John and Sarah were feeling almost wealthy. It was March 2006. Their home, which they could barely afford when they made the down payment on it seven years before, had more than doubled in value. Like many of their friends, they took out a second mortgage so they could purchase a boat and some nice things for the house, and to take a cruise with their children. "No problem," they reasoned, "We can easily make both of the payments."
John's 401(k) retirement account at work was also larger than anticipated. Every year the stock market was going up, and John's employer was growing and matched his contributions. After years of hard work, John and Sarah felt secure in the future. It appeared that nothing could go wrong.
Almost no one saw what was coming.
In what is now being called the financial crisis of 2007 to 2010, a great deal changed for many families in the United States, the United Kingdom and other Western nations. The secure future that millions of couples like John and Sarah believed in was washed away as a result of a "triple whammy"—declining real-estate prices, plunging stock-market values and economic recession.
How much has been lost? According to a report from the Pew Charitable Trusts tabulating the wealth Americans lost as a result of the crash of 2008 to 2009, the typical American family suffered combined losses of $100,000 through the drop in housing and investment value by the end of 2009. Many watched helplessly as their life savings virtually disappeared before their eyes. While the investment markets have recovered somewhat since then, real estate values continue to fall, and foreclosure rates continue to rise.
In addition to the lost value, Pew adds that the average annual American household income would be $5,800 higher were it not for the recession. To top it off, the various government spending efforts—such as the Troubled Assets Relief Program (TARP) and several stimulus packages—have added thousands of dollars to each family's share of the national debt.
What caused this financial crisis? More importantly, what can each of us do now to rebuild and protect our future? Is there a truly secure investment?
Roots of the housing bubble and bust
The immediate cause that triggered the financial crisis was the bursting of the United States housing bubble, which peaked in early 2006. By that time nearly 20 percent of all new mortgages were considered "subprime"—meaning that the borrower did not qualify for the loan according to standards long in practice.
As a result of government policies and easy credit from Wall Street investment banks, mortgage companies and banks discarded long-proven qualifications for borrowers and handed out mortgages for homes like candy. Most subprime loans were made possible with adjustable rate payments, meaning the payments were greatly reduced during the first few years, then quickly increased.
There was no evidence that the borrowers would be able to make the higher payments, so most of these loans were essentially gambling that housing prices would continue their spiral upward. Borrowers were often told that they could easily refinance when the monthly payments went up.
There appeared to be little risk for the banks and mortgage companies since most of the mortgages were quickly sold to a government-sponsored agency—Federal National Mortgage Association (FNMA or "Fannie Mae") or Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac"). These agencies, along with investment banks, bundled hundreds of these mortgages into what were called "mortgage backed securities" and sold them to overseas investors. Big commissions were being earned by those who brokered each step along this money chain.
At the same time, easy credit resulted in rapidly rising real estate values and record numbers of new housing and commercial buildings being built all across the nation. According to testimony given to the Financial Crisis Inquiry Commission by Richard Bowen III, business chief underwriter for correspondent lending in Citigroup's mortgage operation, the collapse of mortgage underwriting standards was endemic.
The perfect economic storm began to arrive in late 2006 and 2007. Interest rates began to rise, and a large percentage of subprime mortgages went into default as people could not make their payments. Foreclosures increased dramatically as the easy initial terms expired.
In most parts of the nation, land values declined instead of rising. Housing sales slowed to near all-time lows. Millions of workers lost their jobs as a result of the recession that began in 2008, resulting in still more defaults and foreclosures.
As of September 2011, an astounding 22.5 percent of all U.S. homes—almost one in four—were "underwater"—meaning that they were worth less at current prices than the amount owed on the mortgage. Another five percent were dangerously close to that mark. Even now, few economists have any idea how long it will be before real estate values stabilize and the economy begins to recover.
Considering financial investment options
Millions of families have experienced the effects of falling housing values, loss of retirement funds in 401(k) and similar plans and, for some, chronic unemployment as jobs have disappeared or been outsourced overseas.
The big question on the mind of many now is: What is the best way to plan for the future? Again, is there any safe investment?
Real estate bargains? Some advisors are telling clients to invest in property while the prices are low. The National Association of Realtors is not so sure, its website stating: "Is now the right time to be investing in real estate? Some say yes, some say no, and some say it depends." Prices are still declining in many areas.
Precious metals? In the past decade the prices of gold and silver have increased dramatically. Advertisements to purchase these precious metals appear constantly on the radio and television. But are they a good investment at today's prices, or could a drop leave investors with losses?
Most of the rise in the price of precious metals is due to inflation of the currency—meaning these metals have retained value while the currency has lost value. However, some of the price increase is based on the increased demand for these metals as a hedge against inflation—whether through prudent decision-making or incited fears.
If stability returns to the economy, metal prices could dip. While many advisors are still recommending investing in gold to some extent, others advise caution and realize the potential risk.
The stock market? Stock markets have been a roller-coaster ride over the past year. Some credit the rises to the "quantitative easing" policy of the Federal Reserve (known as QE1 and QE2), which has involved creating more money out of thin air, thus raising inflation fears.
And as we have recently seen, events such as economic turmoil in some European countries, the disastrous earthquake and tsunami in Japan and turmoil in the oil-exporting Middle East have led to major stock market reversals.
While no one on earth can predict the future with certainty, most of us understand that for the past 10 years the average investor has made very little, and probably lost some, investing in stocks. Not wanting to endure the roller-coaster ride of the stock indices, many saving for retirement now are opting for a simple interest-bearing account such as a money market fund, even though the interest earned is very low.
The worrisome monster—runaway inflation
The addiction to borrowing and spending by governments has simply gone crazy. In the latest proposed budget, U.S. President Barack Obama projects that the gross federal debt will top $15 trillion this year, officially equaling the size of the entire U.S. economy, and will jump to nearly $21 trillion in five years' time. This is a scale of debt never heard of before, and much of it is owed to foreign nations.
The U.S. percentage of debt is projected to surpass that of Japan and Greece—both known for the results of their lavish public spending. No one can explain how we can possibly pay this back. The share of national debt is now over half a million dollars for every household in the United States!
Meanwhile, more than 40 of the 50 U.S. states are dealing with budget deficits, and 10 appear to be on the verge of bankruptcy. Taxes are increasing everywhere, further reducing prosperity and employment.
The average American daily sees prices going up and understands that this is a looming train wreck that will likely damage the financial well-being of nearly everyone. All monetary savings and assets are at risk.
Who knows where to invest in order to protect yourself?
France and China not long ago called for replacing the U.S. dollar as the world's currency for international trade. When that happens, banks around the world will dump dollars and the long-feared specter of runaway inflation will strike America with a vengeance.
Many economists have been predicting this financial disaster in recent years, even posting video presentations on the Internet about how we might lose virtually everything we have overnight. Many are frankly scared about what the financial future might bring, and for very good reasons.
So is there a truly safe investment—one that will securely maintain a person's wealth or increase it over time? Not in the strictly human sphere. Of course, we should take prudent financial steps as best we can—perhaps splitting our savings into different investments to preserve and grow what we have (indeed, wise investments could include spending money on an education or on moving to where pay is higher or living is more affordable). None of this, however, will provide the kind of true security we all need. Yet something else will.
The wisest man who ever lived told this story many centuries ago: There was a pearl merchant seeking pearls. He found one that was the finest and most valuable pearl he had ever seen. It was so important to have this pearl that he sold everything he owned to buy it. The account of "the pearl of great price" is given in the Gospel of Matthew, chapter 13.
But as this story was a parable, what did the pearl represent? The answer is simple: the Kingdom of God.
Your greatest investment: the Kingdom of God
Understanding the Kingdom of God is perhaps the most valuable understanding a person can have, but there are many confusing teachings on the subject. John the Baptist proclaimed the message "the kingdom of God is at hand" (Matthew 3:2, emphasis added throughout), meaning in part that the opportunity to be included in that Kingdom was being made available to all mankind.
Jesus Christ often spoke of His Kingdom, which will be a literal world-ruling government established on the earth after He returns. He told His disciples that people "will see the Son of Man coming in a cloud with power and great glory . . . When you see these things happening, know that the kingdom of God is near" (Luke 21:27, 31).
Christ clearly said that this coming righteous and perfect government will not be established on earth until after His triumphant return in power and great glory. He also made this plain on other occasions.
How many of us have recited what's known as the Lord's Prayer without recognizing the plain meaning of the words as we said them? These familiar words were given by Jesus Christ in response to the disciples' request of Him to teach them how to pray: "In this manner, therefore, pray: Our Father in heaven, hallowed be Your name. Your kingdom come" (Matthew 6:9-10).
The most common prayer in Christendom acknowledges that God's Kingdom is not here yet and that Christians are to fervently pray for its arrival!
Jesus also taught that work, effort and dedication are required for us to be a part of that Kingdom. In Luke 16:16, He stated: "The Law and the Prophets were until John. Since that time the kingdom of God is proclaimed, and everyone is pressing into it."
"Pressing into it" means working towards it, striving to enter it. The coming Kingdom of Jesus Christ is something that we need to seek diligently. Indeed, we should treasure and pursue it above all else in our lives!
Coming collapse of the economic system
Believe it or not, the collapse of the economic system in the last days was foretold by none other than Jesus Christ Himself! In a parable recorded for us in Luke 16, Jesus was speaking about money and worldly wealth and said, "When it fails . . ." (verse 9, New American Standard Bible).
Notice that he did not say, "If it fails"—He said, "When it fails." The apostle John's vision recorded in the book of Revelation includes news of a huge coming financial disaster that will occur within a brief time period: "For in one hour such great riches came to nothing" (Revelation 18:17).
Ezekiel similarly speaks of a time when gold and silver will be cast away into the streets as worthless! "They will throw their silver in the streets, and their gold shall be like refuse; their silver and their gold shall not be able to deliver them in the day of the wrath of the Lord" (Ezekiel 7:19).
That time of economic collapse is surely coming. Many experts believe they see indications that it may be very close. All of us need to avoid debt and wisely plan our finances as best we can in these challenging times. But apart from God, all of our planning and safeguarding is ultimately for naught. The only truly secure investment, the only way to lasting well-being and reward, is to seek the Kingdom of God!
To Learn More...
Many people are confused about what the Kingdom of God is. Some think it’s something within us or that it already exists in the world now. Also badly misunderstood is what it takes to enter that Kingdom. You need to read our eye-opening booklet What Is Your Destiny? to understand the amazing truth revealed in your Bible! Download or request your free copy today!