FINANCIAL INSTABILITY

 

I.               AWARENESS

Gen 41:35-36

And let them gather all the food of those good years that are coming, and store up grain under the authority of Pharaoh, and let them keep food in the cities. ³⁶ Then that food shall be as a reserve for the land for the seven years of famine which shall be in the land of Egypt, that the land may not perish during the famine.

 

Acts 11:27-30

And in these days prophets came from Jerusalem to Antioch. ²⁸ Then one of them, named Agabus, stood up and showed by the Spirit that there was going to be a great famine throughout all the world, which also happened in the days of Claudius Caesar. ²⁹ Then the disciples, each according to his ability, determined to send relief to the brethren dwelling in Judea. ³⁰ This they also did, and sent it to the elders by the hands of Barnabas and Saul

 

 

II.              HISTORY OF MONEY IN NORTH AMERICA

1.     Wampum -  Shells Native Americans (Used because they were scarce – Only found on the seashores)

·      Dutch Colonist figured out a way to make them and harvest them so the abundance made them loose their value

 

2.     Continental Currency

The Continental Congress issued paper money that wasn't backed by anything. It was called the continental currency, and it was used to fund the war against England

 

Both, State and Continental currency depreciated rapidly, becoming, in effect, worthless by the end of the war. This depreciation was caused by the government, stemming from the printing of large amounts of currency, in their effort to meet the monetary demands of the war.

 

3.     Currency Backed by Metal.

 

•               The U.S. has officially been on the Gold Standard since 1900, when gold was established by law as the only metal for redeeming paper currency.

•               However, the gold standard had been unofficially in effect far before that, since 1834.

•               When gold prices increased people started hording gold. Franklin Delano Roosevelt F.D.R did, closed the banks to try to stop this run on gold reserves. He then ordered Americans to get rid of all their gold, he said, if you have any gold, you need to exchange it for US dollars.

•               In 1934 the Gold Reserve Act made it illegal for us citizens to hold gold. Govt would hold it and issues dollars against it

 

4.     Bretton Woods

At a famous hotel in Bretton Woods, New Hampshire, when all of the held in 1944. They got together to establish sort of a new world currency agreement, which is called the Bretton Woods system. various major economies and their currencies were basically fixed to the dollar or pegged to the dollar.

 

5.     Loss of the Gold Standard

The US ended up cheating and printing many more dollars than they had gold to back it. By 1971, it became clear to the world that the US did not have enough gold to pay everyone back if they came and brought their US dollars to Fort Knox. So what Nixon did is cancel the convertibility of the US dollar to gold. So as of 1971, you could no longer bring your US dollars and trade them in for gold. End of the Gold Standard

 

6.     Petrodollar Standard (Oil Standard)

 

You needed us Dollars to buy oil. So countries needed dollars to buy oil.

This created an unnatural demand for US dollars which helped prop it up as the world currency

 

7.     Massive Inflation and Paul Volker

 

When we left the gold standard things went crazy. Inflation went to almost 15%.  Paul Volcker chairman of the Federal Reserve Boards raised prime rates to 21% in 1981to kill inflation. Triggered a major recession. In 70’s 

 

8.     Falling Interest Rates Ever Since

 

Whenever there is a problem in the economy or stock market the fed lowers interest rates to try and stimulate the economy

 

·      Bear Market 2000 to 2002 (Over valuation and 911) – Fed cut rates to 1%

 

·      Bull market 2002 to 2007 – (Had raised rates to about 5.25)

 

·      Housing Crisis 2007 and 2009 – Housing Bubble Popped and almost brought down the whole financial system.  Banks were insolvent Rates close to zero plus.

 

The Subprime Mortgage Crisis

·      The subprime mortgage is a home loans granted to borrowers with poor credit history

 

·      There was a housing boom in the US in the early to mid 2000’s. Housing prices continued to rise in Europe and the US, so institutions acquired thousands of risky mortgages in bulk. (These were in the form of mortgage back securities). They were trying to make a quick buck.

 

·      In February 2007 the Federal home loan mortgage corporation (Freddie Mac) announced it would no longer purchase risky subprime mortgage is our mortgage related securities.

 

·      In April 2007 the subprime mortgage lender New Century financial declared bankruptcy in April 2007

 

·      In August 2007 American Home Mortgage Investment Corporation entered chapter 11 bankruptcy.

 

·      Standard & Poor’s and Moody‘s credit rating services announced their intention to reduce the ratings on more than 100 bars back by second lien subprime mortgages. SNP also placed more than 600 securities backed by the subprime residential mortgages on credit watch.

 

·      Housing prices begin to fall putting millions of homeowners under water

 

·      Stock market hit a high October 9, 2007 when the Dow Jones industrial average exceeded 14,000 for the first time in history. After that, things begin to plunge rapidly. The Dow lost 6547 points over the next 18 months. And Americans lost about $14 trillion of their net worth.

 

·      The Feds reduce the interest rates from 5.25% to zero for the first time in history.

 

·      In February 2008 George W. Bush signed The Economic Stimulus Act into law. Americans got a check between $600-$1200. He also increased loan limits for Federal home loan programs like Freddie Mae and Freddie Mac hoping to stimulate the housing market. These didn’t work.

 

·      In March 2008 investment banking giant Bear Stearns collapsed due to subprime mortgages. JP Morgan Chase bought them got a cut right price.

 

·      Few months later Lehman Brothers declared bankruptcy creating the largest bankruptcy in US history.

 

·      A few days after the Fed agreed to lend the insurance and investment company AIG 85 billion so I can remain afloat. They said that it was too big to fail and I would further hurt the US economy

 

·      The government then approved TARP the Troubled Asset Relief Program. This provided the US government with $700 billion in funds to purchase the assets of struggling companies to keep them in business. The government thought to sell them at a later date hopefully for profit

 

·      The US government then spent billions acquiring assets from nine US banks.  Banks like JP Morgan Chase, Goldman Sachs, Morgan Stanley And even bailed out General Motors in Chrysler and Bank of America.

 

·      January 2009 President Barack Obama became president. In his first few weeks he signed a second stimulus package into law marking 787 billion for tax cuts as well as spending on infrastructure, schools, healthcare and green energy

 

 

9.     Quantitative Easing

Fed prints money to buy things.  They brought these bad mortgages. Brought stock in some companies.

 

                        Problem is it props up asset prices making the rich richer and the poor poorer.   

 

10.  Fiat System

 

Fiat in Latin means just let there be, as in Fiat looks, let there be light. Fiat money is just paper money that governments can print and make as much money as they wanted

 

And so we're on this crazy treadmill mill where the fed has to continue to try to prop up asset prices, but they can't do it anymore by lowering interest rates. They can only do it by expanding the balance sheet, which means printing money out of nowhere and using it to buy things

 

 

11.  US Govt. Condition

 

·      Deficit is made up by borrowing money

·      Govt. Borrows money by issuing debt called treasury securities

·      They sell these and people give them cash, they hold them and Govt. pays their money back plus interest (Very little interest these days)

·      They have so much debt not enough people are buying it

The US Central Bank also called the Federal Reserve prints money out of thin air and buys the treasuries

·      Problem – The more dollars you print the less value they have

·      The U S currency is going to be devalued by all of this, which means things like gold. They're going to go up. Things like stocks will probably go up. And things like Bitcoin will go up.

·      Inflation (CPI 2%. Real is way higher)

 

In 2020, the government spent $6.55 trillion.

In 2020, the government collected $3.42 trillion in revenue.

The Budget deficit was 3.13 trillion dollars

 

12.  Danger of losing Reserve Currency Status

China, Russia, Emerging Super powers

 

·      Russia removing dollar assets from it’s National wealth fund

-       It’s a fund funded by oil revenue in Russia

-       Currently has about 35% of it’s funds in dollars

 

·      Russia had a gentleman’s agreement with China. They sell us goods and China takes those profits and reinvest it back into US economy by buying US treasuries. China stopped doing this a few years ago

 

·      Middle East Oil Producers would sell oil to the US (and other countries) for dollars then recycle those dollars back into the US buying treasuries and US Stocks, US Govt Bonds and US Real Estate. 

 

III.            WHAT SHOULD WE DO?

 

1.     Engage in Kingdom Hedging

Matthew 6:19-21

“Do not lay up for yourselves treasures on earth, where moth and rust destroy and where thieves break in and steal; ²⁰ but lay up for yourselves treasures in heaven, where neither moth nor rust destroys and where thieves do not break in and steal. ²¹ For where your treasure is, there your heart will be also

 

Phil 4:15-17

Now you Philippians know also that in the beginning of the gospel, when I departed from Macedonia, no church shared with me concerning giving and receiving but you only. ¹⁶ For even in Thessalonica you sent aid once and again for my necessities. ¹⁷ Not that I seek the gift, but I seek the fruit that abounds to your account.

 

Mark 10:28-31

Then Peter began to say to Him, “See, we have left all and followed You.” ²⁹ So Jesus answered and said, “Assuredly, I say to you, there is no one who has left house or brothers or sisters or father or mother or wife or children or lands, for My sake and the gospel’s, ³⁰ who shall not receive a hundredfold now in this time—houses and brothers and sisters and mothers and children and lands, with persecutions—and in the age to come, eternal life. ³¹ But many who are first will be last, and the last first

 

2.     Develop a small emergency savings

$1000.00

 

3.     Retire Debt

Borrow money to make money not to lose it.

 

If you pay just the minimum due each month on an $8,400 credit balance, you will wind up having to make 365 monthly payments before it goes to zero. That’s thirty years and five months’ worth of payments.

 

i.               Stop digging the hole

ii.              Find out how much interest you are paying

iii.             Ask for a lower rate 

iv.             Consolidate your debt

v.              Rank your cards

·      Make a list of the current outstanding balances on each of your credit card accounts. 

·      Divide each balance by the minimum payment that particular card to get a payment ranking number.

·      For example, a card with a $500 balance and a minimum payment due of $50 will have a rank # of 10. 

·      Start paying card with lowest Rank Number first. 

4.     Save a Minimum of 3 to 6 Months Income

5.     Own Assets

a.     Buy a Home

Benefits of Home Ownership

Forced Savings

OPM

Tax Breaks

Pride of Ownership

It’s a Great Investment

TIPS

·      Go to www.eloan.com and calculate how much you can afford to spend on a home

According to the FHA, a good rule of thumb is that most people can afford to spend 29 percent of their gross income on housing expenses—as much as 41 percent if they have no debt

·      Decide to pay off early by making extra payment a year or increase your mortgage by 10% each month, 

·      Go to www.bankrate.com and use its calculator to see how much you can save by making your mortgage payments biweekly

 

b.     Own other Real Estate

c.     Invest in Stocks 

 

The S&P 500 Index originally began in 1926 as the "composite index" comprised of only 90 stocks.1 According to historical records, the average annual return since its inception in 1926 through 2018 is approximately 10%–11%.

 

d.     Learn About Other Assets (i.e. Crypto Currency)