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Hyper De-Flation?
What is it?   

Q. I read recently that hyper De-flation is possible in our country instead of hyperinflation. What does that mean? Do you think we should keep bailing out big banks? And what should Christians do to prepare for the future in light of so many things happening at one time?

Answer:

Instability Rules

Good questions! I think the key word is "instability" in all financial affairs.

Hyperinflation is a super increase in the money supply that causes prices to spike upward at an uncontrollable rate. Hyperdeflation occurs when there is a decrease in the money supply and everything "freezes" or comes to a standstill.

Federal Reserve Control

The Federal Reserve doesn't have much control over deflation or hyperdeflation - not as much as we think. While the Federal Reserve can create sources of new money supply to banks and investment houses, that does not mean the banks or brokerages will in turn lend any money to customers. Also, making loans available to the public does not mean that customers will apply for new loans, either.

A point is reached where customers are terrified to take on any new debt and banks are terrified to make new loans. This causes a "credit freeze." It is in this atmosphere that deflationary forces go into effect.



Bailing Out Biggest Companies

Many people who embrace sound economics do not think we should be bailing out big money center banks or companies like Freddie Mac and Fannie Mae. Part of the problem is that these bankers sold off terrible mortgage-packages to foreigners around the world. So if Fannie Mae or Lehman Brothers goes belly-up it affects more than Americans - it impoverishes peoples in other countries, too, who no longer know how to value their mortgage mutual funds.

Unethical Severance Packages

Frankly, it is terribly unethical for CEOs of these biggest financial firms to be allowed to take multi million dollar severance pay before the Federal Reserve "sticks" the American peoples to pay for their failures.

Also, it is difficult for Americans to see what the negative effects are from bailing out large financial firms. However, they will see it through either a dollar losing value which causes prices to go up at Wal-Mart and small grocery stores and in all necessities, and/or through tax increases in the years ahead.

That is the best scenario. In the worst scenario, we could see our economic system implode - like in Weimar Germany during the 1920s or in recent Argentina.




Steps to Take

In normal periods or in any type of extreme monetary situation - inflationary or deflationary - Christians are advised to follow biblical guidelines for their personal finances. Try to stay out of debt and avoid debt whenever possible.

Always live within your means. Scale down instead of up - Christians should not need to impress others with fancy cars, houses, furniture, frequent trips or other possessions and extravagant lifestyles.




Redefine Middle Class

When we advise believers to scale down rather than up, we ask American Christians to re-think what "middle class" means. The apostle Paul told us,

"If we have food and covering, with these we shall be content" (1 Timothy 6:8).

That means if you sell your home and live in a trailor it's OK. If several families live in one dwelling that's fine. Let's move beyond traditional concepts of "need." Remember,

"For we have brought nothing into the world, so we cannot take anything out of it either" (1 Timothy 6:7).

We think Christians should be thanking God for our many blessings, helping those less fortunate than we are, praying for our daily needs, and engaging in sound, moderate living circumstances.

The most pressing financial advice comes from Ecclesiastes 11:2,

"Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth."

In other words, be careful to diversify your assets into many things: cash, precious metals, foreign holdings, treasury bills, bank CDs, foodstuffs, energy, real estate and basic supplies. That is a biblical practice of diversification.

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References:


Prechter, Robert. 2003. Conquer the crash. West Sussex, England: John Wiley&Sons.

Wilkerson, David. 1998. God's plan to protect His people in the coming depression. Lindale, TX: Wilkerson Trust.







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