The Financial Seminary
Please note, this article represents Class Nine of a series. Other Classes are available for viewing under the “Classes” tab.
“If there is one element in the market economy that has caused more confusion in the minds of Christians than anything else, it is the issue of credit…While it can be grossly misused, credit at its best is entirely compatible with traditional Christianity.”
Bruce Howard, Ph.D.
Chair, Dept of Economics
Sometime during the mid-nineties, I received a call from the Fellowship of Companies for Christ International (FCCI). The caller asked me to speak to its annual conference. He’d heard I had a different, and considerably more hopeful, perspective of the federal debt and economy than most evangelical businesspeople had heard from the evangelical media. I replied that I would be honored to speak but he should know I was rather controversial in evangelical financial circles and I didn’t want to harm his meeting. I suggested he check and see if people really wanted to hear a differing opinion. When he called back, he said they’d find another speaker and hoped I understood.
I understood perfectly. Evangelicalism has long been known as the “Holy Huddle,” even among evangelical academics. Professor John Stackhouse once wrote in Christianity Today: “One of the attitudes that is tearing us evangelical Christians apart is the insistence that everyone else better just agree with me when I give my opinion--and if some refuse to do so, then I’ll write them off and associate exclusively with those who will. We badly need an attitude of Christian humility that affirms we don’t know it all and that we’d like to know more. We badly need an attitude of Christian appreciation, one that recognizes that other people can give us what we do not have ourselves.” In reality, I find most Christian sects are much the same. We rarely learn from each other, too often causing Christ’s church to exemplify the old saying that insanity is simply doing the same thing over and over and expecting different results. Brandt Gustavson, a friend who headed the National Religious Broadcasters, even asked me to write a cover story for its magazine after I told him the evangelical media was again building a molehill into a mountain during Y2K, just as it had the federal debt only a few years earlier. Like myself, he was concerned such politics was dividing even the conservative churches. I was once called a “tool of Satan” by a person from a financial ministry simply for asking a group of Christians to count the economic blessings of living in the richest nation the world has ever known. Today, the dollar is soaring as the world seeks the stability of our economy. But tea partiers are setting the political mood…and it isn’t one of joy and gratitude.
I share those stories as the federal debt is again becoming so politicized by the media it again threatens to do real harm to the economy as we hoard rather than invest and give. The feature story of the February 8, 2010 issue of Forbes was about “The Global Debt Bomb.” Yet had you risked the bomb on the cover and gone beyond the rhetoric, you would have seen a chart entitled “It’s the Total Debt, Stupid.” It showed America has the second lowest federal and bank debt, which is the debt that causes “systemic risk” to the financial system as it’s guaranteed by the government, in the industrialized world, bested only by Slovakia. No, I don’t believe we live in heaven, or even utopia. But neither have I seen economic paranoia enrich anyone. That’s why I referee this political boxing match despite hating boxing.
During the early nineties, round one of this political battle--which was actually round eight or nine as we’ve argued over the federal debt since the days Alexander Hamilton said a federal debt could be a “blessing”--was a highly partisan issue that my fellow Republicans exploited. Vice President Cheney rang the bell to end that round by famously reversing the conservative fighting stance by saying “deficits don’t matter.” President “W” changed positions too and deficits exploded when we went to war and funded homeland security. It’s inconvenient to remember but when President “W” came into office, most everyone was predicting federal surpluses as far as the eye could see. Wall Street actually worried about running out of Treasury securities. Even in 2005, the conservative Heritage Foundation provided political cover for the war efforts by issuing a major paper entitled “Why America’s Debt Burden is Declining.” It too ignored the explosion of debt in the financial sector. But the same year, my mentor the mutual fund manager Sir John Templeton who was a Rhodes Scholar in economics and famously lived a debt-free lifestyle, wrote a white paper entitled “Financial Chaos.” He predicted the government would soon have to get heavily involved in Wall Street. I’ve never understood why we conservatives ignored that root of all evil on Wall Street while focusing on the cost of making the world a freer and safer place for our grandchildren by running up the federal debt by winning the Cold War.
We rarely admit it but economists estimate spending on wars has probably been responsible for half or more of the accumulated federal debt. I showed that reality in a chart in my mid-nineties book but no one seems to have paid any attention to it, despite being most critical of the book. Worse, we quote this verse about as often as we quote Moses shutting down economic activity every seventh year for environmental reasons (Ex 23:10) but Moses clearly told us, “The king is not to have a large number of horses for his army (Dt 17:16). Still, The Economist says we spend more on defense than all the other NATO countries combined. I’m an old Army officer so that’s not political posturing, simply another inconvenient theological reminder. Similarly, while Jesus taught we should be wary of all forms of greed, we were myopically focused on the federal debt as Wall Street firms were leveraging over thirty to one. Ironically, when they imploded, President Bush’s administration had to ignite the federal deficit to stabilize the financial system and prevent a likely depression. That was wise in my opinion. It’s smart to avoid dousing your home with water; but when it’s on fire you don’t want to be too dogmatic.
Our recent fire proved John Templeton wise once again. Yet the debt has recently ballooned so much economic pessimists in the huddle now rightly blame both parties, even if they don’t really understand why. And “going rogue” suggests yet another third party could be in the making, as evidenced by my Republican governor of Florida going independent after being abandoned by the tea parties. Ironically, that again demonstrates the law of unintended consequences. It now threatens to again divide the Republican Party and solidify the Democrat’s, read “big spending liberal’s,” hold on Washington. It might be timely to re-read the updated version of Larry Burkett’s best-selling 1992 book on the federal debt. The very first paragraph says: “I completed work on The Coming Economic Earthquake in March of 1991. It was the first of many books on the critical state of the U.S economy that have hit the book stores around the country since that time. These books, along with Ross Perot, helped to focus the election of 1992 around the economy, and because of it, President Bush lost his job.” I doubt Larry ever realized he took credit for electing President Clinton, who he then spent eight years criticizing.
In reality, the earthquake book was a baptized version of Ravi Batra’s Great Depression of 1990 that reset the doomsday clock. Harry Figgie’s Great Depression of 1995 did later. Years later, Larry wrote, “I don’t believe an economic earthquake will occur in 1995 as Harry Figgie projects in his book. I believe it will be more in the era of 1998-99. But I do believe that at this point the die is cast and cannot be altered.” Yet I recently read an article that suggested Larry was right after all as 2008 was the predicted earthquake, even though most economists believe the recession of the early eighties was much worse due to rampant inflation. Wall Street calls that human tendency to always be right “hindsight bias.” Just try to find an investor who bought internet stocks in early 2000! The problem of not recognizing the biblical reality that “no man knows the future” is we’re doomed to repeat history. Substitute the name Sarah Palin, or an actor to be named later, for Ross Perot and the words “tea party” for Perot’s populist movement and you can see history may be about to repeat itself. Consider the tea parties have been almost exclusively about economics rather than America’s ethical and social pathologies and you might see it would be insanity for right-wing evangelicals who truly want to “seek first” to again “yoke” with secular partiers.
I offer that caution as Richard Mouw, president of Fuller Seminary, has wisely said we evangelicals went “from unthinking non-involvement to unthinking involvement” in politics during recent decades. And a friend recently forwarded an email from FCCI entitled “DEBT: Ballooning National Debt Violates God’s Precepts.” While the author predicted an economic hurricane rather than an earthquake, it basically echoed what Larry, Pat Robertson and so on, were preaching about the debt and economy twenty years ago. What so very few of us understood is that even they didn’t agree on this political challenge. For example, Larry didn’t think it was useful to compare our federal debt to America’s GDP. Pat advocated we do so. But both agreed very bad times were imminent. Yet even fewer of us understood economically trained Christian conservatives seriously disagreed. For example, due to the collapse of the Berlin Wall in 1989, John Templeton was predicting a soaring stock market and unequaled global prosperity. Both he and Larry had endorsed my first book. But while Larry was a friend at the time and a sincere Christian, he was still an engineer who had made some less than accurate prophecies in the past. Meanwhile, John was a Rhodes Scholar in economics turned legendary mutual fund manager who had made a series of prescient calls on the global economy over decades. Prudence dictated I over-weight John’s perspective.
Bruce Howard, the chairman of the economics department at Wheaton College, read Larry’s book and responded with Safe and Sound: The Strength and Stability of the U.S. Economy. It essentially refuted most of Larry’s politicized perspective. And Bruce paralleled what some of us were writing about our involvement in politics when he said: “Christians should spend less time worrying about the remote chance of needing to survive economic calamity and get back to thinking about more important issues of the kingdom.” Few in the huddle seemed to know any of that as they usually only read what the evangelical media suggests they read, which means economics through the media lens of “if it bleeds, it leads.” Still, Bruce’s arguments rang true as they echoed Christ saying not to worry about what we will eat and drink as the pagans do and to seek first the kingdom. And my experience was the ethics of Wall Street were far greater threats to our well-being than was the federal debt, as my ignored books suggested.
Robert Bartley, the legendary and very conservative editor of The Wall Street Journal, had a book entitled Seven Fat Years published the same year Larry’s Coming Economic Earthquake was published. But Bartley wrote: “The deficit is not a meaningless figure, only a grossly over-rated one. Our politicians have conjured the deficit into a bogeyman with which to scare themselves. In symbolizing the bankruptcy of our political process, the deficit has become a great national myth with enormous power. But behind this political symbol, we need to understand the economic reality, or lack of it.”
Casper Weinberger, President Reagan’s ultra-conservative Secretary of Defense, wrote a full page editorial in the July 20, 1992 Forbes entitled “The Federal Deficit: Is It All That Bad?” He wrote: “One myth is that we are surviving only because so many foreign countries buy our bonds. Actually, comparatively little interest goes abroad.” President Reagan wanted to change that to finance the Cold War so he made it easier for us to borrow foreign money. He repealed the law requiring Washington to report interest earnings to the governments of foreign lenders. Essentially, he turned the U.S. into the world’s largest off-shore tax haven. (See Forbes, September 21, 2009, “Need a Tax Haven? Try America” or Section 3 of IRS Publication 519.) I thought the Cold War was a moral use of capital, like buying war bonds during WWII. Yet I also believe politicians of both parties have failed us by not reinstituting the so-called “reporting requirement” once the Cold War was won, often while pressuring small island nations that are tax-havens. There’s little moral superiority there.
Today, there’s reason for true concern, though paranoia and panic will still not produce prosperity. The nominal debt is higher; increasing even relative to GDP. While I believe the political system will likely work and/or the wars will end, the trends are unlikely to turn favorable with the boomers retiring. Those who want war and those who want butter are as politically divided as we were twenty years ago. And both liberals and conservatives believe God is on their side--liberals by assuring wealth is distributed in a reasonably equitable fashion, as Moses did in Dt 19:14, and conservatives by their concern future generations will not be burdened by debt, usually quoting Dt 28:43 as the FCCI article did. Yet the primary truth of the Bible, if not of political parties, is that we have all fallen short. As for this life-long Republican, I’m more interested in theologically taking the log out of our conservative eyes than politically taking the spec out of the eyes of our liberal friends. Such humble introspection was crucial in keeping our two-party system civil until politicized pride and finger-pointing began to rule post-Christian America. So allow me to respectfully disagree with a few opinions shared as facts, even theology, in the FCCI article, and particularly with its hopeless tone. Hope eternally remains a primary virtue of true Christianity, even if cultural Christianity forgets that in the heat of political battle.
Opinion: “In the Bible, borrowing is always described negatively…When the Lord wanted something done, He always made some provision other than a loan.” Facts: That “biblical truth” always seems to clothe the kings of evangelical finance. But they are naked theologically. The sentiment may be simply pragmatically helpful to those struggling with credit cards; but it is quite harmful to micro-lending ministries, evangelical credit unions making construction loans to churches and so on. During Holy Week alone, Jesus borrowed a donkey, tomb and upper room. Moses clearly knew that lending was a primary way the rich could help the poor. That’s why he laid down the Law in Dt 15:7 that loans must be made anytime someone is in true need or God will “deem it evil.” Jesus thought that teaching was so important he spent precious time in the Sermon on the Mount reinforcing it (Lk 6:34-36.) Both passages refer to lending but a little thought indicates that if everyone is freely lending, lots of us are borrowing.
Opinion: “Clearly, the scope of the debt is on a scale we have never experienced as a nation…In business terms, we are bankrupt…The utter magnitude of the debt problem is beyond our human ability to fix.” Facts: We can still do all things through Christ who strengthens us, as we did after WWII. In thirty years, even American consumers have not depleted the rich blessings our Judeo-Christian heritage produced over centuries. The Economist magazine recently said: “Publicly held debt [which is also the figure preferred by The Wall Street Journal ], just 37% of GDP two years ago, has already jumped to 56%.” But it was 120% in America and 240% in Great Britain at the end of WWII. Furthermore, when you apply for a mortgage, lenders also consider your debt to asset ratio. That’s even more hopeful as few nations are blessed with the natural and fiscal wealth America is. I’ve never seen it discussed publicly but the Office of Management and Budget (OMB) in the White House has long estimated America’s assets at well over $100 trillion. It then compares our debt to those assets, just as any CEO of a company or non-profit would to determine solvency. (See http://www.whitehouse.gov/omb/budget/fy2010/assets/spec.pdf).
That may be the most important chart I know of for two reasons. First, most discussions break down the reality of America’s finances into federal debt, consumer debt and so on, typically ignoring our assets. This chart helps us see the big picture by counting our blessings. Second, it’s what the administration relies on when preparing the budget for the approval of Congress. The line about the federal debt/asset ratio is the last entry on the chart on page 199 entitled “National Wealth.” It shows our debt to asset ratio has actually been in steady decline since 1960, from 10.3% to 6.5% of GDP at the end of 2008. That’s because until the recession, our assets had been growing at a much faster rate than was our debt. The past couple years, the growth of assets has slowed, causing the ratio to level out.
Opinion: “Deuteronomy 28:45-51 calls borrowing a curse for disobedience. ‘The foreigner living among you will become stronger and stronger, while you become weaker and weaker. They will lend money to you and you will not lend to them. They will be the head and you will be the tail.’” Fact: The Treasury Department has reported that as of August 2009, foreigners owned about $3.5 trillion, or about a fourth, of our treasury securities. There’s another line in the OMB chart that says the “Net Claims of Foreigners” on all forms of debt is now $7.2 trillion, meaning we owe them that much more than they owe us. However, private economists have estimated we own a dollar’s worth of equity assets, or foreign stocks, for every net dollar of debt we owe foreigners. In essence, unsophisticated Chinese savers buy U.S. Treasury bonds paying less than 2% while American investors buy Chinese stocks returning a great deal more. Economists call China’s cheap labor and our financial expertise “comparative advantages.” If the Chinese should sell our government bonds, we might simply sell our Chinese stocks and buy back our bonds, which might be wise due to the economic disruptions that sort of fear and non-cooperation always produces. After all, fulfilling Moses, didn’t Jesus, Paul and the Good Samaritan destroy nationalistic thinking when it comes to helping each other?
Opinion: “Like a drawer full of credit cards, federal budget deficit projections, much of which will simply cover interest payments, are driving the national debt up at a rate of over one trillion dollars per year.” Fact: The federal debt, or our treasury securities outstanding, average less than five years in maturity. As all investors know, that indicates America is paying less than 2% interest on the debt each year. Few credit card borrowers enjoy such favorable terms. Contrary to popular wisdom, the Financial Times recently said the interest expense on the federal debt amounts to 1.8% of our national income, or GDP . The Economist has reported the more bearish Congressional Budget Office has estimated it may rise to 3.8% by 2019. From a biblical perspective, that should be our true concern. While the Bible commanded we lend freely, it forbade us to charge interest on those loans (Ex 22:25). We rarely quote that concept as our capitalist culture blinds us to these words from C.S. Lewis in Mere Christianity: “There is one bit of advice to us by the ancient heathen Greeks, and by the Jews of the Old Testament and by the great teachers of the Middle Ages, which the modern economic system has completely disobeyed. All these people told us not to lend money at interest; and lending at interest--what we call investment--is the basis of our whole system…It does not necessarily follow that we are wrong. But I should not have been honest if I had not told you that three great civilizations had agreed in condemning the very thing on which we have based our whole life.”
Notice Lewis didn’t say the ancient Roman philosophers, who are so influential in conservative economic thought, had forbade charging interest. The law of the Roman Empire generally allowed up to 12% annual interest to be charged. In other words, while most conservatives equate Christianity with capitalism, capitalism has largely turned key principles of the Bible upside-down. While the Bible teaches we should lend freely, even “Bible-believing Christians” teach debt is unbiblical. While the Bible teaches we should not charge interest, a principle taught by the Catholic Church until the Reformation when Luther and Calvin liberalized the teachings, we usually try to earn as much interest as we can on investments and by financing purchases by consumers. While the Bible says to forgive loans each seventh year so they won’t become onerous (Dt 15:1), we insist there is a moral obligation to repay no matter what. The article from FCCI repeated those misperceptions but sort of got it right by saying loans are to be forgiven when property is returned to its original owner each Jubilee Year, which occurred every fifty years (Lv 25:13). In essence, if biblical economic principles are still true, debt will remain burdensome and need to be liquidated by default or inflated away until we investors are willing to forgive our loans to the government and each other on a regular basis shorter than every half-century. So my guess is that capitalism will reach its point of truth when borrowers can no longer service their interest payments.
In summary, our federal debt should never be compared, morally or economically, to our personal or corporate finances, anymore than we should run our churches as businesses. They are quite different. The simple fact the dollar is the world’s reserve currency is a huge advantage economically, similar to families having a legal printing press, even if that remains a moral question. But if we’re going to be simplistic, we should at least confess most family leaders, like myself, have probably over-promised what their families might enjoy during retirement. My wife, for one, will not get that penthouse on the beach. In fact, we might be better off spiritually if we don’t. But that doesn’t mean we are bankrupt, anymore than America is bankrupt due to over-promised entitlements. As the old economic saying goes, if something can’t happen, it won’t. And most American families would love to have debt that is only 6% of their assets’ value; only spend 2% of their incomes servicing their debts; and only have a fourth of that interest expense go outside their families.
The simple truth is that our real problem has been that while our federal debt has been stable verses our incomes and in decline verses our assets the past fifty years, personal and corporate debt has been soaring against our incomes the past decade while also increasing verses our assets since the recession began. The January 30, 2010 issue of The Wall Street Journal contained a chart that detailed “federal government purchases of good and services” increased by $330 billion the past decade but “consumer spending” increased by $1,909 billion. Shouldn’t we have worried more about consumerism and less about politics before we ran into God’s economic laws and the resulting recession?
Still, there is an old saying that we don’t see reality as it is but as we are. Reality is that over one-half of Americans carry no credit card debt. True economists say the rest of us carry about $2200 on average. In other words, cash strapped businessmen and ministries dealing with the heavily indebted may simply be projecting our own economic sins onto our government. For example, as do most evangelical financial ministries, the FCCI article quoted Romans 13:8, which says we should owe no man anything other than love, as being opposed to financial debt. However, that passage is clearly about politics. The habitual use of it is simply a proof-text that distracts us from its true meaning, which might discourage political entanglements rather than credit card debt. That does little or worse to help us know God. That’s the major reason Christianity Today has published an article calling the Bible “The Greatest Book Never Read” by evangelicals and Jim Baker admitted after prison that he had simply quoted verses out of books by other evangelical authors rather than studying the Bible. Had we truly understood what Paul was telling those living under the barbarous Nero, as well as us, we might not have played such a large role in electing those presidents who were so responsible for running up the federal debt, even if they were supposedly fiscal conservatives. By their fruit, rather than their campaign rhetoric, will we know true conservatives; by our fruit, rather than good intentions, will the world know us as true Christians.
Gary Moore is an investment counselor affiliated with NPC Of America, member FINRA/SIPC. The views expressed are his alone.
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