England Hits the Panic Button

“The world is facing the worst financial crisis since at least the 1930s. If not ever.”

That ominous assessment came last week from Sir Mervyn King, Governor of the Bank of England, after announcing that the Bank’s Monetary Policy Committee would put £75 billion of newly created money into the British economy in a desperate effort to avoid a new credit crisis and a UK recession.

According to the UK Telegraph, “Economists said the Bank’s decision to resume its quantitative easing [QE], or asset purchase programme, showed it was increasingly fearful for the economy, and predicted more such moves ahead.”

British Prime Minister David Cameron, also quoted in the Telegraph, summed it up this way: “The Eurozone debt threatens global economic stability.”

International Monetary Fund advisor Robert Shapiro joined in the chorus, telling the BBC:

If they [Eurozone Leaders] can not address [the financial crisis] in a credible way I believe within perhaps 2 to 3 weeks we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system.”

Shapiro isn’t talking about a relatively small Belgian bank in trouble. He’s predicting that if European political leaders can’t rein in their out-of-control debt, some of the largest banks in the world could go under—banks in Germany, France and eventually Britain. If that happens, it will spread everywhere because the global financial system is so interconnected. All those banks are counterparties to every significant bank in the United States, Britain, Japan and countries around the world. In my view, that crisis would dwarf the one in 2008.

Shapiro went on to imply that what we don’t know certainly could hurt us: “What we don’t know: the state of credit default swaps held by banks against sovereign debt and against European banks, nor do we know the state of CDS held by British banks, nor are we certain of how certain the exposure of British banks is to the Ireland sovereign debt problems.”

You can see a short clip of this interview here.

More and more leaders in the European Union are beginning to sing in harmony. They recognize that their sovereign debt crisis can quickly spiral into a global financial crash that could eclipse the impact of the already painful Great Recession.

This panic is good in that it will lead to action; however, we need to be very aware of the economic risk, turmoil and proposed solutions in Europe, as their actions will impact us all.

My perspective is that one of two scenarios will unfold in the coming months:

a) Default and Break Up of the EU – Specifically, Greece defaults and is ushered out of the EU to fend for itself, as well as other potentially insolvent countries in similar condition. Few believe this is likely. Even so, this corrective action will send shockwaves through the financial markets and destabilize what growth is taking place, OR…

b) Resolve to Remain United and Continue Bailouts – It appears that the current political climate indicates this as the more likely course. Notice that the Bank of England announced another round of Quantitative Easing (printing of fiat money) and alluded to the commitment of more to come.

Some pundits call Option B the “Extend and Pretend” policy, i.e., extend the default deadlines out into the future and pretend it will give everyone sufficient time to grow out of this mess. American economic policy makers have more confidence in this approach than their European counterparts as evidenced by how often we deploy it.

What is happening in Europe is likely to be on its way here soon. We are seeing early warning signs that should not be ignored.

Over the coming weeks, I will be sharing my perspective of the financial moves that should be a high priority for Christians to be prepared for the turbulence to come.

Pray for our nation and our leaders. God’s wisdom is vital for such a time as this.

ChuckBentley@crown.org

Don’t forget to sign up to receive this column each week and tell your friends about it. It’s one of the few places (maybe the only?) you’ll get insights on current economic events from a biblical perspective—and it’s free! You can subscribe here.

P.S. I have not completed my tips on buying gold (as promised in the last edition). I hope to get that to you in the near future. It has been a hectic schedule since returning from Asia.

About Chuck Bentley

CEO, Crown Mininstries
This entry was posted in Handwriting on the Wall. Bookmark the permalink.

6 Responses to England Hits the Panic Button

  1. sswsws says:

    Dave ramsey says buying gold is a bad idea. if you tell readers to buy gold I think you are misleading them. Even if gold way smart, you should buy low. not when prices are high like they are now. the ONLY people pushing gold are the people selling it. wonder why?

  2. Jen says:

    I am excited to read these recent blog entries concerning the economy and all that is happening at the moment. Over the last year I have been growing more and more concerned about the direction our country is headed and at times I have been admittedly frustrated at the lack of sound, biblical based discussion from Christian leaders concerning what is going on…it almost seems as if we ALL will be caught off guard and that those who are leading our churches in American have no ability to discuss these matters. I understand not engaging in politics from the pulpit but I fear that many of us have no ability to view what is going on through the lense of the bible and our Christian faith. Please…continue the articles!

  3. Michael says:

    Dear Mr. Bentley,

    Thank you for this informative post. If it is true that “within perhaps 2 to 3 weeks we will have a meltdown” then what should we do now?

    You said, “Over the coming weeks, I will be sharing my perspective of the financial moves that should be a high priority for Christians to be prepared for the turbulence to come.” However, if the meltdown could occur at any given time in the next few weeks, then could you please provide advice now?

    Should we withdraw our cash in money markets and leave IRA’s and 529’s, or should everything be pulled? Is money in banks (such as Wells Fargo) even safe?

    Thank you again,
    Michael

  4. Tim says:

    @Michael…I even wonder if we should pull 401K and IRAs, ESPECIALLY if we are carrying debt that can be eliminated with these. Those investments will be almost worthless in an economic collapse. I think that debt elimination is one of the most important things we need to do regardless of the circumstances, but especially in current events. Still wondering…

    • Andrew says:

      I understand Tim. God has opened our eyes to many of our foolish decisions, but now we can praise Him that we are 100% debt free. With that in mind, I don’t want to be naive and think that those investments are untouchable, but what I am wondering is if it is best to leave them in for the long haul (their original purpose) and weather all storms that come along. We have much to pray about!

    • Michael says:

      I understand Tim. God has opened our eyes to many of our foolish decisions, but now we can praise Him that we are 100% debt free. With that in mind, I don’t want to be naive and think that those investments are untouchable, but what I am wondering is if it is best to leave them in for the long haul (their original purpose) and weather all storms that come along. We have much to pray about!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s