Money Markets Have Completely Broken Down: World Hopes For Renewed Bailout Plan, Prepares for Economic Disaster

I am writing about this because I believe that we as Christians need to be equipped to have the proper persective on an economic crisis that affects us all.  Bloomberg is reporting that bank-to-bank lending has basically ceased as the money markets have seized up. Why does this matter? Because if banks are not loaning money to one another, they surely won't be loaning money to us. It has basically become impossible to get a loan.

"This is unheard of, the money markets should be the engine driving the financial system but they have broken down,'' said Kornelius Purps, a fixed-income strategist in Munich for UniCredit Markets and Investment Banking, a unit of Italy's largest lender. ``Any institution that hasn't completed its 2008 funding needs by now is going to be in very serious trouble. More banks are going to need to be bailed out."

``The money markets have completely broken down, with no trading taking place at all,'' said Christoph Rieger, a fixed- income strategist at Dresdner Kleinwort in Frankfurt. ``There is no market any more. Central banks are the only providers of cash to the market, no-one else is lending.''

Here is what the world is saying about what is happening:

Glenn Beck from CNN.com has some very sobering thoughts about the economic disaster that we are currently facing. He actually predicted it earlier in the year:

In the weeks following that DEFCONOMY column, I moved from thinking this meltdown scenario was a frightening possibility to realizing it was a near inevitability.

While it took the people in power far too long to recognize it, they are now understanding the same sad truth. This bailout plan is not a good idea -- it's an absolutely terrible idea. It's just the only idea we have left.

Our financial system is like a 747 flying around with all four of our engines on fire. The bailout effort will not stop us from landing hard, but without it, we may simply drop out of the sky. iReport.com: Will a bailout save us?

What Congress is attempting is a last-second search for an open field to land this plane with as little damage as possible. With that in mind, I think some kind of action may be a necessary evil, but we must be very, very careful.

Action for the sake of action, much like change for the sake of change, doesn't solve problems. It usually inflames them. And what's worse is that it creates brand-new catastrophes we haven't even considered yet. Wall Street and Congress have been playing with fire, and now it's Main Street that's beginning to sweat.

Edmund Conway, the Economics Editor for the London Telegraph issues dire warnings when he says, Corporate America lost a chunk of it's value the size of the Indian economy:

In one fell swoop, the House of Representatives has applied a sledgehammer to the American economy. The staggering plunge in the value of publicly quoted stocks in the US last night - a $1.2 trillion fall - shows more clearly than anything else just how much it had been holding out for a financial bail-out.

Even so, the longer you stare at a screen of the Dow Jones or FTSE 100, the more abstract it seems. So this is what it means:

It means millions more Americans, and hundreds of thousands more Britons, will lose their jobs; it means the recession will be deeper and more protracted than previously feared; it means borrowing costs will increase on both sides of the Atlantic. Companies will cut back on investment. Pension funds will be depleted.

The Western world, in short, will become significantly less wealthy.

The Wall Street Jounal tells us that Congress has lived up to its 10% approval rating. Apparently, Speaker Pelosi could have gotten the bill passed if she had wanted to, but she chose to play politics and blame the Republicans. Nice.

America has survived a feckless political class in the past, and it will again after this week. But Monday's crash and burn of the Paulson plan on Capitol Hill reveals a Washington elite that has earned every bit of the disdain that Americans have for it. This crowd can't even make sausage.

The 228-205 defeat reflects badly on all concerned, starting with the Democrats who run the House. The majority party is responsible for assembling a majority vote, and Speaker Nancy Pelosi failed in that fundamental task.

Her highly partisan speech on the floor -- blaming "right-wing ideology of anything goes, no supervision, no discipline, no regulation" for the financial distress -- is no excuse for Republicans to vote no. But it is indicative of the way she has governed for the past two years -- like Tom DeLay without the charm. The cynics are saying Ms. Pelosi deliberately tanked the bill by giving 95 Democrats a pass, knowing failure would hurt John McCain, and given her track record we can see why people would believe it.

Pat Buchanan tells us that we are facing the end of the American Empire. He makes some really good points here:

"Government must save us!" cries the left, as ever. Yet, who got us into this mess if not the government -- the Fed with its easy money, Bush with his profligate spending, and Congress and the SEC by liberating Wall Street and failing to step in and stop the drunken orgy?

For years, we Americans have spent more than we earned. We save nothing. Credit card debt, consumer debt, auto debt, mortgage debt, corporate debt -- all are at record levels. And with pensions and savings being wiped out, much of that debt will never be repaid.

Our standard of living is inevitably going to fall. For foreigners will not forever buy our bonds or lend us more money if they rightly fear that they will be paid back, if at all, in cheaper dollars.

We are going to have to learn to live again without our means.

The party's over

So, what does all of this mean for us?

It appears that we are headed for very difficult times. Here is what I would suggest:

• After talking with some folks who know, I would suggest that if you have money in the markets (401k, mutual funds, etc.), that you stick with it for now. If you sell now, you are just taking a loss. Things will likely rebound at some point and there is no point in just losing money, especially if you are young. The 4th Quarter of every presidential election year in modern history has seen the markets rebound.  A bailout plan is forthcoming and markets will likely rebound accordingly.
• Get out of debt.  Credit Card debt could be the next bubble to burst and interest rates could rise a great deal. If possible, it is best to be flexible and not tied to bad debt.
• Cash is the way to go. If you can have cash on hand in case of bank runs, that is a good idea.
• Now is not the time to be buying a house or making any big purchases. You likely cannot get financng anyway.

For Churches

• It would be a good idea to make sure that you don't have more than $100,000 in any one bank. You have a fiduciary responsibility to protect the tithes and offerings of your people as best you can by making sure that your deposits are protected by the FDIC limit of $100,000 per account.
• Many churches are engaging in budget discussions for 2009. Now is the time for frugality. If we are facing a recession, that means that YOUR people will lose jobs, not get raises, and see their finances tighten. Unfortunately, that means that offerings will dip. How can you prepare your church to weather this storm? What can be cut? How can you continue to carry out the mission as cheaply and as efficiently as possible? 
• How can you minister to people who are struggling with fear as they see their financial situation deteriorate? How do you help them when they lose jobs and don't know what the future holds? We must connect people to their sure foundation, Jesus Christ. We must look to the Lord. This is great time for us to display confidence in God and to witness that confidence to others who are in fear.
• This is also a great time to teach about a biblical view of finances and to call people away from the idols of materialism and consumerism. I would not do so in a condemning way because we all succumb to it just because we are American, but this might be a time when people are listening and are looking for another way to live. Let's show them the way that God has for us.

God is at work here. He is calling people to Himself. He is in control and the only that we can do is place our faith in Him and choose not to worry (Matthew 6:25-34; Philippians 4:6,7) We should pray instead of fear, though the earth give way and the mountains fall into the heart of the sea. Our hope is in the Lord and He is the only One who can save us. As the gods of money and consumerism fail, our God never fails. It does not mean that we will not suffer, but it does mean that God saves. We cannot control what happens, but we can control how we respond to it. Pressure reveals what is inside of us and it reveals what we place our hope in. Let's proclaim the message that "God is our refuge and strength, an ever present help in trouble" during these extremely difficult times and love America enough to point her to the God who can restore her and make all things new.

Comments

[John Wallace]

You are correct in your assessment that the bailout bill is the worst option except for all the other options. I was a bit disheartened, however, by your partisan spin on the failure of Congress. Did you actually listen to Pelosi's speech or did you just listen to the Republican's blaming her for their own adolescent behavior? It seems that there has been a complete breakdown of leadership on both sides of the isle. Most people don't have a clue how much the failure of this bill has damaged the US economy and our leaders don't have the guts to tell us.

[Alan Cross]

John, I agree that both parties are to blame for this mess. No one goes unscathed in this. You are right about that. I was just able to see her political machinations more clearly yesterday. I've voiced my displeasure with Republicans quite often here, but it actually seemed as if some of the House Republicans were standing for something at least. That was unexpected.

But, again, the solution is terrible. The only thing more terrible seems to be to do nothing. I have to agree with Glenn Beck on this one.

[Beth]

"For Churches
* It would be a good idea to make sure that you don't have more than $100,000 in any one bank. "

Hahahahahahaha! Snort! Hahaha!

[Alan Cross]

Yeah, I guess that is kind of funny if you think about it a little. We are actually in that situation though because we are needing to build a new building and we are saving up a down payment. That's what made me think about it. Ideally, though, churches should not just sit on a bunch of money.