The Great Recession, Idols, and the Gospel of Jesus Christ
by R. Scott Clark
One of the patterns that some economists have noted, in connection with the “Great Recession” we are experiencing, is that consumer spending continued to grow with very few pauses since 1980. At the same time, the savings rate dropped. Baby boomers (those born between 1946-1960) had come of age in the era of the credit card. Gone were Mom and Dad’s staid Diners Card. In came a plethora of cards and soon there were “Platinum” cards by which to measure one’s credit and affluence. Buy now, pay later. Cash wasn’t king. Credit was king. Gradually from the 1950s it seems that we moved from being a savings-based economy to a credit-based economy. That move probably reached it’s apex in the Clinton-Bush years when credit card companies were throwing cards at consumers and, of course, lenders began throwing mortgages at people and then packaging them into “derivatives” to be sold in bulk to investors (backed by a AAA Moody’s rating).
Like everything in this world, credit has a natural market. Sometime after 2004, the credit market began to hit its limit. The mortgage-backed securities turned out to have been backed by overpriced mortgages (fueled by record-low interest rates) and, finally, the housing market began to tumble as interest rates rose on the adjustable mortgages. Home values plummeted (because of falling demand) and suddenly millions of home owners were “upside down” in their houses–and banks owned loans against these severely devalued assets.
We’ll leave it to the economists to sort out exactly what happened and how to deal with it on the macro level (though I’m not sure that borrowing unimaginable sums against future earnings will solve the problem). Our interest here should be the degree to which Christians participated in the culture of credit. Could it be that our problem was not just an idol of the heart but an idol of the credit card?
Isn’t it true that during a couple of ostensibly “conservative” administrations that, in fact, we Americans were anything but conservative fiscally? I’m not speaking of tax cuts but of personal spending. We came to believe in easy money and high rates of return. I remember hearing someone once say, “You’re only getting 15 percent on your IRA?” That sounds pretty funny in a time when Treasuries are offering almost zero percent interest.
Did you know that, in Reformation Geneva, purportedly the birth place of free market capitalism, that interest rates were strictly regulated? It’s true that the introduction of interest rates was a change in policy. Patristic writers generally discouraged lending money at interest and medieval canon law forbade it. The Reformation did allow the charging of moderate rates of interest but usury or unjust rates of interest were forbidden strictly and were a matter of moral and ecclesiastical censure.
This is not an attack on free markets. Generally, as a matter of natural law or creational pattern, markets do a better job of promoting freedom than command economies. In recent decades, however, it has not always been easy to tell the difference between a “free-market” economy and an economy grounded in a spending frenzy. Consider that, when the bad news of the current crisis began to settle in, one of the first responses by some was to say, “We have to get people spending again.” Repeatedly politicians have yelled at bankers to begin “lending again” even if those banks are insolvent, i.e. out of balance so that further lending would only cause them to close their doors…
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