishment and the decline in the social fabric of society are also significant contributing factors, both of which consume resources that should be invested in the manufacturing sector for a nation to remain internationally competitive.

So it would appear in the short-term, the loose monetary policies of America and Japan appear to have benefited everyone. Expanding the money supply has provided the capital to support the growth of the expanding Asian economies, especially those of India and China. Inflation (if you exclude property) has been contained (normally a consequences of a loose money policy) because of China and India being able to produce consumer goods and services cheaply for the global markets, preventing manufactures in the Anglo-Saxon economies from raising their prices.

The increase in the supply of US dollars has been able to finance the growth in global trade. It has also provided the liquidity to finance the trade in oil, even as its price continues to escalate.

But what are the long-term consequences of such fiscal policies?

1. The rise in property prices. The value of property is one of the first commodities to rise in value when the supply of money increases rapidly. In the short-term this makes property owners believe they have suddenly struck it rich, but in reality it is the decline in the value of their money. It also places an increased financial burden upon the population, who end up paying an increased percentage of their income on housing, unless their incomes also rise. The burden of servicing this new mortgage debt is riskier today, as much of the capital to finance the growth in mortgage debt has come from short-term borrowings through the banking system from Asian investors, with the interest being remitted back to these lenders, rather than retained in the local economy. The real danger is that if the Asian investors withdraw their capital from the Anglo-Saxon nations, it would cause a collapse of the property sector and threaten the survival of their banking system.

2. The shift of the productive manufacturing base from the Anglo-Saxon nations to low-cost Asian economies. The outflow of printed dollars from the USA to Asia has provided the capital to allow these countries to rapidly expand their manufacturing sector, and under-cut the higher cost Anglo-Saxon producers. Yet the increase of the money supply has allowed the Anglo-Saxon consumer to still have retained their ability to purchase consumer goods manufactured from Asia, often financed through borrowing from the same Asians, even as their income from the productive sector declines.

3. The increase in the money supply has resulted in the rapid growth in consummation of non-renewable resources in newly emerging economies in both the Anglo-Saxon countries and especially China and India. This growth in demand for these essential commodities can not be sustained. Without the supply of cheap energy our standard of living will not be maintained. Eventually the availability of energy will become limited to only those nations with currencies strong enough to purchase them.

4. Damage to the global environment – the increase of the money supply has stimulated economic growth to where the planet can no longer cope with the damage done to the environment. For the sake of short-term prosperity, we are destroying the ability of the planet to sustain life.

5. It has enabled the American, Japanese and UK Governments to finance their enormous budget deficits though borrowing the money they have printed. In the case of America and Britain is that they are also borrowing increasingly from nations that were their former enemies. In all these countries the national debt has grown to such an extent, that a tightening of the money supply resulting in higher interest rates, could increase their budget deficits to such an extent it would bankrupt them.

6. Funding of wars – America has been able to finance its wars in the Middle East on borrowed money – printed money now controlled from Asia. This has left the American economy extremely vulnerable and open to collapse if this money is with-drawn for geo-political reasons. Amazingly, the US does not even include the war in Iraq or Afghanistan in its budget.

7. Increasing the money supply to the extent that has happened, will eventually lead to the erosion in the value of the purchasing power of the currency, and a lack of international confidence in its value.

But what of the long-term consequences for the world if there is a collapse of existing economic system? What will be the future to the global economy of the loose money policies of the last few years? Does economic disaster now loom over the horizon? What will trigger off a lack of confidence by America’s creditors in continuing to invest in the USA and support the $US?

There could be any-one of a number of factors that would lead to international confidence in the American economy and the US dollar such as:

1. Switch from accepting payment in oil from dollars to Euro by OPEC.
2. A major national disaster, such as an earthquake in Tokyo, a cyclone in America, a terrorist attack.
3. A military defeat in Iraq.
4. A further blow-out in the US twin deficits.
5. Rising interest rates in other parts of the world.
6. Lack of confidence in America’s ability to service its debts.
7. Major economic calamities in the US, such as run on the banking system, fall in the share-market, or a collapse of major corporations.
8. A major disease epidemic, such as bird flu.

The world has experienced some of the greatest shift of wealth in recent history, from the Anglo-Saxon nations who have dominated the global economy for the last 200 years, to Asia and Continental Europe. This shift in wealth will shortly result in the economic collapse of the Anglo-Saxon nations – their money will become worthless, and their economies will disintegrate into anarchy and poverty. This collapse will also have disastrous consequences to the Asian economies, which have become depended on exporting to the North American market to support their domestic growth. While the Asian economies will be severely affected from the collapse of the Anglo-Saxon economies, they will survive and recover.

The region in the world which will fill the vacuum from the coming collapse of the $US will be the Eurozone. The Euro will replace the dollar as the world’s reserve currency, propelling the Eurozone nations into the most influential global economic power. To support filling the monetary vacuum following the collapse of the dollar, Europeans will have to resolve their constitutional differences and form a political union. Those nations that accept the EU Constitution will form a United States of Europe, but it is unlikely that all existing EU members will agree to be a part of such a political union.

The future for the Anglo-Saxon people looks bleak. The sudden withdrawal of overseas investment will see their economies go into fee-fall. Their currencies will be come worthless. Property prices will collapse. Businesses will fail. Disease will become wide-spread, made worse without the drugs to control that many that is now depended upon. Farmers without the money to purchase fuel and chemicals will no longer have the ability to mass produce food. Starvation and anarchy will prevail. There will be little governments can do to save their people from death and destruction.

Meanwhile, America’s over-stretched military will no longer have the financial resources to continue its futile Middle East wars, and to sustain its bases that circumnavigate the globe, will be forced to with-draw back to the USA.

Few can comprehend of the fate that lies ahead for the Anglo-Saxon group of nations. It will be a time of human suffering greater than ever experienced. Two thirds will die – those who survive will be taken into slavery. After 200 years of global dominance, their defeat will result in some of the most dreadful suffering mankind has experienced. Yet all this could be avoided if they had not rejected the Law of God. It is only by returning to following God’s Law and the teachings of Jesus Christ that this looming disaster can be avoided.

Bruce Porteous

26 February, 2006


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