Larry Burkett's Earthquake - Part 1 The Seeds of Destruction

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Larry Burkett's Earthquake – Part 1

Seeds of Destruction
Prior to and during this section of the book Larry is basically giving a history lesson. He describes the economy before, during, and after the Great Depression. He talks about the things our federal government to stimulate the economy and turn things around. In this section he starts laying the groundwork that leads up to his economic earthquake.
Opening quote for this section:

With the best of intentions, America's political leaders paved the way for the destruction of the soundest economy in the world. As Sir Winston Churchill once said, "the road to hell is paved with good intentions."

LRG: Couldn't this statement easily be said today too?

NATIONAL DEBT

It is not new for our government or any other to borrow money. Most governments do so when in a crisis, such as a war. What is unique today is that our government borrows during good time and bad, during war and peace alike. But what makes our government's debt so dangerous is that we are in debt beyond our total asset value. In other words, we are actuarially broke.

Unfortunately, there seems to be no thought of ever trying to repay the debt. In truth, our government cannot even pay the interest on its debt, unless it does so through additional borrowing…

LRG: If we were BROKE in 1991 where does that leave us now?

In order for the government to continue to operate, it must either cut spending, increase revenues [taxes], or find another "fix." I believe it is this other "fix" that represents danger to our economy.

LRG: Could these stimulus packages be the "fix" that Larry warns as dangerous? The stimulus package includes more spending and reduced taxes (for some anyway). Where's the spending going to come from? Are we going to print more money and devalue the dollar? Borrow more money from foreign sources?

CONSUMER DEBT

During the Great Depression it was in the interests of lenders (mostly bankers) to support the American economy. That will not necessarily be the case in the next depression. When push comes to shove (so to speak), the foreign lenders' interests will lie primarily with their own countries and in maintaining jobs for their people. With our government dependent on foreign loans for nearly half of its deficit spending, there is little that could be done to protect the interests of American workers.

LRG: What direction is our unemployment rate going right now?

Americans are living in an inflated economy created by the use of borrowed money. Since the early sixties, virtually all major assets have been purchased on credit. Since the mid-seventies, even consumer goods have been acquired on credit via the use of credit cards and [home] equity loans.

Most American families, in spite of their outward appearance of affluence, live on the brink of economic disaster. They have little or no savings to fall back on in difficult times and now are borrowing against the equity in their homes to buy nonessential goods. If the value of their homes falls during an economic downturn, both the borrowers and the lenders are going to be in real trouble.

LRG: Wow, did this really come from a book written in 1991. It almost takes my breath away.
"If the value of their homes falls" that's exactly what has happened!!!!
"Both the borrowers and the lenders are going to be in real trouble" and boy aren't they in trouble now!!!

Americans are rapidly consuming all their available equity. In essence, they are transferring their wealth to relatively few lenders, who then lend it to the government, who then pays it to foreign investors.

LRG: Yep, that's what's happening alright.

STATE DEBT

Anyone who reads the newspaper or watches the evening news knows that many states are in severe financial trouble. The same abuses that we see at the federal level are evident on a smaller scale at the state (and local) level.

…

Any economy lives or dies on the basis of public confidence. Lose that confidence, and the system crashes.

LRG: Where's your confidence?

WHAT'S NEXT

…those who fail to learn from the past are doomed to repeat it. You'd think that just a little more than six decades after the most severe depression in US history, we would remember the lessons learned: you can't spend more than you make forever and not pay the price, and when the bottom falls out it is the lenders who will be protected, not the borrowers.

LRG: This was in 1991, it's now 2009 and just exactly as Larry said "when the bottom falls out it is the lenders who will be protected, not the borrowers"
Who's getting the bailout…THE LENDERS!! I'm almost speechless, this is from 1991 people. Could these words describe what is happening right now any better, I don't think so.

Are you as blown away as I am? What are your thoughts?

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Larry Burkett's Earthquake – Intro

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Larry Burkett's Earthquake – Part 2 Examples & Cycles