This is a guest post from Simit Patel. Simit is a currency trader and contributing analyst at InformedTrades.com, a site that provides free online courses on trading the world’s financial markets.
The economic downturn and the Bible
As our current economic dowturn continues, many people have begun to ask why: what is the cause of these economic problems? Is it a failure of free market capitalism? Honest miscalculations? Rampant greed? As always, we can look to the Bible for solutions to our problems. In particular, the Bible’s wisdom regarding money matters seems particularly poignant at this time. Below are some key passages from the Bible:
I counsel thee to buy of me gold tried in the fire, that thou mayest be
rich. (Revelations 3:18)
Every value is to be set according to the sanctuary shekel, twenty gerahs
to the shekel. (Leviticus 27:25)
The rich rule over the poor, and the borrower is servant to the lender.
How do those verses relate to our current economic downturn?
1. A key part of the problem is that we no longer use gold as money. Prior to 1971, every US dollar could be converted into a fixed amount of gold. Because the government guaranteed this convertibility, the amount of money it could create was naturally restricted. After 1971, the US went off the gold standard, and thus there were no restrictions on how much money could be created. Below is a graph of the money supply over the past few decades; note what happens after 1971.
Such an expansion of the money supply has resulted in currency devaluation, which has caused prices to rise, making it difficult for consumers to save. Rising prices, coupled with declining savings, naturally leads to record levels of debt. Had we adhered to the wisdom noted in Leviticus 27:25, we would have money backed by a gold or silver — which in turn would result in greater prosperity for all.
2. The poverty that has been created via expansion of the money supply has enabled those who receive the new money that has been created — especially banks, who end up receiving the new money that is created via deposits — to enjoy greater wealth, as it enables them to lend more. Banks make money by lending, and thus the more money they have to lend, the more profitable they will end up being. moreover, rising prices depletes the value of savings — which in turn creates greater demand for borrowing money. And thus we find the wisdom of Proverbs 22:7, in which the rich have secured their wealth by lending to the poor.
How do YOU use the wisdom of the Bible to protect yourself financially
1. Invest in precious metals.
While the US dollar has been strengthening for much of 2008, US government expenditures are still increasing at a time when the tax base is diminishing — which increases the likelihood that
the US government will need to print more money to finance its obligations. Currency devaluation will be the scenario in such a case. Historically, precious metals — particularly gold and silver — have
served as effective ways to hedge against significant currency devaluation.
2. Get out of debt.
Getting out of debt is easier said than done, of course, but the Bible’s wisdom remains true: the borrower remains servant to the lender, and thus true freedom requires being free of debt.