The Coming Economic Collapse and the Rise of Babylon
Chapter 12
We have a twisted tale to tell today. We’re going to show in detail how the world financial system will collapse and then rise again as the elites take control of all of the world’s economies, and in the process reduce the average person to total dependence on the system just to keep alive. This is truly the fulfillment of Revelation 6:5-6:
5When
He opened the third seal, I heard the third living creature say, "Come and
see." So I looked, and behold, a black horse, and he who sat on it had a pair
of scales in his hand. 6And I heard a voice in the midst of the
four living creatures saying, "A quart of wheat for a denarius, and three
quarts of barley for a denarius; and do not harm the oil and the wine."
It will lead to a totalitarian world empire that controls every aspect of buying and selling when
16He causes all, both small and great, rich and poor, free and slave, to receive a mark on their right hand or on their foreheads, 17and that no one may buy or sell except one who has the mark or[f] the name of the beast, or the number of his name. (Revelation 13:16-17)
How is our money created? What gives it value? What is the Federal Reserve and how does it work? What will be the impact of its policies? This is a little complicated, but worth understanding because it is something you need to know to understand what is coming and what you can do about it.
A Brief History of Money
Over
the centuries, man has used many things for money – everything from sea
shells, furs, tobacco, coins and finally paper. As civilization began to use
more coin and bullion, it became awkward to deal with so the smiths and
smelters who stored them began to issue paper receipts instead. Once they
realized that only about 10 to 15 percent of the value was being used at one
time, they began to loan out more than they had… and thus fractional banking
was born. Paper money, known as “fiat currency” has been used now for
hundreds of years and always ended badly – in the complete and total
debasement of the value of the currency in every country and every single
time!
It is no coincidence that Article 1, Section 10 of the U.S. Constitution states that “No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts. In spite of the fact that the Constitution requires gold and silver backed currency, we have never really done it.
Every attempt at issuing paper money, from the colonial days onward, ended by inflating the currency and failure. Thomas Jefferson warned “A private central bank issuing the public currency is a greater menace to the liberties of the people than a standing army…We must not let our leaders load us with perpetual debt.” The debate raged for years and continues to this day.
During the 1920s, there was a gradual build up to the crash of ‘29. There were surges of monetary expansion and inflation in 1924 and 1927. The discount rate was lowered to 3.5 percent to make it easier for banks to make loans. Bubbles began to build in the stock, bond and housing markets. Low interest rates and easy credit led to speculation. Exports declined and inflation began to erode the purchasing power of the dollar. Conditions were similar to the way they are today. I would refer you to the book “Creature from Jekyll Island by Edward Griffin and the chapter titled, “The Great Duck Dinner” for details of how it was orchestrated by the Federal Reserve and big bankers. Griffin concludes:
“On August 9, the Federal Reserve applied the pin to the bubble. It increased the bank-loan rate and began to sell securities in the open market. Rates on broker’s loans jumped to 29%. On October 29, the stock market collapsed. Thousands of investors were wiped out in a single day. The insiders who were forewarned had converted their stocks into cash while prices were still high. They now became the buyers. Some of the greatest fortunes in America were made in that fashion. (Griffin, p. 503)
As
they say, the “Federal Reserve” is not “federal” (i.e., it is not a government
agency) and it has no “reserves” (it just prints whatever money it needs). It
is a legal private monopoly which manipulates the money supply akin to the
operation of a cartel of banks. The ruse is that it is designed to protect
the money supply in the public’s interest and stabilize the economy. As we
shall see, it was responsible for the Great Depression; several recessions and
the debasement of the currency to only 5 percent of its original value. The
Fed has planted the seeds of destruction of our entire economic system through
its reckless policies.
Now, I am not one given to conspiracy theories, but if every there were one, this appears to be it. The Federal Reserve came about as a result of a secret meeting in 1910 at a resort off the coast of Georgia owned by J.P. Morgan called Jekyll Island. It was attended by the following:
· Nelson Aldrich, Senate Republican whip and father-in-law of John D. Rockefeller, Jr.
· Henry Davison, Senior Partner of J.P. Morgan Company
· Charles Norton, President of the National Bank of New York Pratt Andrew, Assistant Secretary of the Treasury
· Frank Vanderlip, President of the National City Bank of New York, representing William Rockefeller
· Benjamin Strong, head of J.P. Morgan’s Bankers Trust and later the first Fed Chairman
· Paul Warburg, a partner in Kuhn, Loeb & Co, representing the Rothchilds and Warburgs in Europe
Paul
Warburg was from a wealthy European banking dynasty whose influence had spread
throughout Europe.
He became the main architect of the Federal Reserve and was responsible for
packaging it and selling it to Congress so it wouldn’t appear to be what it is
– a cartel running a Central Bank. The
Jekyll Island attendees
represented two major axis of wealth: Europe in the name of the Rothchilds and
Warburgs and America
in the name of the Rockefellers and Morgans
The goal of the cartel simply
was to minimize hurtful competition between banks, limit new competitors,
emphasize debt over savings and use the power of 
the
government to enforce the cartel’s policies. They wanted to make money supply
more elastic so they could create as much capital as they wanted. They pooled
reserves so that all member banks would have to lend at the same terms, using
the same ratios. Warburg was instrumental in selling the idea to the public
and congress, whitewashing the idea of a “Central Bank” and a private cartel
by calling it “Federal” “Reserve”. He pushed the benefits of lower interest
rates, unlimited loans for large industrial projects as a way of equalizing
bumps in the normal economic cycles.
Fractional Banking and “Fiat” Money
I am going to do my best to explain “fractional banking.” If you really understand how money is made out of whole cloth, it will astound and enrage you. But it is a little complicated so bear with me. The amount it loans is limited by the reserve ratio it has to maintain for cash flow needs. This can be as little as four percent in reserves!
Here is an example. A bank lends $10. Based on the promise to repay the loan, it only needs to have $1 on deposit and can lend out the $9 that only exists as a promise someone has made to pay the original loan. So if the bank has $100,000 on deposit, it can loan out $900,000. The only way to loan more is to attract more deposits or use profits or stock from investors, or borrows money from the Fed. The Fed then loans money to the banks to increase its reserves.
This is the famous discount rate which is currently at 2.5%. The bank posts their loans as collateral and the Federal Reserve gives them that amount of credits, allowing the bank to convert loans into “reserves.” They then loan to customers based on these reserves. Once those loans have been made, keeping only 10 percent in reserves, they bundle those loans and go back to the Fed “Discount Window” for more reserves until it has multiplied the original amount about twenty-eight times. The process has been made even more painless – a way for Congress to create money through the Federal Reserve System without taxes. The issuance of Treasury Bonds allows the Fed to use them to create even more money.
This is all done in the name of providing stability in the economy by controlling the money supply. Every week, the Fed creates billions in new money which goes through the “fractional banking” numbers multiplier and we keep on creating more and more money.
So much for the requirement in the constitution that the currency be based on gold or silver! In 1972, the Nixon administration took away any convertibility to gold. It was strictly “fiat money.” I call it “counterfiat.” Not everyone is in favor of fiat money.
“Warren Buffet’s father, a congressman from Nebraska, warned in a 1948 speech: ‘The paper money disease has been a pleasant habit thus far and will not be dropped voluntarily any more than a dope user will without a struggle give up narcotics…I find no evidence to support a hope that our fiat paper money venture will fare better ultimately than such experiments in other lands…’
“In all other lands, at all
other times, the story was the same. Paper money had not worked; the moral
hazard was too great. Central bankers could not resist; when it suited them,
they overdid it, increasing the money supply far faster than the growth in
goods and services that the money could buy.”
(Financial Reckoning Day by Bill Bonner and Addison 
Wiggin,
p. 271)
This is nothing more than counterfeit currency – the creation of money out of nothing other than the “good faith and credit of the United States of America.” Since 1971, the nations of the earth have recognized and accepted it as the reserve currency of the world. This was partially based on the fact that America was the biggest producer and creditor nation in the world. America was stable, prosperous and one of the safest places on earth. So dollars became the preferred currency world wide.
The dollar took on mythical status throughout the world – something to be coveted, respected and supported. Since its real value was in its perception, the world embraced the dollar and supported it irrationally. The demand for American dollars knew no bounds. Private individuals and other central banks blindly supported the dollar by buying up billions and until recently this has kept our economy pumped up, in spite of the huge trade deficit. Asian countries in particular have supported the dollar.
But, as Griffen observed some time ago,
“There is a dark side to the exchange, however. As long as the dollar remains in high esteem as a trade currency, American can continue to spend more than it earns. But when the day arrives – as certainly it must – when the dollar tumbles and foreigners no longer want it, the free ride will be over. When that happens hundreds of billions of dollars that are now resting in foreign countries will quickly come back to our shores as people everywhere in the world attempt to convert them into yet more real estate, factories, and tangible products, and to do so as quickly as possible before they become even more worthless. As this flood of dollars bids up prices, we will finally experience the inflation that should have been caused in years past but which was postponed because foreigners were kind enough to take the dollars out of our economy in exchange for their products.
“The chickens will come home to roost. But when they do, it will not be because of the trade deficit. It will be because we were able to finance the trade deficit with fiat money created by the Federal Reserve. If it were not for that the trade deficit could not have happened.” (Ibid., p.94, emphasis his)
Deficits and the Falling Dollar
The
United States is now
faced with twin deficits - $440 billion in government deficits not counting
much of the cost of the war in Iraq or the famous “unfunded” liabilities such
as Social Security and Medicare, and the massive balance of trade deficits.
These deficits have been funded by the Fed money creation of “fiat” money –
the more dollars created, the less they are worth. The falling dollar was
supposed to make goods and services from America more competitive and help the
trade deficit, but it hasn’t and continues to grow to new records with each
passing month. China
has begun to purchase assets around the world – from minerals in Australia and
South America to oil in Canada.
The response to a sluggish economy, loss of manufacturing jobs, lack of corporate profits, the fall in the stock market and little or no quality job creation was to lower taxes and interest rates to stimulate the economy. Lower taxes and the high cost of the wars in Iraq and Afghanistan have led to huge deficits which the Fed funded by printing money and issuing bonds. Lower interest rates caused people to take equity out of their houses and consume more. We have been consuming more than we make in wages so it has come from equity or more credit card debt. With house payments falling, house prices and even stocks soared. These are classic bubbles seen in the 1920s. The Daily Reckoning observes (2/3/05)
But to repeat, the pivotal hallmark of a "bubble economy" is that the ballooning asset prices are widely used as collateral for a general consumer borrowing and spending binge. In the United States, mortgage borrowing by households during the first half of the 1990s increased by an annual average of $168 billion. This accelerated in the decade's second half to $296.9 billion. But after 2000, it virtually exploded to an average annual growth rate of $615 billion.2/2 DR
It is undisputed that the greater part of the escalating mortgage borrowing in the United States was for purposes other than house purchases. In short, it boosted consumption as a share of GDP at the expense of business investment and the trade balance. That is, it radically changed the U.S. economy's pattern of growth - actually an unsustainable pattern of growth.”
The
danger, as the
Daily Reckoning points out the next day (2/4/05)
is that “America's
quirky, and inherently unstable, financial structure only works as long as
financial asset prices rise, and as long as foreigners continue providing
capital. However, any reversal – or even moderation – of these trends could
devastate the U.S. economy…
We are not guessing
about the end of the Dollar Standard boom. It has lasted for more than 3
decades. But its end will come, as sure as death, and bring the
End-of-the-World as we have known it. We are only guessing about when. Today,
it looks as though the Fed has done the trick; it has succeeded in pumping up
yet more bubbles... and keeping the system alive. Another summer seems to be
passing with no End-of-the-World in sight.”
In actual fact, in the past few years, the Greenspan Fed has systematically and deliberately fostered credit and financial excess with the explicit purpose of inflating asset prices. What manifestly is duping most people is the fact that the bulk of the credit excess poured into asset prices (mainly homes) and the soaring trade deficit, rather than into the Consumer Price Index.
Principally, credit excess may find three different outlets: first, rising prices of goods and services; second, rising prices of financial and tangible assets; and third, a rising trade deficit. No one seems to realize the hidden but enormous damage the trade deficit does. It diverts production to foreign producers, results in loss of manufacturing, jobs, and income. Greenspan touts growth in productivity which is occurring because the Chinese pay from ten to a hundred times less than in America. Productivity growth that destroys millions of jobs is a mirage. Americans flock to buy the cheap products, spending more than they earn. The results are record low national and personal savings and capital investment, and record high consumer debt, soaring budget deficits, unprecedented credit excess which results in more capital formation (printing money). This is an unsustainable pattern that will end in a crash. Greenspan’s policies have caused permanent damage by wiping out America’s factories (production capacity) and creating massive debt and asset bubbles.
The chief economist of Morgan Stanley, Stephen Roach says that America has no better than a ten percent chance of avoiding economic “Armageddon.” America’s record trade deficit means the dollar will keep falling. In order to keep the dollar up, foreigners will have to keep buying T-bills; the Fed will be forced to raise interest rates. Eventually, bond prices will crash and yields will soar—bringing down the price of housing, stocks and bonds. The house of cards finally comes crashing down.
The longer it takes in coming, the worse the crash. Peter Schiff of Euro Pacific Capital says,
“The longer rates stay low, the worse inflation gets, and the higher future interest rates will have to climb to contain it. Also, the longer the Fed keeps rates artificially low, the more floating debt Americans will accumulate and the greater the ultimate economic burden will be in servicing that debt. If the Fed’s measured approach is intended to spare the economy from dealing with the full impact of this burden today, it succeeds only at the expenses of imposing a far greater burden tomorrow.” (The Daily Reckoning 7/11/04)
We Americans believe we live above the laws of the universe, but simple economics teaches us that there must be balance. People do not get rich by spending money they don’t have. As long as America’s “recovery” is led by consumer borrowing, it is not a recovery!
Al Martin writes:
“The Bush-Cheney White House has presided over aggregate budget deficits of some $1.5 trillion, an aggregate merchandise trade deficit of yet another $1.5 trillion, an increase in total national debt of some $2 trillion, a 38% decline in the trade-weighted exchange value of the U.S. dollar, depletion of all inherited accrued fiscal reserve balances, as well as all contingency reserve accounts of all federal agencies, sold some $5 billion worth of metals, minerals, fuels, fibers and food stuffs from the so-called national strategic stockpiles without the required congressional approval, drawn down (since March 2001) about 2900 metric tons of gold from the national gold reserves, completely depleted the national silver reserves without prior consent of Congress, depleted what little remaining cash balances were left in the nation's 42 public trust funds."
The American budget and trade deficits consume over 80 percent of the entire world’s savings. The long term Government debt is $53 trillion and that includes Social Security ($12.7 trillion) and Medicare ($30 trillion). This has led to the falling dollar which has lost 40 percent of its value against the Euro in the past four years.
The seeds of destruction are there. Because the Federal Reserve has taken such great measures to prevent the fall, when it comes it will be far worse than anyone expects. It will also be world wide. It will be ten times worse than the chaos of the Great Depression now that people are off the farm and crowded into cities where the amount of food and essential goods available will last just a matter of days before running out. The panic will be horrendous. The government will save the day by herding people off to work camps or into military service for the maintenance of the Empire.
Analysis
The falling dollar brings us back to the beginning. The Federal Reserve has been trying to counteract budget and trade deficits by issuing more bonds and printing more dollars. Currently, these two deficits (i.e., bonds and more printing of dollars) amount to 11 percent of our GDP, an unheard of amount. Any lesser country would have crashed and burned by now, but in America it hasn’t happened yet because the American economy is still an economic power house that is being bolstered by other nations loaning us money.
The long term effect of this falling dollar, forgetting about the more cataclysmic talk of crashes, is the continual erosion of purchasing power (deflation in the value of the dollar) and continual inflation of prices. The result will be the impoverishment and indebtedness of the average American. The greatest “asset” (our homes) will lose 80 percent of their value, leaving the average American no nest egg, no fall back position but an upside down mortgage. You say this can’t happen here? Japan was the number two economy in the world and it happened there – a long slow depression that has now lasted 15 years.
Unfortunately, the Federal Reserve (a private banking cartel) is systematically destroying the American economy. Do the elites care? Nope! Thanks to the global economy, they can make more money than ever – produce the same products for one tenth the price. Do they care that we are losing our jobs, going into debt, etc.? Not really, the third article in this series documented the fact that income for the bottom 90 percent has remained level for the past 30 years while the top 10 percent has doubled and the top one percent has gone through the roof.
Depressions have a way of fleecing the poor and the middle and making the rich even richer (the Rockefellers, Morgans and others came though just fine). In fact, it is part of the pattern of the Federal Reserve over the years. Greenspan knows, or at least he should know, that a major crash is coming. Do they care? Not really. The coming crash will bring down the entire world and throw it into chaos. Along will come a man with the answers, a way to bring economic order… and as Christians we know who that is.
What can we do about it? Get ready! Don’t get caught up in the system. Nine tenths of it is spiritual as we have discussed extensively. We have to guard our hearts and minds from the influence of the world. Turn off the TV and open your Bible. Don’t let the messages of the world draw you in. Advertisers don’t spend $2.4 million for a 30 second advertisement for nothing. They work. The message sinks in.
The other tenth is to get out of debt. Lower your standard of living if necessary. Live in a smaller, less expensive house. Keep your old car a little longer. Don’t get caught up buying things. Tear up your credit cards (or pay them off every month). Don’t refinance your house so that you would be in a deficit if the value fell by half. Live on a budget. Think about others – not just yourself. How can you prepare for what is to come?
We can’t stop the prophetic time clock. It will happen. Don’t be afraid, but learn to trust the Lord; read His Word daily. Learn to listen to his still small voice and do what He tells you to do.
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